Private Venture Investments in Climate Tech Drop 61%, Anticipating Massive Public Funding

Source:
San Francisco Business Times Journal – Andrew Mendez, Bay Area Inno Reporter

According to a new report, venture capital, which is a major source of investment, has been drying up despite the federal government’s rollout of new policies aimed at reducing the country’s carbon emissions and relying on private sector investment.

Silicon Valley Bank’s report states that venture investment into startups working on climate-related technologies and businesses has declined since reaching a record high of $14.9 billion in the fourth quarter of 2021. In the first quarter of this year, it dropped to $5.8 billion, a 61% decrease from the peak. The number of climate-tech related venture deals in the U.S. has also plummeted from 545 in the first quarter of last year to 380 in the first quarter of this year.

Additionally, the number of new climate-tech focused venture funds and the amount of money raised by them have significantly decreased. Only 18 new climate tech-related funds were closed in the first quarter, down from 50 in the previous quarter of 2021. These funds raised a combined $1.9 billion, down from $7 billion in the last quarter of 2021.

The decline in climate-tech related deals is observed across various subsectors, with mobility down 15% and industrials down 16%. The fall in climate-tech funding and fundraising follows the implementation of federal laws, such as the Infrastructure Investment

and Jobs Act, the Inflation Reduction Act (IRA), and the CHIPS and Science Act, which are expected to provide nearly half a trillion dollars in funding for climate technology and energy infrastructure over the next decade. However, private investment remains crucial for further reductions in carbon emissions.

Despite the decline in venture funding, the report highlights some positive aspects. The number of deals for climate-tech firms has not dropped as much as those for tech startups in general. The number of active investors in the sector has also held up better compared to the broader tech sector. Valuations for climate-tech startups have even increased, and the sector has seen an increase in late-stage investment and the number of unicorns.

The report concludes that late-stage investment is a sign of the sector’s maturity and its ability to generate revenue to support valuations. It also suggests that investors are growing more confident in the long-term prospects of climate tech, as evidenced by the growing demand for climate-friendly solutions.

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