June 22, 2021At PDENH, we were able to close a series of no fewer than seven parallel follow-on investments in Q1 2021. Therefore, in this second blog, I would like to take you through the results of 7 years of impact investing and benchmark these against the industry.
The innovative 3D printers from MX3D
Growth results:
With an average growth factor of 4.0x over a period of 1.9 years on average (from PDENH’s first investment until the measurement date of 12/31/2020), it can be stated that the majority of these companies are scaling up rapidly, well above the required 20% per year. Only a few have already cleared Deloitte’s $10m revenue barrier, a logical consequence of the early stage in which investments were made relatively recently (3 years ago on average): mostly tech companies with very low revenue (<€300k) and an as-yet unproven product-market fit at the time of entry. According to the most common definition in the Netherlands (Emerce/Wikipedia), 7 startups have thus obtained the ‘rite of passage’ to the scale-up label. A 20% (Deloitte) to 70% (Wikipedia) ‘scale-up conversion ratio’ is an above-average score according to each of the mentioned definitions. Furthermore, there is more in the pipeline: with large purchase contracts on the horizon and innovation credits secured, companies such as Chaincraft and MX3D may soon also be able to check the ‘Wikipedia box’. And with the relatively large follow-ons from Q1, the entire line-up from E-magy to Asperitas has a good chance of accelerating towards the $10m mark within 1-3 years. For Covadem (a recent pre-revenue investment), it is still too early to draw a conclusion.
The team behind battery technology innovator E-magyThe overview above is certainly not a ranking of the degree of success to date: for some companies, the growth factor cannot be clearly demonstrated, as they started from an early R&D phase or have recently entered the market with beta/POC (proof-of-concept) products, meaning the 20% growth rule has not been tracked over three years. E-magy, for example, logically still has relatively little revenue in its current R&D phase, but with its proven technology, it already has plenty of traction in the form of qualification trajectories with automotive companies. When you look at funding as a better KPI for growth for such a company (with a recent investment round of €5m), this company is undoubtedly already considered a scale-up in the investment world.Impact results:
As an impact investor, we are naturally also curious about the social results alongside the financial results (revenue and/or funding growth) of these companies. Although it is still too early to, for example, offset the CO2 impact of this relatively early-stage portfolio against the original business plans (small pilots etc. are not measured in R&D phases), the growth in employment (also an important social factor) has been offset against original expectations. Up to the measurement date of December 2020, the investments have led to 75 additional FTEs, a growth of 74%. If we look at how this growth relates to the original business plans, you can see that by the end of 2020, approximately 84% of the intended growth in employment had been achieved. In my opinion, the fact that this figure is slightly lower is partly a result of management cases often being more optimistic than reality, and partly a result of the fact that, particularly in the past year, spending was curtailed in some cases due to the corona crisis, with contraction or a brake on the growth of the number of FTEs as a logical consequence.All in all, these are social and financial results that make me appropriately proud, but until the exits have actually been made, the rule is: “The jury is still out.”Next up: the Lessons Learned
In a subsequent blog, I would like to share the lessons I learned on the journey from start-up to scale-up with the portfolio above. Want to know more about Impact Investing via StartGreen? Feel free to connect on LinkedIn and read all about it here in our Impact Report 2020. You can read my first blog here, in which I take stock of the switch from M&A to impact investing.
The innovative 3D printers from MX3D2. The results of 7 years of impact investing
To be specific, I am looking at the degree of success with which the start-ups have or have not progressed to ‘scale-up status’. In my view, the recently concluded ‘uprounds’ represented the definitive rite of passage to the ‘scale-up’ label for many companies, but is this actually the case? Furthermore, since we are talking about impact investing, how much impact has been made by them in relation to the plans we initially supported? To keep things clear, I am looking strictly at the eleven startups where I personally initiated the first investment as Investment Manager and the companies I currently manage (or have managed). These have all been early-stage investments in my focus areas of energy storage (E-magy, EST-Floattech), grid balancing (Sympower, Dexter Energy Services), circularity (Chaincraft, Fairphone, MX3D), sustainable heat (Triple Solar, Asperitas, RGS), and sustainable mobility (Covadem, EST-Floattech). I am excluding the eight project financings and investments in project developers in which I was directly involved. This is because those are companies that, by definition, cannot become scale-ups. Also, investments that I supported indirectly as Investment Director, as well as the many other VC investments from StartGreen Capital and its funds, are not included in this blog.Scale-up definition Striking fact: The percentage of companies that manage to grow from startup to scale-up is only 16 percent in the Netherlands, whereas this figure stands at 51 percent in the US. This is not a criticism of the quality of Dutch entrepreneurs, but in my opinion, simply a consequence of the fact that the home market is small and the European market is highly fragmented. In any case, it is essential to raise this percentage through smart collaboration. This is exactly the goal of my next blog in this series.What exactly is a scale-up? A Google search for ‘scale-up definition’ shows that the interpretation of this term varies considerably:- Deloitte: Researchers from Deloitte and the leadership program THNK wanted to know how to recognize a fast-growing startup. To this end, data from no fewer than 400,000 starting companies from 24 countries were examined. Half of these appeared to still exist after 5 years, which is relatively high compared to other studies on startups. In any case, the median revenue after 5 years turned out to be approximately €300,000, with an average revenue growth of 5% in the subsequent years. Deloitte labeled the top 2,000 as scale-ups, namely those companies that achieve at least $10 million in revenue after just 5 years;
- Emerce: A scale-up is a company with at least ten employees that grows by at least 20 percent per year for three years. This definition appears to be the most common and frequently used (see also Wikipedia, Quote, etc.);
- Young Business Award: “Startups that have survived the first phase and have also achieved their first success. Often, a scale-up has already had multiple investment rounds. In fact, a scale-up is a startup that is no longer searching for a repeatable and scalable business model and is in the process of scaling up.”
Growth results:
With an average growth factor of 4.0x over a period of 1.9 years on average (from PDENH’s first investment until the measurement date of 12/31/2020), it can be stated that the majority of these companies are scaling up rapidly, well above the required 20% per year. Only a few have already cleared Deloitte’s $10m revenue barrier, a logical consequence of the early stage in which investments were made relatively recently (3 years ago on average): mostly tech companies with very low revenue (<€300k) and an as-yet unproven product-market fit at the time of entry. According to the most common definition in the Netherlands (Emerce/Wikipedia), 7 startups have thus obtained the ‘rite of passage’ to the scale-up label. A 20% (Deloitte) to 70% (Wikipedia) ‘scale-up conversion ratio’ is an above-average score according to each of the mentioned definitions. Furthermore, there is more in the pipeline: with large purchase contracts on the horizon and innovation credits secured, companies such as Chaincraft and MX3D may soon also be able to check the ‘Wikipedia box’. And with the relatively large follow-ons from Q1, the entire line-up from E-magy to Asperitas has a good chance of accelerating towards the $10m mark within 1-3 years. For Covadem (a recent pre-revenue investment), it is still too early to draw a conclusion.
The team behind battery technology innovator E-magyThe overview above is certainly not a ranking of the degree of success to date: for some companies, the growth factor cannot be clearly demonstrated, as they started from an early R&D phase or have recently entered the market with beta/POC (proof-of-concept) products, meaning the 20% growth rule has not been tracked over three years. E-magy, for example, logically still has relatively little revenue in its current R&D phase, but with its proven technology, it already has plenty of traction in the form of qualification trajectories with automotive companies. When you look at funding as a better KPI for growth for such a company (with a recent investment round of €5m), this company is undoubtedly already considered a scale-up in the investment world.Impact results:
As an impact investor, we are naturally also curious about the social results alongside the financial results (revenue and/or funding growth) of these companies. Although it is still too early to, for example, offset the CO2 impact of this relatively early-stage portfolio against the original business plans (small pilots etc. are not measured in R&D phases), the growth in employment (also an important social factor) has been offset against original expectations. Up to the measurement date of December 2020, the investments have led to 75 additional FTEs, a growth of 74%. If we look at how this growth relates to the original business plans, you can see that by the end of 2020, approximately 84% of the intended growth in employment had been achieved. In my opinion, the fact that this figure is slightly lower is partly a result of management cases often being more optimistic than reality, and partly a result of the fact that, particularly in the past year, spending was curtailed in some cases due to the corona crisis, with contraction or a brake on the growth of the number of FTEs as a logical consequence.All in all, these are social and financial results that make me appropriately proud, but until the exits have actually been made, the rule is: “The jury is still out.”Next up: the Lessons Learned
In a subsequent blog, I would like to share the lessons I learned on the journey from start-up to scale-up with the portfolio above. Want to know more about Impact Investing via StartGreen? Feel free to connect on LinkedIn and read all about it here in our Impact Report 2020. You can read my first blog here, in which I take stock of the switch from M&A to impact investing.
