Climate Tech Fundraising Remains Steady; Silicon Valley Bank Releases Annual Climate Tech Report

Rhea-AI Summary

The 2024 Future of Climate Tech Report by Silicon Valley Bank reveals that climate tech has remained resilient despite a significant drop in overall venture capital (VC) fundraising. While VC fundraising and deal activity in 2023 declined by 24% from 2021, climate tech is only 14% below 2021 levels. The report notes increases in specific subsectors such as carbon tech and climate data. Despite a 50% decrease in invested capital, climate tech fundraising remains on par with 2020 levels, making up 11% of deals, a rise from 2% in 2020. Challenges include lower VC investment and higher interest rates, pushing companies to prioritize profitability. However, incentives like tax credits are driving growth in carbon capture and industrial heat technologies. The sector faces difficulties with public exits due to high interest rates and market uncertainties.

Positive

• Climate tech's VC fundraising is only 14% below 2021 levels.
• Subsectors like carbon tech and climate data are growing.
• Climate tech now accounts for 11% of deals, up from 2% in 2020.
• 76% of climate tech software companies and 65% of hardware companies are improving EBITDA margins year-over-year.
• 88% of global carbon emissions are under net-zero goals, boosting demand for climate tech.

Negative

• Overall VC fundraising and deal activity declined by 24% from 2021.
• Invested capital in climate tech has decreased by over 50%.
• 60% of climate tech companies have less than 12 months of cash runway.
• Exit windows are mostly closed due to poor SPACs and IPO performance, high interest rates, and market uncertainties.
• Companies face higher capital costs due to lower VC investment and higher interest rates.

Insights

Financial Analyst

Climate tech's stability amid a 24% decline in overall venture capital (VC) fundraising and deal activity in 2023 demonstrates its resilience. Although the sector saw a 14% drop since 2021, it remains less impacted compared to the broader market. Notably, subsectors such as carbon tech and climate data are showing growth. This indicates a strong investor confidence in the long-term viability of the sector.

The report's highlight that 60% of climate tech companies have less than 12 months of cash runway is a critical concern. Liquidity issues could pose significant risks if not addressed. In response, companies are focusing more on profitability and efficiency. Improvement in EBITDA margins for both software (76%) and hardware (65%) climate tech companies is a positive trend, reflecting better financial discipline.

Furthermore, the fact that climate tech accounts for 11% of deals among the most active CVCs, up from 2% in 2020, indicates a strong interest from corporate venture capitalists. This trend could continue to provide a lifeline for climate tech startups amid broader market challenges.

Market Research Analyst

With 88% of global carbon emissions now under a net-zero goal, the long-term prospects for climate tech are promising. Climate tech's growing importance is underscored by advancements lowering sustainable technology costs, making it cheaper to develop renewable energy compared to fossil fuels. This economic shift could accelerate market adoption and innovation in the sector.

However, the decline in deals over $100 million suggests that larger investments are becoming scarce. This could hinder the development of capital-intensive projects, potentially slowing down innovation. The emphasis on tax credits, with 427 new CCUS projects announced in the last two years, highlights the importance of government incentives in driving growth in the sector.

The report stresses the focus on hard-to-mitigate emissions—such as industrial heat and cleaner baseload power—as areas poised for VC growth. These technologies hold potential for substantial impact but require significant investment and development. The potential exit activity being limited reflects broader market conditions, suggesting a cautious approach for investors in the short term.

As a sign of stabilization in US venture capital, findings show long-term tailwinds behind climate tech 

SAN FRANCISCO , May 14, 2024 /PRNewswire/ -- With 88% of global carbon emissions now covered by a net-zero goal, climate tech has outperformed and investors remain committed to the sector, according to a new report from Silicon Valley Bank (SVB), a division of First Citizens Bank. While overall venture capital (VC) fundraising and deal activity in 2023 saw a 24% decline from 2021, climate tech is only 14% below 2021 results, with several individual subsectors like carbon tech and climate data showing signs of growth. 

"With steady fundraising and an increase in funds and firms investing in the sector, the groundwork has been laid for ongoing support and investment in climate technology solutions," said Dan Baldi, national head of SVB's Climate Technology and Sustainability practice. "Amid the growing presence of climate risks, technologies geared toward mitigating these hazards are positioned for growth as a necessity."   

Leveraging SVB's proprietary data and insights, the 2024 Future of Climate Tech Report reveals the outlook on climate tech and the broader innovation economy. Amid a substantial contraction in the innovation economy, climate tech has shown notable resilience despite an overall drop in VC funding. While deal activity has stayed robust compared to other sectors, invested capital has decreased by over 50%, primarily due to a decline in deals exceeding $100 million. 

SVB's Future of Climate Tech report provides an in-depth look at current fundraising activity and challenges, macro trends and emerging technologies. The 2024 report also analyzes four themes shaping the future of climate technology: 

• Startups have less capital available: Lower VC investment, higher interest rates, and low valuations all increase capital costs making it harder for companies to finance their operations. As a result, most companies must focus on plotting a path to profitability and efficiency to ensure the runway doesn't come up short.
• Incentives matter to climate tech: Tax credits have jump-started the carbon capture market, prompting 427 new CCUS project announcements in the last two years.
• Hard-to-mitigate emissions are in focus: As incentives gain traction, VC growth is expected to continue to promising technologies such as industrial heat, SAFs and green cement and steel, and cleaner baseload power.
• Sector posed for exit activity: Exit windows are mostly closed reflecting the overall market. Poor performance from recent SPACs and IPO, high interest rates, and continuing uncertainty has hampered public exits.

Key 2024 Report Findings: 

Climate tech fundraising remains resilient 

• While overall venture capital fundraising in the US hit a six-year low, climate tech fundraising has remained steady, settling at a level similar to 2020. Among the most active CVCs, climate tech now accounts for 11% of deals up from 2% in 2020.

Companies are running low on cash 

• The decline in investment, coupled with climate tech's capital-intensive business models, have left 60% of climate tech companies with less than 12 months of cash runway, relative to 53% for all tech companies. As a result, companies are putting a greater emphasis on profitability. Seventy-six percent of climate tech software companies are seeing improvements in EBITDA margin year-over-year and 65% of climate tech hardware companies are also seeing gains.

Climate tech enjoys long-term tailwinds  

• About 88% of global carbon emissions are subject to a net-zero goal. Appetite for climate tech solutions continues to increase and advancements have brought down the costs of sustainable technology. It is now cheaper to develop new renewable energy than to stick with fossil fuels.

Learn More
To read the complete Future of Climate Tech report, click here:
The Future of Climate Tech Report | Silicon Valley Bank (svb.com) 

SVB is a leader in providing market insights on sectors across the innovation economy. For the complete library of SVB's signature reports, please visit Market Research Industry Trends & Insights | Silicon Valley Bank (svb.com) 

About Silicon Valley Bank
Silicon Valley Bank (SVB), a division of First Citizens Bank, is the bank of some of the world's most innovative companies and investors. SVB provides commercial banking to companies in the technology, life science and healthcare, private equity and venture capital industries. SVB operates in centers of innovation throughout the United States, serving the unique needs of its dynamic clients with deep sector expertise, insights and connections. SVB's parent company, First Citizens BancShares, Inc. (NASDAQ: FCNCA ), is a top 20 U.S. financial institution with more than $200 billion in assets. First Citizens Bank, Member FDIC. Learn more at svb.com 

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SOURCE Silicon Valley Bank

FAQ

How has climate tech fundraising performed in 2023 compared to 2021?

Climate tech fundraising in 2023 is only 14% below 2021 levels, showing greater resilience compared to the overall 24% decline in VC fundraising.

What are the key growth areas within climate tech?

Subsectors such as carbon tech and climate data are showing significant growth.

What percentage of deals does climate tech account for in 2023?

Climate tech accounts for 11% of deals in 2023, up from 2% in 2020.

What challenges are climate tech companies facing?

Challenges include lower VC investment, higher interest rates, and a higher focus on profitability due to less available capital.

What is the current cash runway status for climate tech companies?

60% of climate tech companies have less than 12 months of cash runway.

How are incentives impacting the climate tech sector?

Tax credits have boosted the carbon capture market, leading to 427 new project announcements in the last two years.

Why are public exits challenging for climate tech companies?

Public exits are difficult due to poor SPACs and IPO performance, high interest rates, and overall market uncertainties.