Norrsken VC Links Partner Pay to Portfolio Impact

Norrsken VC is pioneering a new approach to venture capital. The firm is now directly connecting the remuneration of its partners to the positive global impact generated by the companies within its investment portfolio – moving beyond solely focusing on financial returns.

Impact Assessment and Sustainable Development Goals

Having recently concluded its latest investment fund, Norrsken VC released its 2020 impact assessment. The firm’s investments actively contribute to seven of the United Nations’ 17 sustainable development goals. Performance is being evaluated across a spectrum of metrics, ranging from closely monitored indicators to those that are inherently complex to quantify.

In certain areas, impact is assessed through customer metrics. The underlying assumption is that a larger customer base indicates greater positive influence, particularly within sectors like education and healthcare where definitive impact measurement can be challenging.

Tangible Progress in Climate and Sustainability

The portfolio demonstrates significant and measurable progress in climate change mitigation and sustainability. Emissions reductions and gains in energy efficiency are readily quantifiable. These improvements, alongside minimized waste from food and agtech investments, represent the firm’s strongest performance areas.

This performance will be crucial when the firm exits investments, as partner compensation is directly tied to these impact metrics.

Setting and Measuring Impact Targets

“We establish impact targets before each investment,” explains Tove Larsson, a general partner at Norrsken VC. “This process involves collaboration with key Limited Partners (LPs) and requires approval from the advisory committee. Targets are set annually.”

At the fund’s conclusion, the collective results of all impact Key Performance Indicators (KPIs) will be analyzed. Each company’s impact will be weighted according to the investment amount. This aggregated outcome will determine whether the team receives carried interest.

Carried Interest and Charitable Donations

If portfolio companies achieve 60% of the established impact targets, partners will receive half of their carried interest, with the remaining portion donated to charity. “There is a proportional increase up to 100%,” says Larsson. “Failure to reach the targets will result in the carried interest being allocated to a charitable organization or NGO.”

Differentiation in a Growing Impact Investing Landscape

Norrsken’s partners view this unique compensation structure as a key differentiator. The number of firms concentrating on the UN’s sustainable development goals is rapidly increasing, creating a need to demonstrate genuine impact.

“When we began investing, we were among the first,” notes Agate Freimane, a general partner at the firm. “The market quickly evolved, prompting questions about how to distinguish ourselves and validate our commitment to impact.”

“This is integral to our core values. We must strive for improvement and demonstrate that we practice what we preach,” Freimane adds. The firm drew inspiration from the European Investment Fund, which employs similar restrictions on compensation.

Early Success and Long-Term Goals

The team has successfully met its initial targets. “We’ve already reached 119% of the 2020 targets,” Freimane reports. However, this represents only 12% of the overall long-term objectives. “Currently, we’ve completed one-tenth of the work required over the fund’s lifespan.”

Despite potential imprecision in some targets, the portfolio companies are demonstrably reducing greenhouse gas emissions, minimizing food waste, and enhancing energy efficiency. Examples include Submer technologies reducing data center energy demand by 10 Gigawatt hours, Karma, Whywaste, Matsmart and Olio reducing 11,000 tons of food waste, Woshapp saving 4 million liters of water, and Alight developing 38 megawatts of solar projects.

“We are proud to be implementing this now,” Larsson states. “While not perfect, it’s a crucial first step towards greater industry transparency. Simply tracking and publicly reporting our progress is an achievement in itself.”

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