Europe can be at the heart of tech with purpose

• Venture-backed, purpose-driven companies represented 12% of all capital invested in Europe in 2019.

• Talent and consumers are both demanding start-ups display social commitment.

• Only 1 in 5 start-up founders actually measures environmental and social impact.

“Some say China has all the data, and the US has all the money. But in Europe, we have purpose.”

Thus observed EU commissioner for competition Margrethe Vestager when she outlined her priorities for the next five years in October.

Her words could not be timelier. This year, the number of purpose-driven European founders who have pitched to us at Atomico has been overwhelming. Tech leaders have the most powerful tech toolkit in history available to them, and European companies are stepping up to help solve some of the world's most pressing challenges such as the climate crisis and healthcare.

We quantified this trend in our annual State of European Tech report, released in November. With Dealroom, we created a framework to assess venture-backed European tech companies based on their alignment with the United Nations Sustainable Development Goals (SDGs). The analysis focused on a subset of seven of the 17 SDGs. Only companies where the purpose-driven impact was considered core to the business model were included in the final dataset and analysis.

In total, the analysis identified 528 unique venture-backed, purpose-driven tech companies. They raised a total of $4.4 billion in capital investment in 2019, up from less than $1 billion in 2015. That $4.4 billion represents 12% of the total capital in Europe invested in 2019. It also represents the third largest “industry” in European tech by capital invested, behind fintech and enterprise SaaS.

These companies span Europe, and include Infarm in Germany, which is building advanced vertical farms, telemedicine firm Kry in Sweden, and insect farming start-up Ÿnsect from France.

From an investor point of view, it is obvious that the world’s biggest challenges also represent some of the world’s biggest markets and opportunities. But the rise of purpose-driven tech in Europe is also a response to the changing priorities of talent and consumers in Europe.

More debate and visibility over the impact and unintended consequences of digital technology on our society have made talent think more about working for companies that align with their values. Kate Hilyard, COO at Healx in the UK who we partnered with this year, expressed this trend very well in the report.

“At Healx, we believe every rare disease patient deserves a treatment. It's this belief which drives us to achieve our mission of taking 100 new treatments towards the clinic by 2025. Having such a clear mission also helps with recruiting and retaining the best and brightest talent. For the team here, there's no bigger motivator than knowing you're applying your skills to improving the lives of patients, their careers and their families. This is especially the case for the many team members who count either themselves or a relative amongst the 400 million people worldwide living with a rare disease.”

Then there are consumers who also want to support companies that align with their values and beliefs. According to a survey of 30,000 global consumers by Accenture Strategy, 62% of consumers want companies to “take a stand on current and broadly relevant issues like sustainability, transparency or fair employment practices”.

It also makes sense that European tech start-ups are differentiating themselves on purpose, as compared to their US or Asian peers. Many western European countries are leaders on sustainability from energy to transportation. According to RobecoSAM and Robeco’s Country Sustainability Ranking, a comprehensive framework for analyzing countries’ ESG performance based on governance, societal and environmental considerations, seven of the top 10 countries are in Europe.

Despite this rise in purpose-driven companies, only one in five founders told us in our State of European Tech survey that they are already measuring their firm’s environmental or social impact – something potentially important for all tech companies regardless of their business model. Given that the majority of founders say they are considering measuring this, and only 14% say they don’t think it’s important, measurement seems to be one way that investors could support all founders to consider the impact of their business on society.

In the early 20th century, technologies from electrification, to the washing machine to the jet engine improved the day-to-day lives of millions and opened up new frontiers for humanity. Technology drove economic growth and boosted prosperity, but it also left deep scars on the environment and failed to solve big problems such as global food security.

Though we are only two decades into this century, the work of purpose-driven European founders suggests that the legacy of technology in the 21st century might have a more beneficial and transformational impact on our society, one in which purpose and profit are mutually reinforcing.