What the numbers say: Venture capitalists are moving beyond the initial focus areas within the climate tech industry, such as solar, wind, and lithium-ion battery startups, to decarbonized food, carbon-removal, advanced sustainable materials, and next-generation fuel startups. Within the climate tech sector, VCs invested $18.4B in storage tech, $11.4B in mobility, and $9.5B in food and agriculture startups in 2022. What happened: The reason for the move is that solar, wind, and lithium-ion battery technology has advanced and are gradually replacing fossil fuels. As the technology matures ever further, the market forces will help bring down the costs of the technology even more. As a result, VCs are now focusing on other domains within the climate tech industry that are tackling other challenges. Relevance: Last year, VCs invested $70.1B into the climate tech sector, up 89% from 2021, per HolonIQ Global Impact Intelligence. The sector defied the venture funding pullback trend from last year. However, VC and PE funding for the industry declined 12.8% in Q1 2023, showing that the sector is not entirely immune to overall macroeconomic conditions. Nevertheless, investors are confident about the sector's potential due to the recent introduction of the Inflation Reduction Act, which has nearly $374B of incentives for carbon-free industrial development. Per Bloomberg, the introduction of the climate bill is poised to capitalize 4.5 times more investment from the private sector than the public funds earmarked for the initiative. |
