VC Firms Accentuate Investing in Global Cleantech Landscape

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In August 2021, a pair of investment funds closed more than $12 billion of private equity funding for climate or energy transition-related investments. Climate Tech VC’s authors tracked close to $16 billion of funding in 1Q and 2Q 2021, including 250+ individual deals across seven sectors – carbon, climate, consumer, energy, food and water, industrial, and mobility. It is close to the total of 2020 and not far behind 2018’s total of $17.9 billion.

According to a report published by Climate Tech VC, close to 1,000 investment firms joined at least 1 climate tech deal with 50 firms backing 5+ climate tech deals. In Q2’21, Series A deals were double the average size of same stage deals from a year before; meanwhile, Growth deals have tripled in size.

That kind of investment figure is significant, and equally significant is how investors are approaching this sector. Climate Tech VC has divided its data in a very functional way – by the number of unique firms investing in each sector. There is also a pleasing alignment between the number of firms interested in climate tech sectors and those sectors’ climate significance. Food and water is the biggest category of emissions today; followed by the buildings sector, and third is transport, which consumes a great deal of both electricity and heat generated by fossil fuels.

Also noteworthy in Climate Tech VC’s data is that the deal sizes in almost every tier of climate tech venture investing increased last year. Growth equity rounds, which fund major expansions and often involve building manufacturing capability and/or expanding to multiple markets, tripled on average to almost $400 million.

All good news for climate so far. Also, a trend worth watching for both founder and investors: Climate VC’s data show that seed funding sizes rose by a third in the past year, to $4 million from $3 million. But that relatively modest increase contradicts the valuations these startups have been tagged with once that fundraising is complete.

Recently, founder and early-stage investor Immad Akhund noted on Twitter that in the last batch of Y Combinator startups he had considered, “climate tech startups have the biggest premiums and are the hardest to get an allocation in”.

Heady valuations and investor FOMO coupled with the very real need to fund planetary-scale innovation provide quite a tailwind for climate tech. Those outsize numbers are a sign of enthusiasm, but they are also an implicit promise from founders to investors that their companies will grow to match expectations.

More traditional investors are participating and there are more cross-sector opportunities than ever before.



Categories: Most Read: 2021-09 (September), Venture Capital

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