Climate tech VC investment grows at five times

Climate Tech VS investment
VC and corporate investment into climate tech 

VC and corporate investment into climate tech grew at a faster rate than overall VC investment as a whole between 2013-2019, according to a major new report — to the tune of $60 billion of early-stage capital.

The new research by PwC (“The State of Climate Tech 2020“) found that although it’s still early days for climate tech in terms of the overall VC market (approximately 6% of total capital invested in 2019), VC investment into the space is growing at a clip: it increased from $418 million per annum in 2013 to $16.3 billion in 2019. According to the report, that is approximately three times the growth rate of VC investment into AI over the same period, and five times the average growth in VC.

VC investment in Climate Tech and number of deals
Source: PwC analysis

Key takeaways and recommendations What are the key takeaways from the data on the state of the investment landscape?

1. Startups leverage capital well and don’t need trillions to make a difference.

2. Talent is starting to align with breakthrough technologies and innovative business models. Where this happens, investors are lining up and we see an increasing number of larger funding rounds with high potential deals.

3. The growth rate of climate tech from 2013 has been sizable, with more than 3750% increase over the 7 year period (2013-2019).

4. But circa $60 billion as of 2019 is too low given the scale of the challenge, and more early stage investment needs to be stimulated, and the area needs to attract and support more top founders.

5. There are non-financial barriers, from talent to regulations, which might get in the way of firms having as much of an impact as needed.

6. Individual great founders can make an outsized difference in climate action. The startups they create will take some time to reach scale however, and so the startups creating most impact in this business cycle (over the next 5-7 years) will likely be those founded in the 2010’s.

Recent venture funding announcements support new wave of climate tech Recent reports have outlined the multi trillion-dollar investment opportunity presented by combating climate change with technology.22 Corporations and investors are taking notice.

In recent months, Amazon has committed to launching their Climate Pledge Fund, $2 billion in venture capital aimed at clean energy ventures; Jeff Bezos, Amazon’s chief executive, pledged $10 billion to fight climate change through the creation of the Bezos Earth Fund, making him the largest single US climate change donor; Microsoft has announced a $1 billion Climate Innovation Fund, and Unilever has pledged to invest €1 billion in a new dedicated Climate & Nature Fund, focused on nature restoration and carbon sequestration. In addition, generalist VCs have announced that they are now seeking climate tech related opportunities, including Sequoia Capital, Founders Fund, Khosla Ventures, Kleiner Perkins and Union Square Ventures.

Unicorns: Four unicorns were recorded in this challenge area: three in low GHG: other materials (Ginkgo Bioworks, Allbirds and Zymergen) and one in efficient manufacturing processes (Carbon).

Unicorns: SolarCity, specialising in solar energy services, gained a valuation of $2.6 billion during its acquisition by Tesla, Inc. and is the only $1 billion plus investment identified in Energy during the period analysed.

Noteworthy startups: Just five companies account for more than 50% of storage investments: Quantumscape, Sonnen GmbH, Aquion Energy, Energy Vault SA, and Vionx Energy. Of these five, only Energy Vault SA is a non-chemical battery system, using a novel form of gravity storage.

Noteworthy startups: Indigo Agriculture is an American agricultural technology company founded in 2014 and is the most highly valued agritech startup, with a post money valuation of $3.5 billion after raising $500 million in Series F funding in 2020.

Noteworthy startups: Carbon is an American digital manufacturing company founded in 2013. Carbon develops and manufactures 3-D printing hardware, software, and its own printing materials

• Noteworthy startups: Katerra raised the most funding in this lever in our data set, at $1.2 billion since 2016. Other startups include NODE and Biokable. This lever has seen some challenges also, with some startups reducing the size of their workforce in recent years

Ecobee is a Canadian home automation company that makes smart thermostats, temperature and occupancy sensors, smart light switches, smart cameras, and contact sensors. The thermostats are controlled by using the built-in touchscreen, web portal, or app. Their products and services are typical of much of the startups in this lever.

As of June 2020, LanzaTech reached a valuation of over $1 billion.

Noteworthy startups: LanzaTech is an American carbon capture startup founded in 2005. They are developing a technology that can turn waste carbon streams into ethanol, which can be used for fuel or chemical processes. They are also attempting to branch into processes which produce useful products other than ethanol. Similar to many of the types of startups we would expect to see in this entire challenge area, solutions made by LanzaTech could be heavily utilised by those working other challenge areas, primarily Mobility and Transport, Energy, or Heavy Industry.

Unicorns: There is only one startup with a $1 billion plus valuation in this challenge area for the time period analysed: Planet Labs, an American aerospace and analytics company.

Climate tech unicorns Firms like Tesla, Nikola, Beyond Meat and Nest have demonstrated it is possible for climate tech startups to reach unicorn level (that is, valuations at or exceeding $1 billion). Our research estimates that there are currently 43 privately held, venture-backed climate tech startups with valuations in excess of $1 billion. These unicorns are concentrated in the Mobility and Transport challenge area and, unsurprisingly, represent firms founded relatively earlier in our research period – though this suggests room for a stream of additional climate tech unicorns in the coming years.

Growth rate: Investment in heavy industry startups has grown consistently, with the challenge area recording a CAGR of 75%, slightly below the overall growth rate of climate tech investment of 84%.

Key highlights from our dataset include:

  • PwC identified around 2,700 unique investors from venture capitalists, corporate VCs, angel investors, philanthropists, and government funds who have participated in funding over 1,200 climate tech startups between 2013 and 2019, covering over 2,700 funding rounds.
  • Investment levels are growing rapidly from a low base. Of the firms that met our criteria of having raised venture capital (or the equivalent) between 2013 and 2019, we see an 84% compounded annual growth rate (CAGR) in total capital deployed. This represents almost five times the growth rate of the wider VC industry, where investment grew at just 18% annually. It also is on the order of 3 times the growth rate of VC investment into AI, during a time period renowned for its uptick in AI investment.
  • Over this seven year period, $59.5 billion of venture capital flowed into startups contributing to tackling the net zero challenge.
  • In 2013, climate tech attracted only $418 million in venture capital. By 2018, nearly fifty times as much capital was deployed, before levels cooled off to $16.3 billion in 2019. The venture industry as a whole deployed approximately $264.4 billion last year, implying climate tech investment represented 6% of global venture capital activity in 2019.
  • We also see a rapid acceleration in the number of deals being done. The number of funding rounds grew at a 35% CAGR over the seven year period. As this was a lower growth rate than funds deployed, it implies an increase in the typical deal size, suggesting a maturing of the climate tech market. This was particularly noticeable for investments in the Mobility and Transport challenge area.
  • The Mobility and Transport challenge area represents 63% of all climate tech funding over the past seven years, as investments in electric vehicles, micromobility and other transit models have attracted significant investor attention – of the ten firms which attracted the most capital in the period, nine were in the Mobility and Transport challenge area. VC investment in this challenge area alone grew at a CAGR of 151% over the period; whilst the remaining climate tech challenge areas grew at a more temperate, but still pacy, gait of 57% per annum.

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