Sustainability as a Success Factor in Financing: Impact Investing for Tech Startups

COSMICGOLD
4 min readApr 24, 2024

Securing financial support for tech startups is a journey through complex terrain. For impact-driven companies aiming for both financial success and environmental and social change, this journey is particularly demanding. Firstly, because the multidimensionality of these startups entails a special complexity in organizational structure, which in turn deters many investors. Secondly, because the long-term orientation of impact-oriented startups clashes with the often short-term return expectations of traditional investors. In this article, we take a look at the world of impact investing and how founders of tech startups can meet the expectations of this special group of investors.

Street sign of Wall Street
Credits: Sophie Backes via Unsplash

What is Impact Investing?

Let’s start with the basic principles of impact investing: This approach enables tech startups to receive not only capital but also support for their societal and/or environmental goals. Because, as the name suggests, impact investing is based on the idea that financial success and positive changes for our planet can go hand in hand. Investors in this field thus pursue not only returns but also advocate for social and environmental goals.

To meet the expectations of impact investors, it is crucial to understand how they make their investment decisions. Impact investors, within their due diligence, analyze not only the financial viability of a company as in traditional startup investments but also its impact on the environment, society, and governance (typically based on ESG criteria). These criteria are often examined in an “Impact Due Diligence” and regularly queried through questionnaires even after the investment. If the expected impact for the investor is not sufficient after the initial due diligence or if it lies too far from their own portfolio (e.g., renewable energy portfolio vs. education startup), no investment is made. Thus, a transparent and comprehensive presentation of the startup’s impact on society and the environment becomes a crucial factor.

Figure with 13 important Elements of Due Dilligence
Credits: https://thegiin.org/conducting-due-diligence/

What does this mean for founders?

From this arise five practical pieces of advice for founders:

  1. Clarity about environmental and social goals:
    Define clear goals and show how your startup aims to bring about positive changes. For this, you need an impact model that explains what effects you want to achieve for whom and how strong these will be. Our Lean Impact Assessment Canvas [Link to Resources Page] shows you how to create such a model.
  2. Measurable impacts:
    Provide concrete metrics that quantify the social and environmental progress of your startup. Make these an integral part of your business model. We’ll show you how this works here.
  3. Transparent communication:
    Establish open communication about the ESG practices and the impact successes of your startup to gain trust. Provide concrete evidence, ideally through successful examples, of how you have improved people’s lives.
  4. Partnerships with like-minded entities:
    Demonstrate that with your startup, you are engaged in cooperations and networks to promote sustainable change. Live within a regenerative ecosystem and thus show how scalable your approach is.
  5. Long-term strategy:
    Convince investors that your business strategy not only aims for short-term financial success but also has a long-term positive impact on the common good (scale effects).

Adapting the business model for economic AND sustainable returns

Examples of successful tech startups that adapted their business models illustrate how financial gains and social changes can go hand in hand. Companies that, for instance, focus on renewable energy or develop technologies for socially disadvantaged communities show that impact investing is not only morally but also economically viable.

One such example is CarbonCure Technologies, a company specializing in reducing the carbon footprint in the concrete industry. Their innovative business model is based on integrating carbon dioxide (CO2) from industrial emissions into the concrete production process. CarbonCure’s technology offers economic benefits by increasing the demand for environmentally friendly concrete while simultaneously reducing concrete production costs. Integrating carbon dioxide into the concrete production process not only reduces CO2 emissions but also leads to improved efficiency in production. As companies increasingly seek sustainable building materials and regulatory requirements regarding environmental regulations rise, CarbonCure positions itself as a provider of a competitive and environmentally friendly solution, which can lead to a stable market advantage and a positive impact on the concrete industry in the long run.

Or take the Berlin-based startup LiveEO, which pursues an economically sustainable business model by utilizing satellite technology and artificial intelligence for efficient infrastructure monitoring. The automated analysis of satellite images allows companies to reduce costs for manual inspections, react early to potential issues, and thus increase operational efficiency. At the same time, the business model is environmentally sustainable as it uses non-invasive methods and minimizes resource consumption compared to traditional inspection approaches, contributing to environmentally friendly infrastructure monitoring.

The strength of startups in the service of the common good

In a world shaped by global challenges such as climate change and social inequalities, the true success of a tech startup lies not in financial numbers but above all in its contribution to the common good. The true strength of tech startups lies in how they use their technologies and innovations to improve lives and address global challenges. Impact investing opens up this possibility and serves as a catalyst to enable profits and profound progress simultaneously. Therefore, founders should strive for partnerships that share not only capital but also the vision of a regenerative future to create a livable world for future generations.

Interested in learning more about building an impact-driven venture? Get in touch with us.

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COSMICGOLD

COMPLEXITY IS BEAUTY - From science and engineering to regenerative business