Climate tech VC deals at slowest pace in three years

From its peak in Q3 2021, quarterly deal value for climate technologies has fallen more than 50%

Funding for climate tech start-ups by venture capital funds is at its slowest pace in nearly three years, in a worrying sign for the sector.

In the first quarter of 2023, climate tech start-ups raised $5.7bn across 279 venture capital deals, according to data from PitchBook, which monitors the venture capital market

This is down more than a third (36%) in deal value, and a 31% drop off in deal count from the second quarter of the year.

From its peak in Q3 2021, quarterly deal value for technologies developing solutions to the energy transition has fallen more than 50%. 

UN scientists warned in March the world faces a catastrophic warming threshold within the next decade.

The report, which estimated that the Earth will exceed a 1.5 degrees Celsius (2.7 degrees Fahrenheit) warming target by the early 2030s, urged “deep, rapid and immediate action”.

Climate tech was one of the most resilient segments of the private market last year. 

Carbon and emissions tech start-ups raised $13.8bn in venture capital deals compared with $14.1bn the previous year, down just 2%, according to PitchBook data. 

That was despite a bear market that stalled venture capital funding across nearly every industry. 

Wes Selke, a partner at Better Ventures, said: “I wouldn’t be surprised if the funding was slowing down compared to where it was last year, just because of the general broader slowdown in VC funding.”

But on a more upbeat note, Selke added, “there’s a lot of momentum still in climate tech, and you have the tailwinds of industrial policy, like the US Inflation Reduction Act (IRA)”. This passed in August 2022 and has been welcomed by the climate tech industry, especially for recipients of the IRA’s various green subsidies, such as carbon capture technologies and green hydrogen production. 

John MacDonough, PitchBook analyst, said: “While it’s still a little too early to have seen much of the IRA’s impacts, its size and scope are enough that it will be one of the dominant drivers of US climate tech investment for years to come.”