Those of us who follow climate change news have grow to be accustomed to the bad news outweighing the good.
We are breaking through what is shaping up as the hottest summer in history. Glaciers are melting at an alarming rate. And the use of fossil fuels still growing.
Here’s one other grim fact: Equity funding for startups focused on cleantech and sustainability has declined this 12 months.
In the first half of 2024, about $9.6 billion went to growth funding for Crunchbase-listed firms Sustainability, Electric Vehicles and Clean Technology categoriesThis is down 61% from the second half of last 12 months and around 10% from year-ago levels.
For comparison, below is a graph of investments and variety of rounds for the above-mentioned categories:
In terms of industries, cleantech sectors generally haven’t been hit as hard in the post-2021 recession as other categories like consumer products or fintech. For example, funding for the industry has been flat over the past 12 months, whilst overall investment has fallen.
This 12 months, while overall capital investment has fallen, the greater picture is more nuanced. First, we’ve seen huge amounts of debt-based project financing.
Sweden is a leader in this field, with two major financing rounds for Stockholm-based firms in January. Northvolta battery manufacturer focused on sustainable development, he landed $5 billion in project financing to expand its facilities and H2 Green Steel Closed for Debt financing of $4.6 billion is for use to build the world’s first mass-produced green steel mill.
These aren’t the deal sizes we’re seeing in depressed sectors. Because cleantech firms, which are heavily focused on infrastructure, often turn to debt financing as they scale, the shift from equity rounds to project financing could also be more a sign of startups maturing than a change in investor sentiment in the space.
Hot topics include EV charging, the battery supply chain and hydrogen
Returning to capital rounds, several investment themes stood out this 12 months.
One is the battery supply chain. With the growing adoption of electrical vehicles and the expected shift to cleaner energy sources, we are going to need more batteries and a more robust, reliable supply chain to provide them. As a result, we are seeing large investments in alternative battery materials and battery recycling.
In the first category is Alameda, California. Power of Nanotechnologya company dealing with materials for the production of latest generation batteries, has acquired $375 million in June Series G conducted by Sutter Hill Enterprises AND T. Rowe Price.
At a recycling camp in Westborough, Massachusetts Elements of the elevation stood out by securing $162 million in February financing. Ascend produces battery materials using invaluable elements recovered from used lithium-ion batteries.
Charging electric vehicles has been one other popular investment topic in recent months. Among those that have raised large rounds this 12 months are charging point operators Electrabased in Paris, which has won $330 million Series B in January and FLObased in Quebec City, which took over $136 million in June.
There is also strong interest from enterprise capitalists in hydrogen energy, especially startups developing electrolyzers, devices that use electricity to separate water into hydrogen and oxygen.
Australian electrolyzer startup, Hysataraised $110 million in financing co-led by BP Projects AND Temple in May. And in February, based in Denver Pigeonwhose aim is to discover and commercialize geological hydrogen resources, was closed $246 million in Series B conducted by Khosla’s ventures.
The exit climate has not warmed up
While large enterprise rounds proceed to occur, the pace of IPOs and M&A deals involving VC-backed cleantech firms stays reasonably sluggish. So far in 2024, we haven’t seen many large exits of any kind.
The exception to this trend was the Chinese manufacturer of electrical vehicles ZeekrThe company IPOed on the NYSE in May and recently had a market capitalization of about $5 billion. However, the stock has been on a downward trend since its debut.
“It’s a cooler baseline environment than we’ll see in 2021 and 2022,” noted Anthony DeOrsey, research manager at Cleantech Groupwho attributes this to a general decline in tech IPOs, particularly for U.S. firms. The decline of SPACs as a path to public markets has also affected cleantech, as many went public this fashion near the market peak.
Hopefully the exit climate will warm up a bit next 12 months. There is definitely a large enough pipeline of well-funded private firms at this point to create a compelling list of IPO candidates.