Norrsken VC is nothing if not ambitious. As General Partner, Agate Freimane explains, the aim of the Stockholm-based venture capital fund is to find and invest in European startups that have the potential to scale up to a level where they can positively affect the lives of at least one 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 is intended to emphasise that the fund is on the lookout to find “impact unicorns.” Or to put it another way, companies that can make a serious difference to the problems facing the planet.
But what does that mean in practice? As the world struggles to find solutions to problems such as climate change, food shortages, pollution and social inequality, it often seems that the vast majority of startups working in the “impact” field can offer solutions that are perhaps useful but ultimately limited in the face of global issues.
So when I spoke to Agate Freimane, I was keen to get her take on how entrepreneurs can make a genuine difference and the role that investors can play.
Norrsken VC grew out of the Norrsken foundation, an organisation established by Niklas Adalberth, an entrepreneur who is perhaps best known as a founder of fintech company Klarna. Taking the view that entrepreneurs represented the world’s greatest asset in terms of solving big and intractable problems, he established a support platform, which today runs accelerators and has co-working spaces in Stockholm and Rwanda’s largest city, Kigali.
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As the venture capital arm, Norrsken VC has, to date, made 31 investments in impact businesses. “The companies we invest in must align with at least one of the UN’s 17 sustainable investment goals,” says Freimane.
As Freimane stresses, the focus is on companies that are fully commercial. “Originally we looked at both not-for-profit and profit-making companies,” she says. “But we realised that the biggest opportunity was to invest in businesses that combined profit and impact.”
The Hardware Factor
The companies that Norrsken has funded perhaps indicate a renewed willingness on the part of venture capitalists to look beyond software and put money into projects that include the development of hardware and infrastructure..
For instance, naming electrification as a key theme, Freimane cites two companies in the Norrsken portfolio that illustrate a willingness to embrace capital intensive R&D. Northvolt is a battery developer building a gigafactory powered entirely by green energy. Heart Aerospace is working on the development of electric-powered aircraft.
I suggest this might be risky. Track back a decade or so and many VCs – particularly in the Bay Area – had their fingers burned investing in hardware-led Greentech projects. In contrast to software development, the timelines to market were long and the risks high. As a result, hardware and infrastructure investments fell out of fashion, but Freimane suggests that something has changed.
“Hardware is trending now,” she says, not least because there is more money available in Europe. “There is more capital around and capital has to find a home.”
Added to that is a broad realisation that the problems of the planet cannot be solved by software alone or relatively small-scale spot solutions.
But investing in companies engaged in long-term, capital-intensive R&D does require VCs to focus their attention on businesses with the potential to deliver the kind of returns that will justify the investment. The ability to scale is crucial. Hence, Norrsken’s ambition to find tomorrow’s impact unicorns. So how is that potential identified?
Finding The Teams
“Scaling is down to the teams,” says Freimane. “If you have the right people on board, you can find the capital.”
As an early-stage investor, Norrsken is looking forward to subsequent rounds, when ever-larger sums will be needed. She sees an assessment of the team as the key to deciding whether future funding rounds are likely to be successful. “The question I ask is whether this is a team that will be able to raise multiple billions of dollars of investment,” she says.
Freimane acknowledges there will be failures and that’s OK. “Entrepreneurs are allowed to fail. We accept that,” she says. “However, with every funding milestone that a business passes, the risks get lower.”
Arguably, the renewed appetite for investment in big projects that Freimane has detected is partly down to the success of the likes of Elon Musk who has redefined both the car and space industries. Equally, though the landscape is changing. In the post-COP26 environment, national regulation and international agreements will require sustainability to be front and center of the economic development agenda. So whether you’re talking about capital intensive green steel or more modest investments in, say, software designed to optimise supply chains, companies that offer workable and scalable solutions will be increasingly attractive to investors.