SVB Climate Tech Report: Fundraising Remains Steady

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,” Dan Baldi, national head of SVB’s Climate Technology and Sustainability practice, said. “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.

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