Dutch VC 4impact on the hunt for Nordic startups – ‘A lot of exciting opportunities’

After carving out a niche by investing solely in impact-focused software solutions, 4impact closed its third fund last year at €68m.

Now, about a third of that is being set aside for investing in Nordic startups, founding partner Ali Najafbagy tells Impact Loop.

"We see the Nordics as a very good representation of what broader northwestern Europe should move toward," he says.

Najafbagy and his partners at 4impact view a digital-first mindset as the way forward for all of Europe – where competing with Asia and the US on physical manufacturing is becoming increasingly difficult.

And in northwestern Europe in particular, the demographic makeup of countries with small and ageing populations make it even more important to build a sustainable economy around a strong digital industry.

"In Europe, we had an age of manufacturing, we had the industrial revolutions," Najafbagy says. "Now we've moved to the age of digital, and we need to optimise what we physically built. Much like the transition from telegraph to the internet. So our thesis comes from the vision of a long-lasting economy built towards the future instead of trying to compete on manufacturing. The Nordics, specifically, are already doing that."

Looking for people-related solutions

After being founded by Najafbagy and his former Goldman Sachs colleague Pauline Wink, 4impact launched its first fund in 2019. The initial focus was mainly on the Netherlands, but the firm has been branching out ever since.

It has already made several investments in Scandinavia, including in Norwegian water infrastructure company InfoTiles and Stockholm-based Myrspoven, which optimises energy usage in buildings.

It usually invests in the Seed-to-Series A phase, with ticket sizes ranging €250,000 to €2.5m.

So what types of companies are they looking for next?

Energy-saving and grid-optimising solutions are high up on the wish list, Najafbagy says. But the Dutch VC is also keen on finding more founders tackling social impact.

"We invest in both green solutions and people-related solutions. And we’re quite keen to expand that second bucket," Najafbagy says. "We’re not a health-care fund but we do invest in digital technologies that can improve the well-being and health of people. There are a lot of exciting opportunities in that space."

Like many other VCs, 4impact is also branching out more into European resilience.

“I think all of Europe has been woken up by everything that is happening geopolitically," Najafbagy says. "So we look at resilience now as a topic, and for us as digital investors that is more about ownership of your data. So having your personal data on European rather than foreign clouds, better threat detection and ensuring the continuity of critical data infrastructure. So any kind of software that goes in that direction, we can look at.”

'Has to be an impact angle'

Software solutions may not promise the same kind of climate-saving potential that some hardware innovations can offer, but as an SFDR 9 (so-called “Dark Green”) fund, 4impact only invests in companies that can move the impact needle.

“There has to be an impact angle," Najafbagy says. "So if you're a cybersecurity company focusing on optimizing ecommerce, that's not for us. But if you're a cybersecurity company optimizing critical energy or critical communication in Europe, that’s a topic we’re looking to invest in.”

Najafbagy acknowledges that there are both pros and cons to being a VC that only invests in digital solutions.

“We see some fantastic combined technologies, because software without hardware is nowhere,” he says. “But the big advantage we bring to entrepreneurs is that we are 100% software investing with specific value-add to software companies in the impact space.”

Focused on mission and vision

One of the risks with investing in software, of course, is that some other program can quickly come along and make a product obsolete – especially in these AI-fuelled times. 4impact aims to sidestep such problems by looking beyond the code itself and focusing on what the founders are trying to achieve.

"It’s not AI or the software itself we invest in, but the vision and mission of the entrepreneur," he says.

As an example he mentions portfolio company Satelligence, a Dutch startup helping stop deforestation with a solution that combines satellite imagery and AI to monitor the exact number of trees and shrubs are on a plot of land.

"They’ve become the global leader in the sustainability monitoring space. Why? Because their mission from day one has been to stop deforestation, predominantly within the food and ag sector. It is not just the digital solutions they offer thanks to AI and remote sensing, but it takes a long time in these sectors to build up trust with the major partners," Najafbagy says.

"So they're not using their AI capabilities to also help get cars faster to shopping centres in big countries or something like that. They're focused on their mission."

Another example is Carbonfuture, which creates the digital infrastructure for carbon removal tracking and recently signed a 10-year deal with Microsoft to track the world’s largest biochar carbon removal agreement.

"Their software solutions are fantastic tools, but if you don’t have a vision around a specific problem that you’re focused on 100 percent, then you can have the best tools in the world and you’re still never going to get there because you’ll keep trying to follow the hype," Najafbagy says.