Between 2013 and 2019, VC and corporate investment in Climate Tech grew faster than total VC investment – a $ 60 billion in early-stage capital, according to a major new report.
The new study by PwC ("The State of Climate Tech 2020") found that Climate Tech is still in its infancy with regard to the entire VC market (approx. 6% of the total capital invested in 2019). It rose from $ 418 million per year in 2013 to $ 16.3 billion in 2019. According to the report, that's roughly three times the growth rate of VC investments in AI over the same period and five times the average growth in VC.
The reasons are predictable in the market economy. It quickly becomes more efficient to prove and scale the technologies involved, and climate-neutral or even carbon-negative solutions are less costly than carbon-producing ones.
Almost half of that venture capital ($ 60 billion) went to US and Canadian climate tech startups ($ 29 billion), while China ranks second with $ 20 billion. The European market attracted $ 7 billion. The majority of the investments for the US and China are in mobility and transportation solutions.
Investment by climate tech startups in San Francisco Bay, at $ 11.7 billion, was 56% higher than that of its closest competitor, Shanghai, which hit $ 7.5 billion. Europe is investing more in the generation of renewable energies (mainly photovoltaic cells) and batteries.
Celine Herweijer, world leader in innovation and sustainability at PwC UK, said in a statement: “The analysis shows the urgency of the possibility and the gap to close, support and scale innovative technologies and business models to cope with the climate crisis. Climate tech is a new frontier for venture investing in the 2020s. "
“Some of the technologies and solutions that are critical to this transformation have proven themselves and need to be commercialized quickly. That is why venture capital is key. Trillions are not invested in startups to make a difference. However, the more difficult technologies and markets require targeted support, including from governments, to be successful through research and development and the early stages where capital is increasingly building, ”she added.
According to the report, the biggest growth drivers in the air conditioning sector are mobility and traffic, heavy industry and the collection and storage of greenhouse gases. It is followed by food, agriculture, land use, the built environment, energy and climate, and the generation of earth data.
Anyone who reads TechCrunch is well aware of the electric scooter and e-bike wars that have erupted in recent years. The report certainly notes that investments in these micromobility startups have increased dramatically, posting a CAGR of 151%, which is 63% of $ 37.4 billion of all Climate-Tech funding over the past seven years.
Azeem Azhar, Senior Advisor to PwC UK, Founder of Exponential View and co-author of the report, said, “The climate tech market is maturing. As a society, we see more entrepreneurs creating startups, more investors supporting them, and an increasing number of larger rounds of funding for later high-potential deals. However, PwC's analysis shows that the ecosystem is still nascent and that founders have important gaps in the depth and type of funding as well as difficult structural hurdles to navigate in scaling their business. "
Where does the investment come from? From a variety of sources: traditional VC companies and sustainability-focused venture funds, corporate investors including energy corporations, global consumer goods companies and big tech, government-backed investment firms and private equity firms.
The report found that corporate venture capital (CVC) plays a huge role in this sector, especially among startups characterized by high cost of capital that aim to target established industries with high barriers to entry such as energy, heavy industry and transportation to disturb. In terms of mobility and transportation, 30% of climate tech deals involve a CVC company, and in the energy sector, 32% of the capital employed came from CVCs. Overall, almost a quarter of climate tech deals (24%) involved a corporate investor.
Herweijer said, “Business involvement will be key to Climate Tech's continued success – both in terms of its net-zero commitments that drive demand for new solutions and in terms of its investments in commercializing innovation. It is not only the financial resources that they bring in, but also the commercial know-how and industry knowledge that help startups to quickly bring new innovations to market and to scale them there. "
The top 10 cities for investing in climate tech startups – outside of the US and China – include Berlin, London, Labege (France) and Bengaluru (India) attracting $ 1.3 billion, mostly in the Areas of energy, agriculture, and food and land use.
The sections that are perhaps most relevant to a TechCrunch audience can be found starting on page 44, which shows that the climate tech market is beginning to behave like the high-growth tech startup world. Where previously obstacles such as technical risk, product risk and market risk existed, these are addressed. Recognizable VC names like Sequoia, GV, Kosler, Horizons, YC and USV are involved.
And although nearly 300 global companies have committed to achieving net zero emissions by 2050, “it takes 10 years for Climate Tech to cut global greenhouse gas emissions by half to bring global warming to 1.5 ° C limit, a rapid injection of capital, talent and the public – private support to unlock the potential to build and accelerate faster and bolder innovations, ”added Herweijer.