Funding for a sustainable city
Half of the world population lives in urban areas, a number that will increase to 68% by 2050. These areas gather cities and industries, are fueled by electricity, and interconnected by roads and the internet. It's therefore no surprise that they account for 3/4 of all energy consumed and produce 70% of GHG emissions.
As urban populations continue to grow, it becomes increasingly important for cities to become more sustainable in order to meet the needs of their residents and reduce the environmental impact of urbanization. One way to achieve this is through the use of sustainable urban tech, which refers to the use of innovative technologies and approaches to improve the sustainability of cities. These technologies include for example renewable energy sources, smart infrastructure, and urban farming. They are either focused on mitigation, adaptation, or a combination of the two.
Some time ago, some reports touching on the subject were published. This quote from the 2022 report of Dealroom and 2150 explains why it deserves this attention:
The battle for climate change will be won or lost in how we manage emissions from cities.
Challenges of cities
The challenge areas of (sustainable) cities are multitude:
- Electricity and energy
- Water management
- Air pollution
- Infrastructure and building construction, optimization, and maintenance
- Waste management
- Building management efficiency
- Food supply
Buildings are one of the biggest challenges. We live, work, and enjoy life in them. As a result, buildings contribute to 39% of GHG emissions worldwide (according to the 2019 data from the UN). 11% comes from the building materials and products (steel, cement and concrete, glass), 28% from energy and operational activities (lighting, heating, cooling). Improvement in energy efficiency and the development of sustainable building materials are key.
This 2022 climate tech report of Pioneers sheds light on some of the startups to watch in the urban tech field. But how much attention do VCs have for these issues?
Funding and developments
In 2021, there was a real boom in urban tech: a total of $44B was raised! This was more than double of the $19B of 2020. (Note: the latest data of Dealroom shows that it was even $51.0B in 2021). Urban tech encompasses several kinds of industries, and it's no surprise that the energy and mobility investments had driven this boom. Daily operations in buildings (heating, cooling, air conditioning), construction materials (concrete, steel), and alternative materials had received much less, despite being high-emitting sectors.
At the end of October 2022, already $28B was raised, and the year closed with $42.0B according to the data of Dealroom. A striking evolution they noticed, was that corporate investments in urban tech start-ups have halved in comparison to 2021, going back to the levels of 2019.
The latest 2022 report of Net Zero Insights lets us suspect that it has even surpassed the estimated total. Transport raised $19.5B, built environment $3.9B (including construction materials, smart city solutions, and air quality), and energy peaked again with $42B, of which most went to transport and storage solutions ($31.4B). Not all of these companies work on solutions specifically for the urban environment, but it gives an indication of the upward trend of funding for these technologies.
Most of the 109 urban tech unicorns are in clean energy (52) or urban mobility (43). However, unicorns in other categories have been popping up since 2020. In 2021, we got 6 new unicorns in materials and infrastructure and 2 in waste management; in 2022, we got 4 unicorns in ESG and carbon tracking, water tech, and building energy efficiency. This shows that there is an increased demand for these other areas in sustainable urban tech and that investors see a strong potential for future growth (which we have also touched upon in our article about next climate tech opportunities).
Sustainable urban tech has the potential to drive positive change in cities, but like climate tech in general, money is not always equally divided over the different aspects. Renewable energy receives the lion's share of funding, and the energy crisis of 2022 has increased its importance. However, the traditionally less popular sectors raise more every year, and for example ClimateHack predicts that VCs will realize in 2023 the potential of sustainable construction.
At Noldev we develop custom software for businesses working on sustainable solutions, and we have a soft spot for smart city solutions. So if you have an idea and want to see how we could help: pleased to meet you!