Fund Manager of SmartCap
Despite the increasingly devastating natural disasters and new crises that are shaking societies, we need to talk about the “green transition”, and talk loudly. In order to meet global climate goals, and in particular, to offset the effects of existing crises and prevent new ones, it is necessary to accelerate change.
I believe that right now, as the economy is waiting for a new impetus, and the society understands that we need decisive steps and a wider change of direction, is the ideal moment to initiate, develop and successfully implement new green ideas.
But whose job is it to lead this process, and how can it get going faster? To really start the green transition, we need a whole number of preconditions – understanding the real problem and its causes, as well as money, ideas, skills, and actions. I dare say we have no problems with the former.
SmartCap has begun preparations for the creation of a new public investment fund Green Fund. With the fund that was created using resources of the European recovery and resilience instrument, and that now has 100 million euros at its disposal, we want to invest primarily through venture capital funds in companies that are involved in creating green technologies to solve environmental problems and achieve a climate-neutral circular economy. So, a small but important step has already been made.
In order to make the greatest possible contribution to fulfillment of Estonia’s green goals with the fund’s money, and to do so precisely, recently we have also conducted a study on the capital needs of companies and the readiness of private investors to invest in innovative green technologies. The results of the study published by EY a few days ago show that there is enough money in the market today, and the overall assessment of its availability is rather good. However, the bottleneck was clearly the need to direct money from public venture capital funds to the development of companies that work on hardware and physical components.
Today, for typical venture capital investors the business model of companies focused on hardware and physical technology solutions is less attractive and time-consuming, compared to that of software producers. That is why they need more support and workable solutions to move from an idea to implementation and market growth. In particular, Green Fund should favor companies with higher capital requirements than angel investors can cover on their own today. Green Fund is expected to provide an important signalling effect, be an additional driver to attract private investors, and a springboard for foreign capital.
The latest Atomico survey, which analyses the European start-up sector and the venture capital market, also confirms that investors in venture capital funds are increasingly opting for green, future-oriented, so-called planet-positive companies. In other words, today Green Fund provides us with an opportunity to give impetus to those companies that have potential, but the technology needs patient money and a long vision. In this case, private investors will be ready to come along and share these risks.
I also dare say that with the actual availability of capital, Estonian entrepreneurs and research institutions will also be ready to deal with green technologies. Estonia offers top-level scientific research, we are among the leaders in entrepreneurship and innovation in Europe, and today there are already close to a few hundred innovative technology companies in Estonia, whose product, service, or business model contributes to overcoming environmental problems. The starting point is, therefore, more than encouraging, and there seems to be no need to deal with the green transition separately.
However, one of the important conclusions of the study was, that other than funding, businesses still need support, for example in building effective teams, providing a support network, or validating technological solutions. Entrepreneurs and investors pointed out that research-intensive projects or projects created in collaboration with universities could be preferred.
The value offered by Green Fund and other market participants as smart investors with sector-specific knowledge is much more than just capital. There is no point in developing any technology or business idea on its own or in the light of climate goals alone – it must be in line with the real needs and expectations of the market, and there must be ways to apply it in practice. In addition, participants in the study pointed out that the low readiness of Estonian society and corporations to start using green technologies and solutions is a significant obstacle to bringing them to the market.
No such change occurs overnight. However, action needs to be taken, starting with an adaptation of the legislation which can foster changes, and which concerns, for example, organisation of green procurement, waste management requirements, or the application of circular economy principles.
Both the state and the entrepreneurs themselves can and must significantly increase the green awareness of the society, as well as demonstrate exemplary implementation. We cannot expect the minds of end consumers and society as a whole to change solely on the basis of the goals of the green transition taken by the state – in order to be more environmentally friendly, we need social and legislative pressure, in a good sense, obviously, as well as a proper framework. And of course, we need smart investments that stimulate the whole process and help to turn ideas into reality.
Sille Pettai from SmartCap is moderating the SmartCap-powered panel “Deep tech science commercialization and capitalisation” at L59’s Investor Day 2022 on May 18. They’ll stop on topics like who owns the tech and if and how to protect them; what does it take to pull off successful investments to deep tech companies; and what does it take from the VC’s team. If you have an Investor Ticket in your pocket, sign up!
Sille is also hosting the Greentech panel on Friday afternoon, “How to accelerate the adoption and the growth of green tech investments?” Make sure to be at the Purpose Stage at 14:20 to hear the discussion!