The venture capital market has been experiencing a deceleration in recent years, but one area that’s bucking the trend is climate tech. Specifically, energy startups have seen a significant surge in mega-rounds, with investors pouring billions of dollars into companies working on everything from geothermal energy to battery recycling.
A Shift in Focus
While solar and battery materials dominated the mega-deals in 2023, this year has seen a broader range of technologies receiving investment. Geothermal energy, industrial heat, e-fuels, battery recycling, EV charging, lithium mining, and geologic hydrogen are all accounted for. Even heat pumps, a decades-old technology, have received a €145 million infusion.
This shift in focus suggests that many formerly early-stage companies have mastered their science or technical risks and have started their journey toward commercialization. Investors appear confident they’ll make it, too, happy to underwrite a part of the startup journey that delivers smaller though more likely returns.
Reshoring of Climate Tech Economy
The geographic diversity of these mega-deals is also noteworthy. In 2023, solar and battery materials captured the lion’s share of megadeals, but this year has seen a significant increase in onshore investments. This trend suggests that companies are responding to market trends by reshoring key parts of the climate tech economy.
Investors have been incentivized by government policies and regulations aimed at promoting domestic manufacturing and reducing reliance on foreign suppliers. In return, companies have invested hundreds of billions more. These mega-rounds are a reaction to market trends, suggesting that the reshoring of key parts of the climate tech economy will persist for years to come.
A Welcome Trend
The above investing trends are welcome news in an era where carbon emissions continue to set records. However, with the ocean at record temps, news about sea ice looking grim, and droughts hitting hard around the world, it’s clear that more needs to be done to address climate change.
The surge in mega-deals is a step in the right direction, but with carbon emissions still setting records, we’re still throwing cups of water at a house fire. More, and faster, please.
A Look Ahead
With the IPO window still a few years away for many of these companies, investors are happy to underwrite a part of the startup journey that delivers smaller though more likely returns. The check sizes suggest that investors can see it on the horizon.
As we look ahead, one thing is clear: climate tech will continue to be a major focus area for venture capital investment. With governments and corporations alike recognizing the need to address climate change, the demand for innovative solutions will only continue to grow.
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