Investing in the future: Evaluating technology ventures on sustainability impact in venture capital

Venture capital firms (VCs) play a unique role in fostering the transition to a sustainable society by financing and supporting technology ventures that contribute to long-term societal and environmental goals. However, the sustainability promise of technology ventures is typically not clear at the early stages of development, requiring critical evaluation and continuous monitoring. VCs thus require an approach for sustainability impact assessment to assess and monitor the sustainability impact of technology ventures and guide sustainable investment decisions – even more so in light of emerging regulatory requirements, such as the European Sustainable Finance Disclosure Regulation. Despite this need, limited research exists on sustainability impact assessment in the venture capital context. This study addresses this gap by investigating how VCs can assess the sustainability impact of technology ventures. Employing a design science research approach, we develop and evaluate a novel sustainability impact assessment framework tailored to the unique characteristics of VC investment. The framework adopts a Design Science (DS) approach, combining insights from a systematic literature review with findings from an in-depth qualitative study with VCs. Our contribution is twofold. First, we propose a set of design principles that enable VCs to conceptualize, assess, and monitor the sustainability impact and risks of their portfolio ventures. Second, we develop a framework for developing and validating design principles in highly contextual and emergent domains such as sustainable venture capital. The resulting design principles and framework integrate perspectives from entrepreneurial finance and technology entrepreneurship, aiming to inform both academic discourse and venture capital practice by positioning sustainability impact assessment as a central criterion in investment decision-making and venture support. • Develops and evaluates a novel sustainability impact assessment framework for venture capital firms. • Integrates theoretical insights and empirical evidence through a systematic design science approach. • Provides eight design principles to guide sustainability impact and risk assessment of early-stage technology ventures. • Demonstrates practical applicability through implementation and evaluation in a European VC fund and thereby addresses the growing need for sustainability impact assessment in venture capital under EU SFDR regulations. • Offers actionable guidelines for integrating sustainability into VC investment decision-making and monitoring processes.