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Investments by large companies in Greentechs: the lights are green!

Awareness of the climate emergency has grown in recent years. 85% of SBF 120 companies have communicated commitments to reduce their carbon footprint in their strategic plan. To achieve this objective, they rely both on their internal transformation and on the creation of alliances with external innovative partners. Startups with an environmental impact (Greentechs) can play a key role in this strategy and represent an increasing part of their investments, directly or via their Corporate Venture Capital (CVC) funds. What concrete impacts do these investments have? How can businesses maximize their engagement with these startups for a lasting impact?

This is the subject of the third edition of the study BCG, RaiseLab and RAISE Sherpas, entitled “Investments by large companies in greentech: a lasting commitment? ”. This work is based in particular on a survey conducted among 120 representatives of greentechs, CVCs and innovation or M&A teams from large companies as well as key players in the ecosystem.

An ecosystem of greentechs in full bloom, looking for funding

The greentech ecosystem in France is in full expansion, with around 2,7502 startups developing innovative technologies to meet environmental challenges. These fall into several categories, with ecosystem protection and environmental transition in mind (30%), new energies (20%) or even green industry (18%).

These greentechs are now facing a crucial challenge: that of their financing. For more than 90% of them, securing funds is an absolute priority in order to finance their scale-up. This is a particularly pronounced challenge for industrial greentechs, whose development model requires more capital. Acquiring new customers comes in second place (84%).

French greentech attracted more investments than ever in 2023, Capturing a third of fundraisers, despite an overall decrease in investment flows in startups in France, Europe and around the world. France has thus become the second country in terms of funds raised by greentechs in Europe, with 3.1 billion dollars, behind the United Kingdom (6 billion dollars). Proof of this interest, the number of greentech acquisitions by large companies increased, representing 16% of startup acquisitions in 2023 (+7 percentage points compared to 2022).

Large companies have set themselves goals to reduce their footprint, not only relating to their core business but also to the upstream and downstream of their value chain. Greentechs have a key role to play in supporting them in the transformation of the ecosystem ” Observe Olivier Sampieri, senior associate director at BCG.

The opening of capital to a large company: an accelerator for greentechs

Beyond financing, the study highlights that greentechs derive many benefits from a stake taken by a large company: acceleration of scale-up (80%), increased turnover (78%), access to valuable expertise (78%) or even the acquisition of new customers (73% and even 83% for industrial greentechs). On the other hand, the main risks identified are a loss of operational agility for more than 50% of startups and the risk of cutting themselves off from part of their market (37%). Other concerns include the risk of losing attractiveness to investors (19%), talent (16%), and a deterioration in brand image (17%).

For greentechs, these partnerships with large companies are essential: they guarantee much more frequent product and commercial iterations thanks to the proximity to issues in the field. It can also provide these startups with a better understanding of the challenges and functioning of corporates. ” adds Anne-Sophie Gervais Co-Head of RAISE Sherpas.

Greentechs: a lever to accelerate the environmental agenda of large companies

Large companies are increasing their investments in greentech to accelerate their environmental agenda. Most rely on their CVC structures, although they also take direct majority stakes or invest via impact funds and funds of funds managed by third parties. Today, greentechs are at the heart of the investment theses of 90% of CVCs. In addition,

45% of CVCs have more than 30% greentechs in their portfolio in 2024.

Recently, there has been a significant increase in the number of greentechs in HVAC dealflows. That is a good thing. However, this is not yet accompanied by a significant increase in the number of investments in greentech, but it should happen. Then, the main challenge will be based on the creation of operational and business value between the startup portfolio and the large corporate shareholders. ”, underlines Paul Jeannest, Co-founder and CEO of RaiseLab.

Large companies seek to achieve several goals by investing in greentechs: accelerating innovation and R&D (88%), developing more sustainable products (83%), reducing direct (72%) and indirect (61%) emissions, reducing resource consumption (67%), and protecting biodiversity (55%).

Within five years, they expect to see a sharp increase in the environmental impacts of their investments in greentech, with 82% of CVCs predicting a significant or very significant impact, compared to 44% today.

How can the environmental impact of large companies investing in greentech technologies be increased?

To maximize the environmental impact of investments in greentech, the authors of the study propose a series of best practices:

• Align the investment strategy with the company's environmental strategy : prioritize high-impact environmental technologies and adapt according to feedback...

• Adapt the internal functioning : strengthening the links between investment teams and ESG, establishing strengthened sponsorship to realize collaboration opportunities...

Working in an ecosystem : building industrial coalitions and consortia to invest together, support and contribute to the work of other actors (academia, public or private actors, impact investment funds.)

It sometimes takes time to align the respective interests of large companies and greentechs, but there are great successes. Sustainable transformation does not happen in silos, but within collaborative ecosystems where each actor plays a role in accelerating decarbonization ” concludes Olivier Sampieri, senior associate director at BCG.

Download the study

Methodology:

Survey conducted over the period April-May 2024 among 120 greentechs founders and CVC representatives. In parallel, interviews were conducted with more than twenty interlocutors (mostly CVC and M&A teams), startup founders and ecosystem players (specialized funds, investment banks, associations of ecosystem players) with the collaboration of the France Invest CVC club. The data comes from public databases (Bpifrance) and specialized databases (LSEG/ Dealroom).

By convention, we define:

• A startup such as a young company with high growth potential, using new technologies and with strong financing needs, often provided by fundraising;

• A greentech such as a startup aiming at a positive direct or indirect impact on the environmental footprint of businesses or end consumers based on innovative technology.