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The competitive advantage of European technology lies in its purpose

Stefano Guidotti, Partner at P101 | March 18th, 2021

“Some say the Chinese have all the data and the Americans have all the money. But when I see what we have going for us here in Europe, I see that we have purpose”. European Commissioner for Competition Margrethe Vestager pronounced these words during a hearing on European people’s disaffection for technology. They date back to October 2019, before the pandemic, and today they sound like an omen. In particular, Vestager was referring to Artificial Intelligence: the European one “is in health, in environment, in transportation organization. It is where you want to see AI being used for a greater purpose: and that I find is a good inspiration to figure out how to make data available and how to find the funds so that we can invest”.

To have a goal, a reason beyond profit, a purpose, is what can distinguish start-up companies from late-coming Europe from Asian and American giants. And somehow compensate our weak growth.

Why do we need more purpose?

Actually, it’s something we have always identified with. To focus on improving the world’s climate, fighting global warming, solving the problem of educational poverty, increasing women’s employment conditions, contributing to the development of microbusinesses and neighbourhood businesses: in one word, to retrieve humanistic capitalism from Olivetti’s time. This has been our direction over the last five years and this idea must keep guiding us, since it can help Europe and Italy attracting talents, consumers, investors. More and more, today, talents follow purpose, rather than profit, and so does a great part of the market.

Goal-driven investing: it’s all about DNA

Purpose-driven tech belongs to P101’s DNA, as proved by its track record of investments, all based on a common goal: to make entire sectors or production chains more efficient through technology, with great attention to sustainability and social impact. This is what guides us through every due diligence, together with a company’s business plan and market perspective. We fund and support the development of the people leading the start-up companies we invest in. A start-up company is successful when it manages to change the world for the better.

20B in five years: the journey of purpose-driven tech has just begun

According to the data in “The state of European Tech” reports by Atomico from 2020 and 2019, 2019 had closed with record numbers for tech start-up investments in Europe, reaching a value of € 38.6 billion, 16 billion of which came from European VC funds. That was the peak of a 5-year-long path of exponential growth that contributed to a general trust boost in European start-ups and technology. 180 unicorns were born. Covid-19 has almost tore down all that we had created, though in the end, not only has the house held up, but it has also become potentially indestructible. In just 8 weeks, tech start-ups have enabled a digital transformation that would have otherwise taken 10 years to happen and managed to collect € 41 billion, more than they did in 2019.

17% of this amount went to purpose-driven tech companies, accounting for a 6 billion share. 80% was allocated to start-ups where purpose is not an incidental factor, rather, it’s at the core of their business model.

Actually, the growth in purpose-driven tech has walked hand in hand with the general growth in start-up investments: over the last five years € 20 billion have been invested across more than 3,000 rounds into companies with this kind of structure.

USA vs Europe: old against new?

Atomico also shows how important the moral issue is in the Old Continent. If we analyse Internet threads, we’ll find out that in the United States the techlash narrative is driven by the Big Tech companies, by their business failures and slowdowns. On the contrary, Europe focusses on data privacy, antitrust, tech ethics and the gig economy.

While, on the one hand, this reveals how consumers think, on the other, it is important to point out that 80% of VC funds investing in Europe also stated that they take into consideration the potential long-term societal and/or environmental impact of an investment, both as part of a due diligence process (47%) and during the investment life cycle.

Nearly two-thirds of VC companies agree that in the last 12 months a greater concern about the potential societal or environmental impact of their portfolios is manifest.

It comes as no  surprise, then, that one in five start-uppers states that to them to measure the societal and/or environmental impact of their company is a priority.

Digital and social acceleration brought on by the pandemic

The pandemic has accelerated the digitalisation of ecosystems and it has speeded up the race towards sustainability that was already happening among start-up companies in 2019. Dealroom estimated that the European VC-backed tech companies addressing one or more United Nations Sustainable Development Goals are 528. The fight against global warming has attracted the greatest investments into purpose-driven tech (11 billion since 2016), followed by renewable energy, which has attracted $9.7 billion since 2016.

Even if purpose-driven  deals are steadily increasing, in 2019 they represented less than 5% of all deal activity. The UK, France and Germany were leading the rank of countries investing in a more sustainable way, while Italy was ranked number nine. This means that our margin for growth is still huge, and we believe that from the union of, on one side, the thrive towards societal and environmental sustainability, and on the other side, the continuous development of innovation, we are going to build Europe’s and Italy’s future competitive advantage.