A decrease in late-stage climate tech funding is posing a threat to the deployment of commercial-stage climate solutions, data from intelligence platform Sightline Climate has shown.
According to the findings, climate technology startups saw a dramatic decline in Series C+ funding in 2023, with growth investment falling 41% and Series C dropping 35%. Deal counts for both categories were down by approximately 30%.
Venture and growth investment in 2023 totalled $32 billion, representing a 30% decline from 2022, despite a compound annual growth rate of 23% since 2020. This marked the first overall decrease in deal activity, with the total deal count dropping by 3% compared to last year. The average deal size also decreased by 28%, contributing to the overall funding decline.
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According to the researchers, this ‘valley of death’ is perilous for startups moving from prototypes to commercial solutions. The funding shortfall affects not only startups but also industries needing climate tech to decarbonise and national economies losing skilled jobs and revenue. While early-stage capital is abundant, funding decreases as risks and costs rise during mass production.
Addressing this issue is critical for European policymakers, who must contend with a reliance on Chinese manufacturing amid the USA’s protectionist Inflation Reduction Act, shared the researchers. The IRA has funnelled nearly $369 billion into climate tech through direct investment and tax credits, and reports indicate that EU-based companies received only half the investment of their US counterparts between 2019-2021.
Christian Hernandez Gallardo, partner and co-founder at climate-tech-focused VC 2150, said: “Climate technologies face a triple-edged sword; they’re vital for tackling climate change, need to be affordable to encourage adoption, and are particularly expensive and CAPEX-intensive to commercialise. Governments need to provide more support to late-stage startups through accelerators, tax breaks, cash grants, and other incentives to encourage investment in essential new tech.”
Nicholas Chadwick, co-founder and CEO of UK-based direct air capture startup Mission Zero, added: “We’re in a challenging economic environment where capital is less plentiful and more expensive than it was five or ten years ago, making it harder to secure later-stage investment. Governments cannot expect to let these businesses fail and have a chance of meeting meaningful decarbonisation and resilience targets.”
