Camilla Bergman: Is venture capital dead?

When I pitched Impact Loop to investors two years ago, I told them that we would deliver ten times the money in five years.

Ambitious, I thought – but according to some investors, it was far too little 'return on investment'. They wanted me to aim for 100 times the money – and with a plan to raise a substantially larger round in a few years. Something I neither believed in nor felt particularly keen on.

I'm rarely ahead of trends, but apparently I did partly hit upon one. 'PE is the new VC', I've now read in a number of predictions from investors. For those not immersed in the capital bubble, this might not mean much, but bear with me whilst I explain why it could be important:

Private equity (PE) involves investing in mature companies. Here in Sweden we have firms like Nordic Capital, Altor and EQT that buy a majority or the entire company, adjust the business – streamline and restructure – and sell on at a profit.

Venture capital (VC) – what we sometimes call "risk capital" – involves investing in young companies in early stages. Investors take high risks, hoping to build something truly substantial from the ground up.

It's the latter that's historically been crucial for impact companies, where investors bet on solutions that aren't always proven, but are needed to change the world.

But now VC firms are beginning to act more like PE firms, something we at Impact Loop are also seeing signs of. They're looking for safer bets and more control, and more are aiming to be involved in selling the company.

The reason is, of course, tough times, sluggish IPOs and exits, and that their investors (so-called LPs, such as pension funds and insurance companies) have put greater pressure on them to deliver.

What does this shift mean for impact companies?

A positive consequence – I believe – is that VC firms stop pushing impact firms towards growth at any cost. I got an example last week when I spoke with Kjell Walöen, one of the founders of the electric lorry company Volta Trucks, which has gone into bankruptcy for the second time. I asked Walöen if they should have started smaller and gradually scaled up, to which he replied:

"It's difficult to gain traction for that type of industry if you don't go big. You live from funding round to funding round, so ultimately, the investors have the final say."

Most likely, Volta Trucks' case would look very different today if all involved had strived for profitability instead of reaching for the stars.

At the same time: If venture capital is mostly looking for safe bets and mature companies, who will invest in the new, radical ideas that are also needed in the climate transition, but which can't always be profitable from day one?

Perhaps we can't count on the market to solve the problem for us (which, by the way, we don't do today either). My guess is that government grants will play an increasingly important role in innovative startups, and large companies struggling against the clock to meet EU regulations may take a larger position as investors in impact companies. If this thesis holds true, it might be time to rethink one's capital strategy.

VC firms will of course remain, and new European impact funds are launching every week. But we must acknowledge that risk appetite is lower. This begs the question: Is it really risk capital – or is it time we admit that what we once called venture capital has in fact become something very different?