Source: CTVC
Synopsis
The report highlights a significant decline in venture capital (VC) funding for climate tech companies during the first half of 2023. While the overall venture market experienced a 53% year-over-year drop in Q1, the climate tech sector saw a 40% decline. This decrease can be attributed to various factors.
One factor is that growth investors made substantial investments in 2021 and 2022 and are now waiting to see how those companies perform before making new significant investments. They also want to avoid competing with their own portfolio companies in maturing climate verticals. This has resulted in a dearth of companies ready for growth-scale financing.
Another factor is the shift in investor focus towards earlier-stage technologies in the climate tech value chain. Investors are allocating capital to support their existing investments or based on updated learnings. Consequently, there has been an uptick in early-stage funding in the first half of 2023.
The freezing of the exit markets has also had an impact on the decline in climate tech funding. Late-stage and growth investments in climate tech businesses, which tend to be more capital-intensive due to physical assets, saw a greater drop-off.
The report further reveals that funding in the first six months of 2023 amounted to $13.1 billion, a 40% decrease compared to the same period in 2022 and a 35% decrease from the second half of 2022. However, the overall deal activity increased by 8% compared to the previous year.
The funding decline affected various verticals, with the “Big Three” verticals—Transportation, Energy, and Food & Land Use—each experiencing around a 50% drop compared to the prior year.
Despite the decline, it’s important to note that since the beginning of 2020, more than 2,500 climate tech companies have raised over $117 billion in venture funding across 3,332 deals. The article suggests that the next quarter’s funding trends will determine whether the decline is a temporary slump or a sign of a more sustained slowdown in the climate tech sector.
