Climate Tech Turnaround in 2024: Hope or Hype?

Dive into 2023's climate tech investment trends! As we pivot to 2024, the anticipation grows for new policies and a potential resurgence in climate tech, driven by software and hybrid solutions. Will this sector rebound?

Climate Tech Turnaround in 2024: Hope or Hype?
Brighter Days for Climate Tech in 2024?

Jump into a summary of 2023 climate tech investment trends with top investors, historical rises & falls, and glimpses into the future with predictions for 2024!🔮

💰Where does the money come from? - Top investors of ‘23

Lowercarbon tops the table in the early stage, focusing on Energy and Waste reduction.

Breakthrough Energy supports startups that will eliminate GHG emissions. Last year, BEV invested mainly in late-stage pioneers in Food, Energy, and Carbon reduction.

Growth-stage investments were led by Temasek Holdings, making deals in Transportation, Food, Telecommunications, and Financial Services.

💡Highlights of 2023

Yearly global funding activity by financing type, 2019-2023

-30% funding from 2022, but CAGR remains at 23% since 2020;
-40% in equity investment;
-3% deal count compared to 2022;
-28% shrunk in avg. deal size.

📈📉 Historical Rises & Falls

+34% peak in non-equity funding, as some entrepreneurs turned to public funding opportunities and alternatives;

~250 corporate acquisitions marked a historical boom - agreements made mostly in the Energy, Transport, and Food & agriculture sectors;

-41% in Series A experienced a drop for the first time;

Overall deal activity declined for the 1st time since 2020.

👊How big a punch climate tech got?

Late-stage and Growth deals also significantly decreased: Series C (-35%) and Growth (-37)% took a strong hit.

Regarding early-stage investments, Series A took the biggest fall with a colossal 41% drop.

Seed is the only ‘survivor' with 7% growth - although at a lower rate, compared to 2022.

Annual climate investment by stage, 2020-2023

👑Industry stealing the show?

The Industry received more than $5 billion in 2023.

Compared to 2022, the North American and European market have shifted away from Mobility-related startups and ca. doubled the investments into the Industry.

China also turned to other sectors. You can see a striking ~10% increase in Energy investments since 2022. Meanwhile Asia-Pacific (excl. China) continues to grow Mobility investments.

🏆 Mobility and Energy are still the top 2, but Industry took over the 3rd place from Food, agriculture and Land Use.

Regional investment trends, 2018-2023

💻⚙️Software vs Hardware

The deal ratio between Software vs Material-intensive industries (Physical), like battery production, carbon capture, renewables, water treatment, etc., stayed consistent compared to the previous years:

  • Physical: ~50%,
  • Software/Services: ~30%, and
  • Both (Software & Hardware): ~20%.

Regarding the transaction activity, Physical fell down by 6% while Software suffered a 3% drop.

🌱Climate tech investments still managed to grow in 2023

The severe macroeconomic environment filled climate tech with higher interest rates and a careful approach by investors and founders that resulted in e.g., project cancellations, declined investments, bankruptcies, etc.

However, climate tech investments relatively increased compared to all startup investments.

Climate tech investment as a % of venture capital & private equity investment, 2013-2023

What’s next? 👀

💸There is still hope?

In 2024, interest rates are likely to decrease, new policies and rules will roll out, and global competition can drive climate technology forward.

Climate Tech is transforming into a diverse investment scene, expecting a rising volume of investors dedicated to climate and impact initiatives.

🌍Who wins the regional battle?

While regarding deal counts, North America and Europe have been going head to head for some time, the capital invested in Europe has always clucked behind.

In 2024, new EU climate rules, like the SFDR, might push the European market to become the top player in climate technology.

💣Software beats Physical?

According to a Sifted report, 2024 will be the year of energy flexibility.

Driven by the spread of green energy like rooftop solar and EVs, a breakthrough is foreseen in making new energy solutions accessible for everyone, from individuals to SMEs.

This influences that software-first and hybrid solutions are expected to evolve significantly, especially in more advanced markets like Europe and the US.

What you think, can Climate Tech shake off its rough patch in 2024?
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PS: Dig deeper to understand the connections and check out the articles we used for this analysis🔗

→ Sources used in our analysis:

Feature image generated by Dall-E