VC investments in the climate tech segment remain at a high level

Despite a very challenging environment for venture capital (VC) financing, VC investments in the climate tech sector remained stable in 2023, reaching USD 41.1 billion according to the Pitchbook database. While total VC investments in North America fell by almost 30% and in Europe by 46%, transactions in the climate tech segment only shrank by 14.5% worldwide.

VC investments in Climate Tech remain on high level

Reasons for the continued attractiveness of the climate tech sector

Key drivers for the continued high level of VC activity in the climate tech sector include:

  • High energy and fuel prices keep up the pressure to innovate and develop more efficient technologies and new solutions
  • Increasing importance of the topic of sustainability for both consumers and companies
  • Allocation of public funds for climate tech and clean tech projects. For example, the European Investment Fund (EIF) invested EUR 50 million in the Climate Tech-VC World Fund (https://ec.europa.eu/commission/presscorner/detail/de/ip_22_7532) and in 2023 the European Commission invested over EUR 3.6 billion in innovative clean tech projects (https://ec.europa.eu/commission/presscorner/detail/de/ip_23_3787)
  • More and more start-ups are now able to meet the ESG criteria of investors

The ability of companies in the climate tech sector to continue to attract investors to their respective business models and technology underlines the great importance of the meta-topic of climate change.

The climate tech sector must play a decisive role in achieving global climate targets, e.g. CO2 neutrality by the middle of this century. Without innovation, this goal will not be achieved. Conversely, companies that offer suitable solutions will open up extraordinary economic potential. (See the example of direct air capture: https://www.iea.org/reports/direct-air-capture-2022).

Direct Air Capture plays an important role in achieving CO2 neutrality

The following sub-sectors of Climate Tech are particularly driving the achievement of CO2 neutrality targets: renewable energies, low-CO2 mobility and Carbon Tech, where technologies such as Direct Air Capture (DAC), Carbon Capture and Usage (CCU) and Carbon Capture and Storage (CCS) are currently attracting a lot of attention.

CCS is currently the subject of heated political debate: In Germany, CO2 storage (CCS) is currently still banned, while Norway, for example, has been storing CO2 under the seabed since 1996. A planned new law could soon allow CO2 storage in Germany, at least under the seabed. This could pave the way for up-and-coming carbon capture and storage start-ups to test their technologies in Germany.

Number of venture capital financings in climate tech to remain constant in 2023

VC investments in Climate Tech remain on high level

At around 2,312 financings, the number of VC financings in the climate tech environment has remained stable over the last three years (the three-year average for 2021-2023 is 2,349 VC financings).

In 2023, the transaction volumes of climate tech deals were distributed very evenly between the three regions of North America (USD 15 billion), Asia (USD 13 billion) and Europe (USD 12 billion).

VC deal activity climate tech per segment

The Climate Tech sector recorded high levels of investment in various segments. The largest segments in terms of total VC funds raised were low-carbon mobility (USD 8.9 billion), industry, which includes green mining and lithium battery recycling providers (USD 8.7 billion), grid infrastructure (USD 5.7 billion) and renewable energies (USD 5.6 billion).

Notable deals in the climate tech sector in 2023

At USD 5.4 billion, the photovoltaics sub-category saw the most VC financing, although investments here fell by 11.0% compared to the previous year. There was 34.3% growth (YoY) in the mechanical engineering and chemicals sector, driven primarily by large financing rounds for companies such as H2 Green Steel and Verkor, which both raised USD 1.6 billion. The “Green Mining” and “Metal Recycling” categories also saw significant growth, with large VC deals for companies such as Boston Metal, Cornish Lithium, KoBold Metals and Noveon Magnetic.

First financing rounds Q1 2024

The following financing rounds were already completed and published in the Climate Tech market in the first quarter of 2024:

  • ION Clean Energy, Direct Air Capture Startup from Boulder, USA: USD 70.0 million Series A financing round by Chevron and Carbon Direct Capital Management
  • Greenlyte, direct air capture startup from Essen, Germany: EUR 10.5 million pre-Series A financing round by Partech and existing investors (including Carbon Removal Partners, Earlybird)
  • GridBeyond, developer of an AI platform for energy and smart grid management from Dublin, Ireland: EUR 52 million Series C financing round by Alantra Partners, ABB, Act Venture Capital and other investors
  • Renewance, provider of lifecycle management solutions for industrial batteries from Schaumburg, USA: EUR 18 million Series A financing round by IMM Investment and The RockCreek Group

Conclusion

Although the market environment for venture capital financing is rather challenging, the climate tech sector is proving surprisingly resilient and is recording a sustained high level of venture capital deal activity.

Nevertheless, competition for VC investments is high, which is why a financing round must be prepared professionally and in good time. In order to maximize the likelihood of closing a financing round, a broad approach should be made, including outside of the usual institutional investors.

These aspects are particularly important for the success of larger financing rounds, where professional corporate finance advice can offer important added value.

Further information can be found in the VC Investment in Climate Tech Report from Pitchbook (https://files.pitchbook.com/website/files/pdf/Q1_2024_PitchBook_Analyst_Note_VC_Investment_in_Climate_Tech_15777.pdf)

Source: Emerging Tech Research, VC Investment in Climate Tech, Pitchbook 2024

Published: March 5, 2024

About Quantum Partners

Quantum Partners GmbH, headquartered in Munich, is a specialized corporate finance advisor that supports clients in company transactions as well as in finding financing.

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