European VC hunts startups that can change a billion lives
Norrsken VC is nothing if not ambitious. As general partner, explains Agate Freimane, the aim of the Stockholm-based venture capital fund is to find and invest in European startups that have the potential to grow to a level where they can have an impact. positive on the lives of at least a billion people.
In a sense, it’s an arbitrary number – and a tall order – but as a stated ambition, it serves a purpose. Norrsken is an early-stage impact investor. The avowed mission to benefit the lives of not just hundreds or thousands of people, but billions of people, is meant to underscore that the fund is looking for “impact unicorns”. Or, to put it another way, companies that can make a serious difference to the problems facing the planet.
But what does this mean in practice? As the world struggles to find solutions to issues like climate change, food shortages, pollution, and social inequality, it often seems like the vast majority of startups working in the ‘impact’ space can offer solutions that may be useful but ultimately limited in the field. in the face of global challenges.
So when I spoke to Agate Freimane, I wanted to tell her about how entrepreneurs can make a real difference and the role investors can play.
Norrsken VC was born out of the Norrsken Foundation, an organization created by Niklas Adalberth, an entrepreneur who is perhaps best known as the founder of fintech company Klarna. Seeing entrepreneurs as the world’s greatest asset in terms of solving big, intractable problems, he created a support platform, which today runs accelerators and has coworking spaces in Stockholm and the greater city of Rwanda, Kigali.
As a venture capital arm, Norrsken VC has, to date, made 31 investments in impact companies. “Companies we invest in must align with at least one of the United Nations’ 17 Sustainable Investment Goals,” says Freimane.
As Freimane points out, the focus is on fully commercial enterprises. “Originally, we were looking at both nonprofits and for-profits,” she says. “But we realized the biggest opportunity was to invest in businesses that combine profit and impact.”
The material factor
The companies Norrsken has backed may indicate a renewed willingness on the part of venture capitalists to look beyond software and pour money into projects that include hardware and infrastructure development. .
For example, citing electrification as a key theme, Freimane cites two Norrsken portfolio companies that illustrate a willingness to embrace capital-intensive R&D. Northvolt is a battery developer building a giga-factory powered entirely by green energy. Aerospace Heart is working on the development of electrically powered aircraft.
I suggest it could be risky. Go back a decade and many VCs – especially in the Bay Area – got their fingers burned investing in hardware-driven Greentech projects. Unlike software development, time to market was long and risk high. As a result, investments in hardware and infrastructure have gone out of style, but Freimane suggests something has changed.
“Hardware is hot now,” she says, not least because there’s more money available in Europe. “There is more capital around and capital needs to find a home.”
Added to this is a general realization that the planet’s problems cannot be solved by software or relatively small-scale point solutions alone.
But investing in companies that are committed to long-term, capital-intensive R&D requires VCs to focus their attention on companies that can generate the kind of return that will justify the investment. The ability to evolve is crucial. Hence Norrsken’s ambition to find the impact unicorns of tomorrow. So how is this potential identified?
Find the teams
“Scaling depends on the teams,” says Freimane. “If you have the right people on board, you can find the capital.”
As an early-stage investor, Norrsken looks forward to subsequent funding rounds when ever larger sums are needed. She sees a team assessment as the key to deciding if future funding rounds are likely to be successful. “The question I ask is whether this is a team that will be able to raise multi-billion dollars in investment,” she says.
Freimane recognizes that there will be failures and that’s OK. “Entrepreneurs have the right to fail. We accept it,” she said. “However, with each funding stage a company takes, the risks decrease.”
Arguably, the renewed appetite for major project investment that Freiman has detected is partly due to the success of Elon Musk in reshaping both the automotive and space industries. Likewise, although the landscape changes. In the post-COP26 environment, national regulations and international agreements will require that sustainability be at the heart of the economic development agenda. So whether it’s capital-intensive green steel or smaller investments in, say, software designed to optimize supply chains, companies that offer viable and scalable solutions will be increasingly attractive to investors.