Venture Capital Investment in Climate Tech Has Tripled In The Last Year – 2021

ClimateAngels | Mar 29, 2022

Cleantech in the early 2000s went through one of the worst booms and bust economic cycles in the history of tech investing. However, climate Tech today would not take the same route.

There are lots of reasons why.

For your information (FYI), people are taking climate change a lot more seriously than they did a decade ago.

We live in a market-based society technologies get adopted only when there is economic sense to use them.

Overall, governments and corporations are finally mobilizing to act against climate change.

All these reasons set the stage for Climate tech startups that are popping up and getting funded at a never seen before pace. A climate tech startup is a company that is applying technologies to reduce GHG (Green House Gas) emissions or to address the impacts of climate change.

Following the decision of the US to join the Paris Agreement and one of the most high-profile climate change conferences of the century COP26, the mainstream attention received by the climate change movement today is unparalleled. This attention has its ramifications in increased stakes for climate tech investments.

Venture investment in climate tech now is 23x higher than it was a decade ago. It is also 2.5x higher than the pre-pandemic levels. Due to the increased investment and interest, the climate tech landscape is metamorphosing at an unmatched pace.

28 climate tech startups gained unicorn status in 2021 alone. They are now a part of the 47 unicorns climate tech has seen since 2015. These startups collectively raised 30 billion USD and are currently valued at 150 billion USD.

More Traction In The Global Investment Community

Climate tech is getting greater traction across the globe. This has been brought about by an increase in:

1. Impact Investing

According to McKinsey, Impact investing directs capital to enterprises that generate environmental or social benefits. Impact Venture Investment in 2021 reached 104 billion USD with Climate tech receiving more than a third of it at 37 billion USD.

Some investors are still apprehensive about these relatively new frontiers. But, within impact investing climate tech has seen a CAGR of 50% in the last 5 years, statistics that are enough to assuage any pre-conceived notions.

2. Focus on ESG parameters while investing

Environmental, social and governance parameters are a set of criteria set for a company’s operations. They are used by investors who are socially conscious to analyse potential investments.

Environmental criteria are concerned with the company’s alliance with nature. Social criteria analyze the company’s relationship with its employees, suppliers, customers, and the community.

Governance criteria deal with the company leadership, executive benefits, internal audits, and shareholder rights.

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3. Awareness about the UN’s SDG goals

United Nations’ Sustainable Development Goals are a group of 17 interlinked global goals. They are designed to be a roadmap to achieve a more sustainable future. The SDGs were set up by the United Nations in 2015 and are intended to be achieved by the year 2030.

Key players in Climate Tech VC

Climate tech is receiving 14 cents for every dollar invested. This was made possible due to the faith shown in climate tech by major players like Sequoia.

Bryan Schrier, a partner at Sequoia said, “It is both our responsibility and a huge business opportunity.” Chamath Palihapitiya, of Social Capital, proclaimed that the first trillionaire would be someone in Climate Tech. According to Climate Tech VC, a weekly newsletter, there are 5 major categories of (private, non-strategic, venture stage) climate tech investors:

1. Climate-general: Investing in climate change as the primary thesis

2. Climate-vertical specific: Investing in a specific vertical (e.g., agriculture, energy) within the broader climate tech ecosystem

3. Impact: Investing for impact with a focus on sustainability

4. Deeptech: Investing in frontier, hard science technologies to address climate

5. Generalist: Investing mostly in enterprise/consumer software, with some opportunistic climate investments

Climate Angels is India’s first climate general angel investment syndication platform for pollution reduction and climate tech startups. It is backed by India’s leading Entrepreneurs, VCs, and investors for combating Pollution & Climate change.

Research shows that 29% of startups in the climate tech sector which receive investments from angel investors in the climate tech sector series go on to get a series A round of funding. While just, 19% of startups in other sectors graduate to get a series A funding.

The US clearly leads the Climate Tech frontier for now. It has seen more investment than China in the last few years. Europe is also emerging as a strong leader. India is expected to get up to speed sooner than expected.

Climate tech VC investment in the Bay area at $11.7 billion is 56% higher than its closest rival, Shanghai at $7.5 billion. In contrast to other regions, Europe has heavily invested in energy, particularly in renewable energy technologies like Photovoltaic cells and energy storage devices like batteries.

Besides the mobility dominant markets of the US and China, Berlin, London, Labege (France), and Bengaluru all come under the top 10 cities for climate tech venture investment.

India among worlds top in climate tech investment

While the pouring investments in climate tech might make you complacent. There is still a long way to go before you decide to hang your boots. According to Forbes, there is an estimated need to invest $3-5 trillion annually into climate tech to combat the drastic effects of climate change.