An increasing amount of growth companies are now aiming for a meaningful goal in their business than just making a profit. The number of growth companies that have a social or environmental impact in the Nordic countries has more than tripled in the past two years. Impact companies are also seen as an increasingly attractive investment target.
The rise of impact entrepreneurship is one of the most substantial development areas in the startup and growth of business fields. As a result, this is reflected in Danske Bank’s annual State of Nordic Impact Startups 2020 report, which examines the area of Nordic impact companies. According to the report, the number of impact companies is snowballing. In 2018, 317 Nordic players were identified, in 2019, it jumped to 647 companies, and now 1,018 growth companies are having an impact.
Impact companies focus on the challenges of welfare societies
Impact entrepreneurship is often associated with strong misconceptions. Therefore, Danske Bank’s report has sought to address these assumptions, such as the target markets for impact firms, business models, and their scalability, the structure of the entrepreneurial community, and impact investment.
Impact companies are often structured through the UN Sustainable Development Goals (SDGs). These 17 objectives cover critical global environmental and societal challenges. Nordic impact companies focus primarily on the themes of health and well-being (21% of companies), responsible consumption (21%), and clean energy (11%).
Impact is also often associated with the idea that companies focus on emerging markets. However, the report shows that as many as 77% of Nordic companies focus their business on developed economies, primarily aiming to Europe and North America. The business base of Nordic impact companies thus rests in solving the problems typical of welfare societies: an aging population, the growing demand for more ethical products, and the need for alternative energy solutions to create opportunities for new types of business.
Impact products and services are primarily targeted to the B2B sector
An interesting finding in the study is also that the majority of impact companies focus on offering their products and services primarily to other firms. Nearly half (48%) of the impact companies surveyed focus their services mostly on the corporate market, and only 15% directly target the consumer market. Some operators offer their products to both target groups, but the trend to focus on the business segment is clear.
About 80% of the companies surveyed are also strongly technology-driven, setting up their businesses to commercialize, for example, software, applications, digital platforms, or sensor technology. This contributes to the maturation of business models in the impact business field and the fact that it is approaching the conventional growth business field – in many cases, the provision of technology-based business services is, in principle, more scalable than conquering the consumer market.
Making the impact scene fundable – Finland lags behind
The growing demand explains the rapid growth of the impact business segment in welfare societies and the change in the attitude of the private equity field.
The prevailing view that the growth and return potential of impact firms are inevitably lower than traditional startups is slowly receding. More and more private equity investors are interested in socially conscious impact firms. Investors’ interest also contributes to guiding the focus of impact companies. In developed markets, product and service sales are more predictable, and measuring the impact of investors’ attention is relatively more straightforward.
In terms of the scale of investing in impact startups, Finland lags far behind Sweden, for example, where investors focusing on impact have been actively looking for and supporting companies for a long time. However, significant steps have been taken in the Finnish market in this area, where some specialized funds and domestic private equity investors have notably increased impact-led investments. Besides, for example, the Finnish Venture Capital Association (FVCA) and the Finnish Business Angels Network have actively addressed the trend of impact investing.
Even though the impact investing scene in Finland may be holding back, it does not mean that these companies do not exist. One example of the Finnish impact scene is a company called Everfells. Based on the Maria 01 campus, Everfells connects health and well-being, climate action, and life to their business goals aiming to reverse the negative impacts of tourism by creating smarter ways to explore the planet. Everfells connects travelers with local guides to make sustainable adventure travel easy and accessible.
It is needed that we continue to bring to life companies that address societal and environmental challenges with the use of technology to accelerate the implementation and broader reach of these solutions to all. If you want to keep on discovering the variety of impact led businesses in the Nordics, you can check the platform +Impact – a digital community of 800+ Nordic impact startups.
Danske Bank is a modern bank for people and businesses across the Nordics with deep financial competence and leading innovative solutions.