Climate Tech VC in 2022: Top Trends, Challenges, and Opportunities for Investment

2022 has been quite the year (again), causing a general VC pullback. It would have been reasonable to expect that climate tech would raise less than 2021.

Think again.

Climate tech came, saw, and kicked the record numbers of 2021. Different reports with different numbers have been published, and the numbers might turn out to be even be higher, if we take reporting delays and less visible regions into account. Let's take a look at what Net Zero Insights, HolonIQ, CTVC, and Dealroom say.

A quick overview of the numbers

First of all: why do the numbers differ? As we know, climate tech is not a sector, but a theme applicable to every sector. For some innovations, it's obvious they'll get the label. For others, the impact is not clear enough. Every data provider writes their report based on data from their platform, allowing variation in definitions. Sometimes rounds can be mentioned in multiple sectors, which impacts the total as well.

Net Zero Insights, the most complete climate tech platform for North-America and Europe, reported a glowing $82B, an all-time high for climate tech. According to HolonIQ, $70.1B was raised across the whole world. Dealroom and CTVC stayed more modest in their estimation and reported $44B and $40B for climate tech respectively.

Winners in all regions

The US maintains its leader position and has raised the largest share in climate tech, with a total of $43.9B, according to Net Zero Insights. HolonIQ keeps it on $28.6B and notices that VCs invested more in 2022 than in the early cleantech 1.0 boom of 2006-2011 ($25B). The average deal size is higher in the US, and $29B was raised through megarounds, displaying the maturity of the American ecosystem. Still, 50% of equity goes to early stage deals. The country leads in energy, food & Agtech, and the built environment.

Europe keeps doubling down on its efforts and looks determined to become the new leader. Thanks to a more progressive regulatory market, it experienced the fastest growth of everyone (+33% YOY). Europe raised $34.6B spread over 1,388 deals. HolonIQ reported $17.9B raised. It's also home to the climate tech capital of 2022, Stockholm, whose companies together raised $7.5B (a large chunk is of course from H2 Green Steel and their 4.54B megaround). Just like the US, half of the equity went into early stage deals. Although late-stage equity accounted for only 10% of the deal count, it made up 47% of the funding. Most of their funding went into energy as well, and the region leads in circularity and industry.

Asia is mentioned less. HolonIQ reported that Chinese climate tech raised $10.7B, 40% more than 2021. However, their biggest share of cleantech innovation is not funded by VC capital, but by corporate entities and state funding. Cleantech is therefore still very alive in the country. After 2017, China's climate tech ecosystem had already achieved some maturity, which encouraged an increase of corporate funding. India's venture capital is transitioning from consumer-focused to climate tech and increased their investments 10x, from $0.4B in 2021 to $3.7B in 2022.

Categories: energy and diversification

Half of climate venture capital goes into Energy ($42B), a +56% YOY growth. Especially the US loves energy solutions: $22.2B went into the vertical, and the 7 most funded innovations were energy-related, mostly for transport and storage solutions such as EVs and batteries. Thanks to these, Transport remains 2nd biggest sector as well.

However, there is an ongoing diversification away from food, energy, and transportation, with some sectors growing significantly:

• Carbon capture, removal and storage has boomed in the past 2 years, especially in the US and Switzerland. Carbon capture, utilization and storage (CCUS) raised $1.7B, Direct Air capture (DAC) $883M.

• Industry raised $9.4B in total and noted the biggest YOY growth in Europe; even without H2 Green Steels results, investments in the industry still doubled.
• Biodiversity and natural environment is traditionally underrepresented in VC funding, but the situation is getting better: the sector raised 60% more with $1.6B in 2022. Dealroom reports a +47% increase to $295M.

• Climate management is also among the fastest growers: funding was 3x higher, from $1.7B in 2021 to $5.0B in 2022. Within climate management, both carbon accounting, carbon offsetting, and climate fintech doubled the raised amounts. Supply chain tracking even exploded with a +479% YOY growth!

Heating up the scene

So, what should we remember? First, VCs shift their focus and money increasingly towards climate tech, even when times are getting harder. Second, Europe is rapidly catching up with the US in terms of venture capital. And third, the most popular sectors still get the lion's share, but emerging sectors pave the way to a more diversified ecosystem. All very promising trends!

There is much more to read in the reports, so certainly take a look at them! And if you're looking for a climate-oriented software development partner to build your product and be added to the statistics of 2023: have a chat with us.