Climate Tech Funding: Mixed Signals and Regional Variances in a Challenging Landscape

Among geopolitical instability, increased interest rates, and crypto chaos, climate tech Funding maintained its resilience last year. Securing billions of dollars in deals despite a cooling venture capital market. However, the state of the sector remains elusive and subject to interpretation. Various reports offer differing perspectives, with some indicating rising funding in specific areas. While others suggest a decline or potential rebound. Understanding these nuances is crucial to grasp the current landscape.

Starting with the numbers, climate tech funding and deals experienced a significant decline in the first half of 2023. Dropping by over a third in the first quarter and 40% overall, as reported Climate Tech VC (CTVC). This decline reflects the industry’s susceptibility to the VC slowdown. Europe, in particular, witnessed a substantial decrease of nearly 43% in VC funding for the sector during the first half of 2023 compared to the same period last year, primarily driven by a decline in Series B or later-stage deals. Early-stage deals, however, fared relatively better. This trend is also observable globally, as growth investors have already made their investments, as explained by CTVC.

Within the broad realm of climate tech, different subsectors and regions have experienced varying realities. Energy-focused startups in Europe, for instance, faced a gentler blow with a 19% funding decrease, according to Sifted. On a global scale, startups specifically focused on carbon removal and carbon accounting are seeing positive prospects. A PitchBook and NVCA report highlighted that venture capitalists invested $4.1 billion in emissions mitigation startups, specializing in low-carbon concrete, fertilizers, and pollution-tracking tools. These startups are expected to have a stronger year compared to 2022.

While these positive developments do not negate the decline reported by CTVC, which encompasses a broader range of startups in the climate tech category, including electric vehicle manufacturers and some food tech companies, they provide a nuanced perspective amid the prevailing pessimism. Some optimists anticipate a potential turnaround in the sector, citing factors such as the pause in federal interest rate hikes and increasing climate awareness. Investor Bill Gross, for example, believes these factors will contribute to a resurgence in climate tech deal-making.

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