Therefore, the need for companies helping with the ESG goals is bigger than ever, so based on that we prepared a list of Ten ESG Startups that in our opinion, deserve the spotlight.

PlanA

Based in Berlin, planA is a startup specializing in monitoring CO2 emissions and improving the ESG index through their SaaS platform. Founded in 2017, their main goal is to accelerate the decarbonization of our society and prevent the devastating outcomes of worsening climate change. PlanA also implemented many reforestation, biodiversity, river protection, and local waste management fundraising projects. They offer their software to companies who aim at reducing and managing their CO2 emissions (planA Carbon Manager) and recently incorporated the ESG management module into their product. Plus, they recently secured $10M of Series A funding and opened a new office location in London!

Planetly

Founded in 2019, Planetly is another startup offering a Saas platform to help with carbon management for businesses in order to drive sustainability goals and implement ESG management.  Based in Berlin, the company currently provides their services to over 250 customers, including BMW, HelloFresh, and The Economist Group, and their in-house team consists of 25 different nationalities. In December 2021, Planetly was acquired by OneTrust, to incorporate ESG as a part of the product suite of OneTrust.

Apiday

Apiday extracts the relevant ESG data points and answers automatically for you. Based in Paris, Apiday main product is a SaaS platform for corporate ESG data management. The platform helps to easily collect all ESG data in one place, collaborate with third-party ESG consultants and automate ESG reporting and certification processes. Founded in 2021, the company has been backed by Speedinvest and REVENT, and they secured their ESG.

Verkor

Verkor is a French start-up based in Grenoble that aims to fast-track production of low‑carbon batteries in France, serving the European market. Founded in 2020, it secured a landmark €100 million funding round last July 2021 – less than a year since launch. The funds will go towards the company’s expansion including the construction of the Verkor Innovation Centre (VIC) where the advanced battery cells and modules will be designed to support Europe’s net-zero goals.

Zolar

Zolar is a German solar power systems provider founded in 2016. Zolar helps its customer install solar power systems in their roofs – serving as a single resource for everything needed, from planning all the way to installation. Zolar aims to remove the barrier of the high up-front cost of installing solar power systems in the homes of individual consumers by offering consumers the option to rent a photovoltaic system for as little as €54/month. After 20 years, the consumer can then buy the system for a symbolic Euro and enjoy its benefits for another ten years. In November 2021, Zolar secured €20 million in funding via a special purpose vehicle with Berliner Volksbank, bringing its total funding to date at €59 million. Zolar earmarked the fresh funds for entry into other European markets.

Volta Trucks

Swedish electric vehicle manufacturer Volta Trucks is trying to revolutionize what is called “last-mile” logistics by electrifying and redesigning large cargo vehicles, known as Heavy Goods Vehicles (HGVs) in Europe, for middle- and last-mile delivery in urban centres. This way, collisions and carbon emissions caused by large delivery trucks are minimized. Founded in 2019, Volta Trucks raised €37 million in Series B funding last September 2021, to scale its operations, starting with a fleet of pilot vehicles in London and Paris. This last funding brings its total funding to €60 million.

Carbon Equity

Founded in 2021 and based out of Amsterdam, Carbon Equity is a climate fintech startup that enables people to invest more easily in climate funds. Carbon Equity makes it possible to invest in small ticket sizes starting from €100k. They plan to reduce the ticket size further in the future. In August 2021, Carbon Equity raised €1.2 million in seed funding from Dutch VC 4Impact. Making it easier to invest in climate funds will help make more money available to continue innovation in climate tech.

Calyxia

Calyxia is a French start-up based in Bonneuil-sur-Marne, Ile-de-France addressing microplastic pollution through its biodegradable microcapsules that aim to fundamentally change the way industries utilise microplastics. Calyxia is tackling an EU ban on all ‘intentionally added microplastics’ that will go into effect as of this year. Microplastics are found in controlled delivery products such as those active ingredients in crop protection and fragrances in detergents that eventually find their way into our water systems and are ingested by fish. In September 2021, Calyxia raised €15 million bringing its total funding to €23 million to date.

Biophilica

Biophilica is a UK based start-up. Biophilica converts green waste into a leather-like material which is fully recyclable and compostable, with its first alternative leather product range called Treekind. The leather-like aesthetic and material is non-toxic and contains zero plastic (PU or PVC), and can be used for a variety of product applications, starting with accessories, such as bags, watch straps and wallets. Start-up raised £1.2m in Seed round to bring its plastic-free leather alternative, Treekind, to market. US-based investor Rhapsody Venture Partners, known for their focus on hard tech and experience scaling lab-based innovations to broad market availability, led the round with the participation of Fashion for Good and previous investors from Biophilica’s Pre-Seed round.

Sunswap

Sunswap offer a zero-emission alternative to diesel Transport Refrigeration Units (TRUs) with energy prediction, Adaptive Battery CapacityTM and solar power, replacing diesel powered refrigeration. Sunswap secured investment of £3m from Barclays and the Clean Growth Fund, enabling it to accelerate the development of a fully electric, zero-emission alternative to diesel-powered Transport Refrigeration Units.

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Elon Musk acquired Twitter

Let’s begin with the latest M&A deals in 2022. The word had spread fast; Elon Musk acquired Twitter for $44 billion. The goal of this acquisition may be to put the world’s richest man in charge of one of the world’s most influential social networks. Musk’s deal to buy Twitter sits at the confluence of multiple ongoing societal debates, including about the power and influence of billionaires; the impact of mis- and disinformation; the responsibilities tech platforms owe to their users and society, and what new regulations should back them up. However, we will soon know what this deal will hold for the future of Twitter.

CD&R to Acquire Humana’s Home Hospice and Personal Care Divisions

In one of the recent M&A Deals in 2022, private equity firm Clayton, Dubilier & Rice (CD&R) acquired healthcare services company Humana, Inc. – Home Hospice and Personal Care Divisions from Humana, Inc.

Under the agreement, Humana will divest a 60 per cent interest in KAH Hospice. In return, receive approximately $2.8 billion in cash proceeds. That reflects an enterprise valuation of $3.4 billion. It also involves multiple of roughly 12 times the divisions’ current year forecast. In the forecast are included adjusted earnings before interest, income taxes, depreciation, amortisation, or Adjusted EBITDA. Therefore, the goal is to pursue growth centred on improved access, equity and quality of care across an expanded group of patients.

After they close this transaction, the Hospice and Personal Care divisions will be restructured into a standalone operation. Humana intends to use proceeds from the transaction for the repayment of debt and share repurchases.

Blackstone Property Partners’ acquisition of American Campus Communities

Another M&A deal in 2022 was closed in April; Blackstone Property Partners’ acquisition of American Campus Communities. The deal values the company at about $12.8 billion, indicating the firm expects rents to rise as more college students return to campus.

ACC’s portfolio comprises 166 owned properties in 71 leading university markets. The majority of ACC’s properties are high-quality, purpose-built student housing assets. Student housings are located within walking distance of their respective university campuses. As a condition to the transaction, ACC has agreed to suspend the payment of its quarterly dividend, effective immediately.

TD Bank Group First Horizon Corporation

TD Bank Group announced to acquire of First Horizon Corporation. Toronto-based TD Bank Group announced the $13.4 billion all-cash agreement to obtain Memphis-based First Horizon as part of the group’s plans to accelerate its growth in the United States. The transaction is expected to close by the first quarter of TD Bank Group’s 2023 fiscal year. With this deal, TD Bank wants to offer their clients with a broader product set and advanced technology.

M&A Deal in early 2022 – Microsoft acquired Activation Blizzard

In January 2022, Microsoft acquired Activision Blizzard for $95.00 per share, in an all-cash transaction valued at $68.7 billion. This deal was a significant step toward Microsoft’s entry into the gaming market. That said, Microsoft became the world’s third-largest gaming company by revenue. The acquisition includes iconic franchises from Activision, Blizzard and King studios such as “Warcraft,” “Diablo,” “Overwatch,” “Call of Duty” and “Candy Crush,” in addition to global eSports activities through Major League Gaming.

Looking at the biggest M&A deals of 2022 so far we can clearly see a strong majority of transactions in the gaming and tech sector, showcasing how eager companies are to adapt to the digital environment.

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The critical criteria to make it onto the list are growth, velocity and growth potential, funds raised, growth in employee numbers, geographical distribution, and the ability to impact society positively.

More than 40 per cent of companies listed this year have a “for good” business model.

The most promising scale-ups in various categories will be awarded the Next Unicorn Awards 2022 at VivaTech in Paris in June.

European tech companies are forging ahead in creating new tech unicorns. Europe witnessed the birth of 85 new tech companies with a valuation of $1 billion or more in 2021. Therefore,  registering a unicorn growth rate is more than twice the US.

However, this indicates that the US growth rate was 124% from 2020 versus the EU growth rate of 400%, i.e. 17 new ones in 2020 and 85 in 2021. Also, US investors had a significant role in creating these glittering creatures in Europe. Nearly 50% of the investors in Europe’s unicorn cap tables are non-European, and 77% of those are from North America.

Distribution of venture capital in Europe

Eastern Europe comes last in terms of unicorn headcount but still has some stars and a median valuation of €2.7 billion and 2,000 employees. A snapshot of other European regions shows that Klarna’s €37.4 billion valuations boosted the regional total of €74 billion. The DACH countries of Germany, Austria, and Switzerland have seen the highest job creation, with more than 70,000 people working in unicorns and soon-to-be unicorns.

The first month of the year was good for much good old dealmaking: European technology startups raised just over €12 billion in funding in January 2022 from more than 1,240 investors across 450+ deals. Tiger Global was the most active investor, with 11 deals accounted for.

While the impact of US funds on European uni- and soonicorn cap tables are mostly coherent across regions, Benelux stands out with a share of only 62% of US investors. The most dominant region for US investors in Northern Europe. The increased number of US investors is Klarna, located in Sweden. Moving forward, an increased number of investors in the Benelux region have a strong focus on Future Mobility & Supply Chain.

Southern Europe is home to the youngest soonicorn companies with an average age of 7 years and 8 months. Not surprisingly, they show the lowest average valuation for soonicorns at EUR 183 m but could prove to have the highest unrealized potential within Europe.

Lastly, UK & Ireland produced by far the most valuable companies with an astonishing combined unicorn valuation of EUR 138 bn.

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Corporate knowledge, R&D resources, M&A opportunities and networks are valuable for early-stage companies. That said, established companies and corporations have understood the dangers of not keeping up with the fast-moving world we live in and the opportunities they can unlock by supporting innovative young start-ups. So, how do corporate investments work?

Corporates provide capital and assist with business and product development. Companies can also offer most of their resources and market expertise so that the start-ups can accelerate their growth. According to CBInsights, CVC-backed deals reached a new record in the first half of 2021, with a 133% year-over-year growth. The rise was likely caused by how fast the tech landscape evolved and the start-ups starting to understand the value that a CVC can provide to their business.

What should startups keep in mind when considering Corporate venture capital investments?

Similar to venture capital firms, CVCs tend to invest internationally. However, CVC and venture capital firms have different commercial perspectives. Corporate investors may invest for strategic, synergistic, and financial reasons. Corporate investors could ask for consent rights over the investee company entering into contracts with competitors. These include limits on disclosure of information, the provision of goods or services, or transfers of equity to competitors.

Furthermore, corporate venture capital investments have a longer-term horizon than venture capital investments. As a result, corporates often require additional rights over an exit.

Many corporate venture capital investors require rights over future M&A deal activity. For example, corporates regularly request a right of first refusal, offer and negotiation. A more friendly option is the right of the first offer, as it provides an investor with the right to be offered the shares before any external solicitation takes place. Nevertheless, corporates regularly request a right of first refusal (or ROFR). ROFR provides the investor with a right to be offered any shares being sold by other shareholders in the investee company after the selling shareholder has solicited an offer for their shares from a third party.

In some cases, corporate investors may want a call option to acquire the company. In other cases, corporate investors may require the flexibility to sell their shares in the investee company back to the company or other existing shareholders.

CVCs often require disclosure of a broader range of metrics or key performance indicators (or KPIs). The precise KPIs are generally tailored to the business of the investee company.

Lastly, corporate investors increasingly subject their investee companies to rigorous environmental, social and governance (ESG) standards. These include compliance with anti-money laundering regulations, anti-bribery and corruption, anti-modern slavery and other relevant policies.

What’s next?

We expect CVC activity to continue growing in the long term. Annual CVC volume has grown at about 7% between 2017 and 2020, with value increasing more than tenfold over the past decade. Companies invest in innovations and new business models that will lead them into the future. However, CVCs should also know how to work with startups. If you are looking for a CVC investment, consider all of the factors we mentioned in this article, and if you need a professional financial advisor to help guide you, our team is here to help.

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Typically, whoever is on the board committee, will take part in making decisions. Limited partners and lawyers are also critical players in venture capital.

So, to cover the basics, we described the role of each party in VC.

Venture Capitalist (VC) manages the day-to-day activities of the venture capital firm. They are responsible for identifying and executing potential investment deals. Among hundreds of business pitches they receive, they decide to invest in those who stand out the most.

General Partners (GPs) are at the top of command. They are responsible for raising financing for the fund and managing it, including making final investment decisions, hiring and firing staff, managing expenses, and more. In addition, a general partner has the authority to act on behalf of the business. A partnership also offers a pool of investment for building and maintaining a business on a scale that might be beyond the resources of a single individual.

While on the other hand, in Limited Partners (LPs), only one of the partners will become the general partner, while the others will have limited liability. Where general partners invest in startups, limited partners invest in venture capital funds.

Second in the venture capital chain of command is usually the principal, who is often on the partner track. Principals are the middlemen between associates/analysts and the partners.

The Entrepreneur’s Role in Funding Decisions in VC

The entrepreneur is the most important player in venture capital. Without Facebook’s Mark Zuckerberg, Google’s Sergei Brin and Larry Page, Microsoft’s Bill Gates, and Apple’s Steve Jobs, these companies would not exist. VCs want to look for companies with a global vision and opportunities to scale up.

Venture capital will likely allow the entrepreneur to scale faster and make necessary hires to grow the business. Another positiveness about venture capital funding is that it opens up resources for an entrepreneur. If you are an entrepreneur who has launched a promising start-up but needs funding to reach the next level, you should consider venture capital. We talked about other options in our previous blog post, How to Raise Money for your Startup.

Moving forward, entrepreneurs play a key role in funding decisions in VC. Your company vision and your team should lead the way in convincing the board committee and VCs that you are the next Mark Zuckerberg.

Finally, entrepreneurs also need help from lawyers. They help entrepreneurs incorporate their businesses, patent their IP, and with any other legalities involved in starting a company. More and more law firms are beginning to catch on to helping startups at their earliest stages. The second way lawyers play a role in venture capital is by representing entrepreneurs in negotiations with VCs. They can also play essential functions in helping VCs raise money.

How Do Venture Capitalists Make Decisions?

To summarise the VCs’ decision-making process, here we explain each stage.

Deal Sourcing

Deal sourcing refers to how VCs attract entrepreneurs and sort through those opportunities to make an investment decision. So, how do they find a potential startup? There are multiple sources. If the potential startup can be generated through a professional network, referred by other investors, inbound from company management, referred from the portfolio company, quantitative sourcing or proactively self-generated.

Once a company is considered at the top of the funnel, the selection process usually consists of: a consideration deal, meeting management, reviewing the proposal with partners, due diligence, term sheet, and finally, closing the deal.

Investment Selection

When considering a deal, VCs will look at the attractiveness of the market, strategy, technology, product/service, customer adoption, competition, deal terms and the quality and experience of the management team. Since venture capitalists invest at high risk, VCs tend to be very selective about placing their money. But, regardless of high risk, VCs give out thousands and millions of dollars to small, untested ventures with the hope that they may eventually evolve into something big. We covered this in more detail in our article What Venture Capitalists Look for in an Investment Opportunity.

Deal Structure and Valuation Tools

Most VCs use financial techniques such as DCFs or NPV to evaluate their investments. However, according to Antoine Buteau’s article on How Do Venture Capitalists Make Decisions?, common metrics used are cash-on-cash return, multiple of invested capital and net IRR.

He also explains how VCs take leverage if entrepreneurs don’t perform, through cash flow rights, control rights, liquidation rights and employment terms. However, VCs are more flexible on option pool, participation rights, investment amount, redemption rights and cumulative dividends provision.

VCs are critical in the professionalization of startups: they will improve governance through strategic guidance, by structuring the boards of directors and by helping in hiring outside managers and directors.

Exit strategy

Each venture capitalist will have an exit strategy in place for their portfolio companies. As CFI explains, exit strategies are plans executed by business owners, investors, traders, or venture capitalists to liquidate their position in a financial asset upon meeting certain criteria. An exit plan is how an investor plans to get out of an investment.

Common types of exit strategies for startups are Initial public offering (IPO), Strategic acquisitions and Management buyouts. The exit plan chosen by the entrepreneur depends on the role they want in the future of the company. For example, a strategic acquisition will relieve the entrepreneur of all roles and responsibilities in his or her founding company as they give up control of it.

To sum up, entrepreneurs and VCs are the key players in funding decisions in VC. However, the decision-making process also goes through the VC committee board, and multiple parties are involved. These include; VCs, GPs, LPs, lawyers, principals and analysts, who also take a role in this process. How VCs make final decisions is a tad bit more complicated to explain. However, from what we covered, VCs devote a great time to this process and resources. A deal source in an activity that helps VCs predict the value of the company. When going through deal selection, VCs focus on team management and business factors, market size, ability to scale up etc. Venture Capitalists help companies succeed through new hires, financing, and connecting with potential customers.

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When you’re new to fundraising, one of the hardest things to know is what you’re supposed to send to an investor, when, and if they will keep your information confidential. So another good question asked is what you should do if your VC is invested in a competitor? In the VC world,  associates are tasked with outreach to see what’s going on in space. As a result, they perform competitive or just broad scale intelligence. That is because VC is about to buy something costly and wants to look at the competition better.

The important thing to bear in mind is if an investor or your competitor wants to find out something about your company,  chances are they will. So, how to prepare for a VC meeting in this scenario? Generally speaking, you shouldn’t worry about this too much. However, you are also not obligated to take every meeting with investors. If that is your choice, come up with a short but effective answer, explaining how you are currently not rising money, or express your concern honestly about your competitor.

Another option is to take the meeting and do the best you can to impress your VC. It’s a competitive market. Sometimes, if the VC firm has over 60 companies in its portfolio, not every individual at the firm will know and understand who each portfolio company’s competitor is.

What should you send before the VC meeting?

There is a lot of discussion on this topic. The first question is, what happens if you don’t send it? You are most likely to lose the narrative. What happens if you do? Your VC may share this information with others, but that does not necessarily mean you should not send it. If well prepared, we believe a short “teaser” pitch deck should be sent.

It should give the reader a path to quickly and visually scan your materials and understand who you are and what you do, what makes you unique, the market potential, and what defensible IP you have built. The presentation should be visually appealing but straightforward. You can make it 8–12 pages, and the Title Page can say “YourCo Teaser Deck” or “YourCo Company Backgrounder”) so that it’s clear this isn’t your full pitch deck if you want.

You want to send just enough to set up the meeting (and, of course, a great deck sells better than a long email) and not so long that you don’t leave a chance to impress the person in your VC meeting.

If you are concerned about confidentiality, add to your pitch deck information you are happy to share with other people. It should not include any detail or secret ingredient that your competitor could take advantage of.

Although we cannot share an example due to confidentiality reasons, here are a couple of things you should include.

Current status: funds raised to date, monthly budget, revenue, team size, team expertise, customers, metrics. It should also include the problem you’re solving, market size and potential, what problem you are solving, competition, go to market strategy, unfair advantage, and the ask (how much you want to raise & why).

What to keep in mind during the meeting

So, how to prepare for a VC meeting? If you prepared a pitch deck and sent one in advance, before the meeting, VC will read your deck and come prepared. If your deck is up to 12 pages, it should have a word about your team, what is the market problem, how your solution will solve it, your progress to date and TAM (market sizing).

Your pitch deck for a meeting will be an extension of your teaser pitch deck. It should have a lengthy description of the market problem, and the unit economics of your solution. Generally speaking, it would be a deeper dive into your company, solution and your progress. You should prepare up to 25 pages in your pitch deck and be able to go through it within your meeting time – usually up to 45 minutes.

And remember, the goal of this presentation is not to show your slides but to have a two-way conversation with investors. This is the most important reason why you need a short meeting deck and separate slides with details.

Follow up after the VC Meeting

If your meeting went well, you should have a basic understanding of your next steps and action. Since you have presented them with the meeting pitch deck, the next step is to send a follow-up email with the attached meeting deck and recommend possible next steps.

If you felt like your meeting got engagement you might ask for a second meeting which could be just with that person or perhaps to meet one of his or her colleagues.

As you move up the fundraising cycle, you will most likely have more follow-up decks. You will want to send more information such as your cohort analysis, unit economics, Retention rates (SaaS), etc. These separate decks are not something you provide in bulk to a VC asking to see your data. These are parts of a sales process designed to get you back in front of the VC and have further engagement.

This isn’t the entire playbook, but just a fragment of potential issues surrounding VCs, investors, and raising capital. However, if you have questions, or need help with raising capital, feel free to contact our team at VX associates.

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Unless businesses act now, climate change will deeply damage economies, increase scarcity, drain profits and job prospects, and impact us.

Moreover, we already know that private sector innovation (with public support) accelerates the kind of rapid change we need, like nothing else. Studies directly correlate sustainable business practices, share prices, and business performance. Therefore, companies that develop robust Environment Social Governance (ESG) standards have better profitability. Those companies also have more robust financials, happier employees, and more resilient stock performance.

What Are the Consequences of Climate Change?

When it comes to climate change, money talks. Through regulations, incentives, and public/private partnerships, governments hold the keys to transforming and building the green economy. Similar to the industrial and information revolutions, governments must incentivize their citizens, businesses, and institutions to build a resilient future. Ultimately, governments will empower green business practices as not only an ethical option but also the lucrative one.

What actions would help fight climate change?

Renewable Energy
To begin, we can systematically replace our primary, fossil fuel burning energy sources. In contrast to fossil fuels, solar power, wind, geothermal, and biomass are renewable and clean energy sources that would reduce our carbon footprint.

Sustainable Transportation
We can adopt new, eco-friendly transportation methods. For example, we can reduce our carbon footprint by switching from fuel-operated to zero-emissions vehicles.

Air Pollution Prevention
Reducing fossil fuels and putting restrictions on industry emissions will help us reduce air pollution.

Recycling and Waste Management
We need to reconsider our consumption patterns and adapt our production methods. It is every individual’s responsibility to limit their use of non-degradable materials and recycle and repurpose where possible.

Sea and Ocean Preservation
Our oceans absorb greenhouse gases, which leads to ocean acidification, harming marine life. Along with reducing our carbon dioxide emissions, we should prevent overfishing and unsustainable development in coastal areas.

What can companies do to support the Earth Day and ESG mission?

Companies can support Earth Day by implementing an ESG strategy that follows and tracks Carbon footprint, reduce it, raise GHG awareness, and manage resources responsibly. Companies are discovering that it is no longer a choice between going green and growing long-term profits. Moreover, companies found sustainability is the path to prosperity. For humanitarian and business reasons, companies of all sizes must take action and embrace the benefits of a green economy.

Moreover, to further explain Earth Day and how it is connected to ESG, we have prepared a couple of examples of companies with ESG incentives.

Intel is a rarer example of a US-based company aligning its short-term incentives with ESG metrics. The company responded in 2019 to investor requests that it further disclose the ESG metrics included in the plan. These include metrics related to diversity, inclusion, employee experience and, as of 2020, climate change and water stewardship.

Danone links both its STIP and LTIP to ESG factors. Its annual variable compensation is weighted over three elements – economic (60%); social, societal and environmental (20%); and managerial (20%). In 2020, the social, societal and environmental portion Danone awarded based on strong employee sustainability engagement results, Danone’s 1.5° climate commitment and continued strong results on the CDP Climate survey. Meanwhile, Danone receives an “A” rating for three consecutive years.

Shell has included “sustainable development” metrics in its STIP for a number of years, including safety performance and upstream/direct GHG performance. In 2019, Shell responded to pressure from activist shareholders by including an “energy transition” metric in its LTIP (weighted 10%). The metric is based on a “mix of leading and lagging measures”: reduction in Shell’s net carbon footprint (a new carbon intensity measure that includes customer emissions), as well as growth in Shell’s power, biofuels and carbon capture efforts.

To sum up

Today, companies face increasing pressure to disclose decision-useful information on their sustainability performance. They also face a growing mix of regulations, standards and frameworks governing what and how to report. ​

To navigate this complex landscape of requirements, companies can seek ESG advisory. Our team at VX Associates will help you navigate the ESG climate and guide you every step of the way.

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The GP stake investing strategy represents a bet on the future growth and profitability of the investment firm behind the fund. It has grown more popular in recent years because it gives the investor a share of returns from what may be multiple funds and accounts managed by the firm. Therefore, it gives the advantage of diversification – rather than just the income and gains from one of those funds.

Asset managers are “people businesses,” reliant on fairly mobile human capital. Moreover, asset managers preserve the firm’s culture and compensation dynamics to maintain its long-term sustainability. Limiting outside investment to a minority stake allows the GP’s senior executives to maintain decision-making autonomy without disrupting the team or culture. Meanwhile, they benefit from a partnership with the outside investor that adds value to its balance sheet and business plan.

Before investing, GP stakes investors will examine a firm’s business from every angle. That includes analyzing everything from LP-GP relationships and alignment of incentives to understanding how the GP management company generates revenue.

GP stakes investors – the top players

At the heart of GP stakes investing, a select group of firms has continued to push things forward. These active GP stakes investors were relatively early adopters of the strategy, and they remain heavily involved in shaping things today.

The market continues to be dominated by three major investors: Blackstone Alternative Asset Management, Dyal Capital Partners and  Goldman Sachs Alternative Investments & Manager Selection Group. According to a recent Pitchbook report, each of them has raised funds over US$4 billion dedicated almost exclusively to this strategy. At the end of 2019, Dyal ramped up the stakes by closing its fourth fund with more than US$9 billion in the capital, making it the largest GP stakes fund ever raised.

Newcomers appear more often, with many trying to distinguish themselves through their deal structuring or targeting firms at earlier stages of development. For example, Sixpoint Partners has generated a “private equity seeding platform” with a $200 million fund. The strategy focuses on spinout managers, and the structure deals with a specified path to exit. Another newcomer is Hartford HealthCare, the $4 billion fund for diverse managers. The fund has a different model than a typical GP-stakes investment. In addition to buying stakes in investment managers, the firm plans to be an active owner that will help guide the managers as their funds grow.

What is next in the making for GPs?

Now that some of the largest GP stakes managers we mentioned above have gone public, allocators are putting money into funds that invest in smaller private equity and alternatives firms. According to Institutional Investor, Dyal Capital Partners merged with Owl Rock Capital Group and went public in May. Dyal is the GP-stakes subsidiary of the combined company called Blue Owl. Petershill, a subsidiary of Goldman Sachs, launched in 2007, was listed in London in September. Both aspired out large GPs for their portfolios.

In contrast, Investcorp Strategic Capital is looking to invest between $50 to $100 million-plus in GPs at an “inflexion point of growth,” according to the source.

In the meantime, asset managers find themselves in greater need of capital – to meet their existing GP commitment obligations and for a number of other reasons. With some of the largest asset managers already having sold stakes in their firms, demand in this particular market is exceeding supply, which opens the way for emerging managers, middle-market PE firms and spinouts.

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The European Commission presented the EU green deal as a new growth strategy to address and tackle the most significant climate issues. Its main objective is to make the EU climate neutral by 2050 and reduce greenhouse gas emissions by 55% by 2030. The EU green deal plan will mobilize €1 trillion to support sustainable investment over the next decade, and it will develop a framework for private investors to facilitate sustainable investment. In that context,  the EU taxonomy is a classification system that clarifies which activities are considered environmentally sustainable. Providing clear guidance on determining whether or not an activity is considered as sustainable, helps companies to shift their investment where it is needed and protects investors from greenwashing.

The EU taxonomy and the Sustainable Finance Disclosure Regulation (SFDR) play a key role in reaching the objectives of the European green deal.

Criteria for Environmentally Sustainable Economic Activities

According to Article 3 of the Regulation, an activity qualifies as sustainable if it substantially contributes to one or more of the six environmental objectives set out in the Regulation. Furthermore, the activity does not significantly harm (DNSH) any of the objectives and it should be carried out in compliance with minimal safeguards, e.g. The International Bill of Human Rights and OECD Guidelines for Multinational Enterprises. Lastly, the activity needs to comply with the technical screening criteria that the Commission has established.

For each of the six environmental objectives, the Commission will issue delegated Act with detailed technical screening criteria. A first delegated Act on sustainable activities for climate change adaptation and mitigation objectives was published in 2021. Therefore, it has been applicable since January 2022. We expect the second one to be published later in 2022, while for the other four objectives, delegated acts are announced to be published later on for application in 2023.

The process of determining whether an economic activity is considered sustainable can be summarized in 4 steps: identification of activities, technical screening criteria, DNSH criteria and social safeguards criteria.

What Companies Fall Under the Scope of the EU Taxonomy?

The EU Taxonomy applies to entities divided into three groups: undertakings that fall under the non-financial reporting directive (NFRD), financial market participants that offer financial products (asset managers, life insurance, occupational pension providers etc.) and lastly, the Regulation applies to EU and its member states measures, that set out requirements for FMP or issuers regarding financial product or corporate bond being labelled as environmentally sustainable.

Reporting Requirements for Financial and Non-Financial Undertakings

As of January 2022, financial market participants need to disclose the proportion of their activities that are considered “taxonomy-eligible economic activities “or “non-eligible “in their turnover, capital (‘CapEx’)  and operational expenditure (‘OpEx’) and total assets. In other words, large entities are not required to assess the Taxonomy – alignment of these activities in 2022. Furthermore, given the technical standard criteria which are at the moment only established for the first two environmental objectives, entities are required to report only on the activities contributing to those 2 objectives. Taxonomy-eligibility reporting in the first year of reporting should prepare undertakings for their alignment disclosures requirement, expected as of January 2024 for the previous calendar year.

Non-financial undertakings shall follow the same rules as for FMP for the year 2022. However, as of January 2023 non-financial entities should report the activities that are considered aligned with the EU Climate Delegated Act ( supplementing EU taxonomy regulation by establishing the technical screening criteria for determining the conditions under which economic activity is considered to substantially contribute to an environmental objective).

Impact on Companies’ Strategy and Business Model

It is important to emphasize how the EU taxonomy does not prevent FMP to finance or invest in activities that are not eligible to the Taxonomy. Likewise, not all economic activities which might contribute to mitigating climate change or support transition are mentioned by the Taxonomy at the moment.

However, EU taxonomy together with the other regulatory measures ( SFDR, NFDR, ECB guide on Climate-Related Risk, etc.) will most definitely lead to a major shift of capital into financing sustainable activities. Therefore, companies that do not change their business models to support or contribute to mentioned environmental objectives, will most probably lose their relevance in the market. Already now we have examples of large institutional investors, like Allianz and others, which have announced to shift their capital into green assets or companies that substantially contribute to a net-zero economy within the next 20 years.

Even the entities that do not fall under the scope of the Taxonomy, like SMEs, will be impacted indirectly. For example, as of 2022 and onwards, European banks will be required to disclose the so-called “Green Asset Ratio “which is the ratio of a bank’s loans and securities meeting the EU taxonomy. This will also include loans to SMEs. Therefore, corporates that are not obliged to disclose information under the EU taxonomy will need to agree on terms to exchange this information with the bank since they will be subject to the Regulation.

The EU Taxonomy will Continue to Develop

The EU Commission clarified how the Taxonomy expects to evolve. For example, technical screening criteria are still missing activities that are important to include within the Regulation. Transition activities – those for which there are no technologically and economically low carbon alternatives – must be reviewed every three years to establish whether they are still considered “transitional “ones. Clearly, the current six objectives may also change depending on the upcoming political discussions and findings.

Indeed, there are many uncertainties and questions regarding sustainable financing and the implementation of accompanying regulatory measures. All market participants need to be aware of how this sustainable transition process will affect companies at all levels. Therefore it is a priority to tackle this challenge by ensuring your company is undertaking all necessary steps to comply with the current requirements and prepare for the upcoming changes. Companies that are at the moment legally out of the reporting scope will not necessarily escape from it. The reason is that some of the financial counterparts they will have will be subject to this legislation.

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The outlook for 2022 was overwhelmingly positive as companies across sectors used M&A to navigate technological change and the growing importance of environmental, social, and governance (ESG) themes. Unprecedented PE fundraising, especially by the most significant funds, lays the foundation for forthcoming M&A activity. However, recent geopolitical tension and inflation have led to lower M&A activity in Q1.

Germany is creating M&A opportunities through digitization and sustainability. In general, deals in transport, infrastructure, healthcare, technology, financial services, aerospace and defence, energy and real estate have played a key role in shaping the M&A landscape in 2021.

Moving forward, there were also interesting cross-border deals in many different sectors. These include apparel and footwear, travel and tourism, consumer goods, oil and gas, food services and mining.

M&A Deals in Europe

What were the drivers of M&A deals in 2021? As Pitchbook states, a perfect mix of strong capital markets, rapid vaccine deployment, easing of pandemic-related restrictions, and persistent accommodative policy were the major factors driving the M&A boom.

According to a Pitchbook report, European M&A value and volume shouted to new annual records in 2021. Approximately 16,352 deals closed, collectively worth $1.8 trillion—marking YoY increases of 56.9% and 57.8%, respectively. 2021 powered past the previous highs of $1.5 trillion set in 2018 and 12,650 deals set in 2015.

In 2022 buyers will want to focus on digitizing their businesses, which will help navigate M&A activity despite macro concerns. Regions in Europe including DACH and the UK & Ireland are expected to see the biggest rises in M&A activity in 2022, according to CMS Law. Meanwhile, the German government is focusing on digitizing and making Germany greener, which should promote more M&A opportunities.

The number of M&A deals in the CEE region rose to 889 in 2021, up 32% from the previous year according to Mazars. The total deal value was also higher, with transactions totalling €67.5bn.

What will 2022 bring for M&A?

In 2022 venture industry is at a crossroads. M&A and venture industry is facing headwinds including public market volatility, and interest rate hikes as the war in Ukraine shifts VC away from its constant growth trajectory. Deal value totalled $70.7 billion in Q1, the lowest figure since 2020, and IPOs came nearly to a halt.

According to Reuters, the value of global merger and acquisition (M&A) activity took a 29% hit in the first quarter of 2022. Overall deal volumes fell to $1.01 trillion from $1.43 trillion in the first quarter of 2021, according to Dealogic data. Dragged down by a similar 29% drop in crossborder transactions, geopolitical tensions forced large companies to take a pause. Companies had to postpone their pursuit of large strategic buyouts.

European volumes were down 25% to $227.67 billion.

Dealmaking in the technology sector continued to lead the way, even though overall volumes were lower compared to last year. Healthcare activity declined by more than half. Part of the reason is that large pharma companies adopted a more cautious strategic approach. That is due to the market volatility caused by geopolitical tensions.

A number of big companies in tech rushed to exit Russia and decided not to use their cash for large buyouts. In the meantime, activist investors stepped up the pressure on boards to pursue sale processes or break-ups. They want to unlock more value for investors at a time when public market valuations are at lower levels.

However, despite the increased volatility and macro concerns, a new activity is still on the horizon. Experts hope deal activity to pick up again once geopolitical tensions are resolved. Nevertheless, deals are likely to be smaller in size. Also, they will need to factor in their companies’ exposure to gas and commodities prices.

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