Investment in Climate Tech: Strange Hinterland of Venture Capital

ClimateAngels | Feb 25, 2021

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Climate Tech – the sector that might just save the world.

We, the team of investment analysts at Climate Angels found that Climate tech investments have grown at five times the VC market rate over the last seven years. Albeit starting from a low base, Climate tech is rapidly becoming a significant and recognized market segment, with good signals for continued growth.

Between 2013 and 2019, VCs and corporate investment in start-ups working towards technology-enabled strategies for climate change. The transition towards net zero emissions rose at a faster pace than VC investments as a whole. In this period, $60 billion in early-stage funding was deployed globally in start-ups that led to meeting the net zero challenge.

PWC in their report mentions, for such a new sector, definitions are key. Climate tech is defined as a broad canopy of solutions to reduce greenhouse gas (GHG) emissions.

As seen in with breakthrough companies like Ather Energy and Blu Smart Mobility, new applications of innovation in sectors like mobility and e-commerce are raising significant capital, while also addressing climate challenges.

A New Space

While climate tech is an emerging sector overall in the VC market (approx. 6% of total capital invested in 2019), climate tech VC investment increased from $418 million in 2013 to $16.3 billion in 2019. To put that in perspective, that’s approximately five times the average growth in VC investments.

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Source: The World’s Largest Climate Tech Hubs – Statista

Drivers for Growth

Climate Tech related to mobility & transport, heavy industry, and GHG capture and storage are the fastest-growing segments in the analysis, followed by food, agriculture, land use, built environment, energy, and climate, and Earth data generation.

Investment in micro-mobility such as e-scooter and bike platforms and wider transport innovation has grown dramatically, recording a compound annual growth rate (CAGR) of 151%, and representing 63% ($37.4 billion) of all climate tech funding over the past seven years.

Europe has heavily invested in energy, particularly in renewable energy technologies (predominantly photovoltaics (PV) cells) and energy storage (batteries), demonstrating the potential for regional specialist capabilities in the second wave of climate tech. Outside of mobility and the dominant US and China markets, Berlin, London, and Bengaluru, India all appear in the top ten cities for climate tech startup investment.

But $60 billion as of 2019 is too low given the scale of the challenge, and more early-stage investment needs to be stimulated, and the area needs to attract and support more top founders.

Challenges don’t get more global than climate change, so it’s important that innovative solutions can come from anywhere.

Source: PWC-Climate Tech