Avoided costs for society: new criterion for valuing impact unicorns
Paris: For 2 years, BCG and the Mouvement Impact France have been conducting a study devoted to the development of start-ups that place the search for positive impact at the heart of their model.
The first part of this study – Will impact start-ups be the unicorns of tomorrow? – published in May 2022 on the occasion of the BCG Environmental and Social Entrepreneurship Prize, concluded that it was necessary to take into account, in order to better determine the potential of these companies and facilitate their development, the social and environmental value and not their only economic potential.
In the second part of this study, BCG and the Mouvement Impact France, in collaboration with the ESSEC Business School’s Social and Environmental Impact Assessment and Measurement Laboratory (E&MISE), propose a concrete indicator to quantify the creation of value for society by these impact start-ups, and thus bring about the first impact unicorns from 2030: that of the amount of costs that these companies avoid for society .
Why make impact unicorns emerge?
In recent years, the emergence of 29 French unicorns in the fintech, big data or blockchain sectors, unlisted start-ups valued at more than a billion dollars, has been facilitated by political voluntarism. which has resulted in substantial investments in technological and scientific innovation.
Today, the proliferation of ecological and social crises and the growing commitments made by France to respond to them, particularly at European level (European Green Deal, CSRD, Sustainable Development Goals) require these same efforts to be made towards the emergence of transitional champions. Indeed, overcoming these challenges presupposes that new, unprecedented, breakthrough solutions can be developed quickly and on a large scale in response to major ecological and social issues. These solutions for the future will have to be massive and generalizable in order to bring about the shift necessary for the transformation of our ways of producing and consuming. They will thus be able to respond with force and with the appropriate timing to the main objectives of sustainable development that France and Europe have set themselves.
The key points of the study:
- BCG and the Mouvement Impact France, with the methodological support of ESSEC’s Social and Environmental Impact Assessment and Measurement Laboratory (E&MISE), propose to revisit the current definition of the unicorn (disruptive innovation, less than 10 years, 1 billion in financial valuation) by replacing the financial valuation criterion with that of the costs that impact companies avoid for society, expressed in euros : for example costs saved by avoiding the emission of tons of CO2, by bringing an unemployed person back to work, etc.
- The study covers a panel of 11 impact start-ups, with 3 impact archetypes: the social impact with integration through employment, the environmental impact with the reduction of the carbon footprint and the impact on health through prevention and support.
- On average, the companies in the panel allow society to avoid costs equivalent to 30% of their turnover . If these avoided costs were borne by the State and added to the turnover of these companies, their net result would in fact become largely positive, by around 12% of turnover. Whereas in the current accounting view, they have low profitability (even negative for some impact companies).
- Of the 5 case studies presented, the results obtained are promising: Simplon (17.4 million in avoided costs), Phenix (7.1 million), Each One (5 million), Café Joyeux (0.9 million), May Health (0.6 million).
- If the billion in financial valuation that allows classic start-ups to reach the unicorn stage is equivalent to approximately 50 million in EBITDA (assuming a valuation equal to 20 times EBITDA), a company with impact could also reach the impact unicorn stage when the costs that its activity allows society to avoid reach 50 million euros annually.
“The avoided costs indicator initiates a paradigm shift regarding the financial valuation of impact start-ups. It allows us to concretely quantify the added value of these companies for society, by evaluating them on the heart of their raison d’être: the environmental and social impact.” explains Quentin Decouvelaere, Associate Director at BCG and co-author of the study.
“ This study introduces a whole new way of thinking about the valuation of start-ups in terms of their social and ecological impact, to no longer focus solely on the financial value they can generate but on what they bring concretely positive in the general interest. Like what has been deployed for French Tech, it is time that we give these committed players the ability to scale up and quickly achieve hypergrowth to increase their ecological and social impact tenfold for the Company !” adds Caroline Neyron, CEO of Mouvement Impact and co-author of the study.
“ As long as we do not really take into account the impact of social enterprises, going as far as a monetary valuation, at least partial, of this impact, we will not create the real conditions for their change of scale. We will miss out on an effective solution to face the social and environmental challenges of our time. says Jérôme Schatzman, Director of the Center for Social and Ecological Innovation at ESSEC.
Echoing the results of this study, the Mouvement Impact France has identified three proposals to unlock the potential of impact businesses and facilitate their scaling up.
He proposes that the public authorities affirm a target of 10 impact unicorns among the 100 unicorns expected by 2030, which could be accompanied by the implementation of various mechanisms:
- Implementation of a “Next Impact” program by French Tech.
- Targeted earmarking of part of France 2030 funds to impact start-ups
- Like the Young Innovative Company status, establishment of a “Young Impact Company” status allowing the granting of a tax credit on their social contributions backed by the annual amount of avoided costs allowed by their activity.
Source: Boston Consulting Group (BCG)
