2020 sees record investment and M&A activity in impact technology companies
2020 was a record year for investment and M&A activity for impact technology companies, according to a report by GB Bullhound, a technology advisory and investment firm.
Data in the report ‘Impact investing and the rise of sustainable tech’ shows that impact technology companies are receiving a fast-increasing amount of private equity investment. As the sector matures, those raises are becoming larger and focused on later-stage companies.
GP Bullhound analysed more than 10,000 fundraiser transactions and 3,000 M&A transactions, starting in 2015, with the key data insights including:
- Record investment levels: Impact companies have raised record levels of investment in Europe and North America in 2020, breaking USD10 billion for the first time
- Growing funding rounds: Funding for impact companies has increased by 51 per cent in 2020, with the average size of funding rounds increased by 80 per cent in 2020
- Software leads the way: Software companies have dominated funding rounds in this sub-sector – making up 45 per cent of all impact investment activity
- Huge increase in M&A activity: M&A activity for impact companies also saw a record year in 2020 – reaching USD69.8 billion, with four mega deals representing USD36 billion
- Proven impact premium: Impact M&A transactions analysed have revealed an impact premium around 5-10 per cent for SaaS and 30 per cent for e-commerce and marketplaces
- Leading impact investors in the field: Khosla Ventures and Bain capital have been revealed as investors with impact policy most active in sustainable tech for early stage and later stage companies respectively
- Mega-rounds: There were a number of notable mega-rounds (USD100 million+) in key impact sectors in 2020. Ecovadis and Back Market USD100 million+ rounds stand out as large rounds in fast-growing ESG analytics and refurbishing sectors.
GP Bullhound’s report explores the technology sectors that are benefitting most from the climate transition and sustainable development agenda. It also analyses two verticals that we believe are cornerstones of the transition: impact data analytics and resource-efficient consumption.
The report highlights the key drivers behind market shift towards sustainable assets and the consequence on the tech ecosystems:
- Climate and sustainability agenda: We are hitting environmental and social thresholds: CO2 emissions and global warming, biodiversity loss, exhaust of natural resources, rising inequalities. As the urgency is increasing governments and institutions are accelerating on their sustainability agenda.
- Capital reallocation: Shifting from our current trajectory requires massive shift in capital flows to progressively transform our whole economies into decarbonated and more sustainable economies. This urgency is starting to reshape the behaviours of all economic agents, with an increasing number of them taking into account sustainability in their strategic decisions. And this has started to have strong material financial implications: key driver of the explosion of some markets (such as second hand, refurbishing), increasing amount of capital flows towards sustainable assets, etc
- ESG and impact: ESG is progressively becoming mandatory and investors are increasingly willing to anticipate sustainability risk and opportunities – that financial metrics cannot capture. As a consequence, the volume of ESG compliant assets under management of the UN PRI signatories has grown steadily, from USD12 trillion in 2012 to USD42 trillion in 2020 (19 per cent annual growth). By end-2020, GP Bullhound estimates that this will represent 38 per cent of global managed assets.
- The tech ecosystem: The report shows tech ecosystem will progressively anticipate market shifts and better align towards a sustainable economy, with a range of positive consequences for sustainable Tech sectors and assets. A number of tech subsectors and companies are likely to strongly benefit from the shift. In this report, the sectors listed are those within technology that can most help accelerate the climate and sustainability transition.
The report is being released against the backdrop of the largest capital reallocation in recent history, driven by the increasingly urgent transition towards a climate-neutral, sustainable economy.
The tech ecosystem is at the forefront of this transformation, and this report explores the dynamics and opportunities this represents for the sector.
Guillaume Bonneton, Partner at GP Bullhound, says: “It’s becoming increasingly clear that impact investing and the backing of companies that are fuelling the sustainability agenda, is the way forward and the market will only grow from here. The figures speak for themselves – capital is fast moving into sectors that will define our economic future and help accelerate the climate transition. At GP Bullhound we are convinced that the tech ecosystem will play a major part in making our planet greener, fairer and safer, and it’s imperative that we see the current investment trends continue.”