Climate technology is one such sector that has the potential of saving the world! A new report has emerged from PricewaterhouseCoopers, making us understand the overall landscape of the quickly developing climate technology landscape. We are witnessing that the venture capital market is fast accelerating to drive startup growth and surpass the inherent barriers.
“There is no doubt that the climate tech market is undergoing maturity. I am witnessing more and more entrepreneurs foraying into this space across the globe. As more and more startups come up, more investment will pour up, and a greater number of investment rounds shall happen.”, said global venture capitalist Dale W Wood, the founder and CEO of Dubai-based Dale Ventures. Dale W Wood added, “However, I see that that climate tech ecosystem is still to fully emerge as there are multiple gaps in nature and depth of the funding available to such startups.”
PricewaterhouseCoopers report has made some startling revelations. It says that corporate and venture capital investments in climate technology have undergone a five times faster rate than the usual VC investments in the previous seven years. It amounts to a whopping $60 billion in early-stage capital investing. However, the investment started at a lower base. Yet, it is interesting to see that climate technology is fast becoming mainstream and getting recognized across the industrial spectrum with excellent growth signals.
The State of Climate Tech 2020
The PricewaterhouseCoopers report titled “The State of Climate Tech 2020” says that these are the initial days for climate technology if seen in the venture capital market’s overall context. And it is a little over 6% of the total investing. However, venture capital funding in climate tech is certainly growing exponentially. Let’s see the final stats. Seven years before, in 2013, it was $418 million per annum but coming to the year 2019, it swelled to $16.3 billion. The growth rate of venture investing in climate technology is three times the growth of artificial intelligence investing. It is roughly five times the overall growth in venture capital financing.
Out of this accumulated $60 billion venture money, a considerable fraction was invested in Canadian and United States climate technology startup companies amounting to $29 billion. China too is closing in fast with $20 billion. The European climate tech startups were able to attract $7 billion. A significant part of investments in China and the United States went into transportation and mobility companies. European startups that got climate tech funding were more into renewable energy, such as solar cells and batteries.
San Francisco Bay Area amassed $11.7 billion for climate tech startup investments, while Shanghai in China ranked second. However, it was trailing San Francisco Bay Area by more than 50%.
Why Is Climate Tech Becoming Such A Buzz?
We asked Dale W Wood, a global venture capitalist, CEO, and founder of Dale Ventures, his views on climate tech’s mainstreaming. He said, “The growth of climate tech could be primarily attributed to four reasons—a looming climate crisis, business viability of innovative climate tech technologies, a big gap to close, and a sense of opportunity urgency.”
Dale Wood further added, “Market economics too have a role to play. We see that climate tech is quickly becoming more efficient in terms of capital. What I mean is, carbon-negative products’ manufacturing is becoming cheaper in comparison to carbon-positive products.”
Why Funding Is The Key To Climate Tech’s Future?
We see that numerous solutions and technologies crucial for climate tech transformation are proven beyond doubt and are in urgent need of capital to scale up. Hence funding seems to hold the key to the future. Unlike developing critical infrastructure, climate tech does not require trillions to make a mark. However, these are riskier technologies, and the market is not ripe yet. Hence, it would be prudent to say that climate tech requires targeted assistance from venture capital firms and governments. Governments need to open up their coffers and implement rapid and radical reforms in the regulatory space so that climate tech can undergo thorough development, research, and deployment. It shall enable early-stage climate tech startups to go beyond.
Growth Drivers in Climate Technology
According to the PricewaterhouseCoopers study, climate technology’s most significant growth drivers lie in greenhouse gas storage and capture, heavy industry transport, and mobility. After this, the sectors such as data generation, climate, energy, building technology, land use, agriculture, and food hold prominence.
We are very much aware of e-bike and electric scooter wars happening in the previous few years. The report has rightly highlighted so as these mobility companies have undergone dramatic growth. The compound annual growth rate of 150% was recorded in the micro-mobility sector, which amounts to 63% of all the climate technology venture funding in the last seven years. It amounts to a whopping $38 billion.
Sources Of Venture Capital Funding
The next logical question which arises from this report is—where is this venture funding originating? The answer is, there are varied sources such as—established venture capital companies specializing in big technology, consumer goods, energy generation, institutional and corporate investing, and government-backed equity players.
For transportation and mobility sectors within climate tech, the funding comes from corporate venture capital companies (CVC). The report says that a little less than one-third of climate technology partnerships comprise a corporate venture capital company. We see similar stats in the photovoltaic energy storage sector. On an overall scale, a fourth of investing in climate tech includes a corporate venture capital company.
It seems that corporate investing would be crucial for the long-term growth and success of climate technology. It is true in terms of carbon-neutral commitments driving continued demand for innovative solutions. Venture capital investing is bringing the financing, the business know-how, and deep knowledge of this industry—helping startups navigate the cobwebs of deployment and scaling up.
Wrapping Up
Amid the disrupting times of COVID-19, there is an increased temptation among startups and investors to bring back the things as they were before the crisis. As such, it would be wholly wrong to believe that investment decisions, working practices, and supply chains from the past shall remain relevant in the future as well. Startups and investors must rethink and realign themselves for the single most enormous disruption in human history, that is, of a sustainable future. As such, venture capital companies and startups have to play a crucial role in bringing carbon-neutral technologies, products, and overall future. We genuinely need bolder and faster innovation in climate technology to make this possible. Similarly, the world has expectations of braver and prudent financing decisions as well.