Case study: Funding trends & deal flow — The shift from growth-at-all-costs to unit economics in climate tech

Climate tech investment reached approximately $92 billion globally in 2024, surpassing 2023 levels despite a challenging fundraising environment. However, the composition of that capital tells a more nuanced story. Traditional venture capital funding declined for the third consecutive year to roughly $30 billion, down 14% year-over-year according to CTVC analysis. Meanwhile, debt financing surged from 19% to 41% of total funding, signaling a fundamental shift in how investors evaluate climate technology companies. The era of growth-at-all-costs has given way to a new paradigm: prove your unit economics before scaling.

Why It Matters

The transition from growth-focused to economics-focused investing represents more than a market correction. It reflects climate tech's maturation from speculative early-stage bets to infrastructure-grade investments requiring disciplined capital deployment.

For founders, this shift means fundraising timelines have doubled. The average time to raise a Series B round stretched from 11 months in 2021 to 26 months in 2024, creating what analysts call the "Valley of Death" between product-market fit and commercial scale. Companies that previously raised on vision and total addressable market projections now face rigorous scrutiny of customer acquisition costs, gross margins, and paths to profitability.

For investors, the new framework demands deeper technical due diligence and longer investment horizons. Climate-focused funds outperformed general venture capital by 9% in internal rate of return for 2020-2024 vintages, validating the thesis that patient capital targeting proven unit economics delivers superior returns.

For corporate procurement teams, understanding these funding dynamics is essential. A startup's capital structure increasingly determines its ability to deliver on long-term supply agreements. Companies backed by project finance and debt tend to have more stable operational runways than those relying solely on venture capital for working capital needs.

Key Concepts

Unit Economics in Climate Tech

Unit economics refers to the direct revenues and costs associated with a company's core business model, typically expressed on a per-unit basis. For climate tech companies, this might mean cost-per-kilowatt-hour for battery storage, cost-per-ton for carbon removal, or gross margin per customer for software platforms.

The 2021-2022 funding boom often prioritized market capture over profitability. Hardware startups in particular demonstrated growth rates of 58% but frequently operated at negative gross margins. By 2023, hardware company growth rates had fallen to 19%, while software-focused climate solutions showed 30% higher profit margins, highlighting the sector's divergence.

Investors now evaluate climate startups through three primary lenses: contribution margin (can the core product generate profit?), customer lifetime value relative to acquisition cost (is growth sustainable?), and capital efficiency (how much equity dilution is required to reach profitability?).

Blended Finance Structures

Blended finance combines concessional funding from public or philanthropic sources with commercial capital to de-risk investments in climate technologies. This approach has become essential for capital-intensive climate hardware companies.

The Inflation Reduction Act and European Green Deal unlocked unprecedented non-dilutive funding opportunities. In 2024, non-dilutive funding represented approximately 50% of total climate tech investment, up from 35% in 2023. This capital comes through production tax credits, investment tax credits, loan guarantees, and grants that reduce the equity burden on founders.

For example, the Department of Energy's Loan Programs Office committed over $40 billion to clean energy projects in 2024, providing debt capital at favorable rates that traditional venture investors cannot match.

Project Finance vs. Venture Capital

Traditional venture capital funds companies based on equity ownership, betting on exponential growth and exit valuations. Project finance, by contrast, funds specific assets based on projected cash flows, typically secured by the asset itself.

Climate tech increasingly blends both models. A battery storage company might raise venture capital for R&D and initial manufacturing, then access project finance to deploy proven systems at utility scale. This "capital stacking" approach allows companies to match funding instruments to risk profiles at each development stage.

Europe led this transition in 2024, with seven of the ten largest climate deals structured as debt or project finance. Northvolt's $5 billion debt facility for battery gigafactory expansion and H2 Green Steel's $4.5 billion debt package exemplify how mature climate technologies now access institutional infrastructure capital.

What's Working and What Isn't

What's Working

Later-stage companies with proven metrics are attracting larger checks. Series B and C median round sizes reached decade highs of $30 million and $60 million respectively in 2024. Investors concentrated capital in category winners rather than spreading bets across unproven entrants.

Sectors tied to AI and data center demand are thriving. Energy infrastructure attracted 35% of total funding, up from 30% in 2023, driven by data center power requirements. Nuclear, geothermal, and long-duration energy storage captured disproportionate investor attention as AI companies scrambled for clean firm power.

Climate-focused specialist investors are outperforming generalists. Repeat climate investors now constitute the majority of deal participants, while "sector tourists" have largely exited. This concentration means founders benefit from investors who understand technology risk and deployment timelines.

Companies pursuing capital stack diversification succeed faster. Startups combining equity with grants, tax credits, and project finance demonstrate lower dilution and stronger balance sheets. Form Energy's $405 million Series F in 2024 included strategic partnerships that reduced reliance on pure venture funding.

What Isn't Working

Early-stage deal flow has contracted significantly. Seed and Series A deal counts fell 23-30% from 2023 peaks, creating pipeline concerns for the next generation of climate solutions. Investors are reluctant to fund technical risk without clearer commercialization pathways.

Battery and EV-adjacent companies face headwinds. Battery sector funding collapsed 79% in 2024 as investors concluded the market had too many entrants chasing limited opportunities. Earlier failures stemmed from scaling gigafactories before proving demand or achieving competitive unit economics.

Geographic concentration limits global climate impact. The United States and Europe capture 81% of climate tech investment, leaving emerging markets underfunded despite often having the greatest climate vulnerabilities and deployment opportunities.

Extended fundraising cycles strain company operations. With Series B timelines doubling to over two years, companies exhaust seed and Series A capital before securing growth funding. This dynamic forces premature revenue generation or unfavorable bridge rounds.

Examples

1. Breakthrough Energy Ventures: The Patient Capital Model

Breakthrough Energy Ventures, backed by Bill Gates and a coalition of high-net-worth individuals, raised $839 million for its third flagship fund in 2024, making it the largest climate fund closed that year. The firm's approach emphasizes 20-year investment horizons rather than the traditional 5-7 year venture cycle.

BEV's portfolio of over 123 companies spans energy, transportation, agriculture, manufacturing, and buildings. Critically, the fund moved from backing "science experiments" to funding "science products" with clear commercialization pathways. Portfolio companies like Electric Hydrogen (achieving 95%+ efficiency in green hydrogen production) and Form Energy (iron-air batteries for 100-hour storage) demonstrate the fund's focus on technologies that can achieve cost competitiveness with incumbent solutions.

The strategic lesson: patient capital willing to support companies through the full technology development cycle can capture returns inaccessible to shorter-duration funds.

2. CTVC Analysis: Market Maturation in Numbers

CTVC (Climate Tech VC), now part of Sightline Climate, provides the sector's most granular deal flow analysis. Their 2024 data reveals the structural shift in stark terms: $30 billion invested across 1,460 deals represented a 14% decline in capital and flat deal volume compared to 2023.

Beneath the topline, sectoral divergence intensified. Nuclear investment grew 85% year-over-year, now representing 38% of energy funding. Long-duration energy storage surged 184%. Meanwhile, carbon management and built environment fell 40% each from recent highs.

Investor behavior shifted dramatically. Twelve percent fewer investors participated in climate deals overall, but specialist climate funds appeared in the top positions at every stage. The sector consolidated around committed participants rather than expanding to new entrants.

For procurement professionals, CTVC data provides essential intelligence on which sectors and companies have investor conviction versus those facing funding uncertainty.

3. Form Energy and Redwood Materials: Unit Economics Champions

Two companies exemplify the new unit-economics-first paradigm.

Form Energy raised $405 million in Series F funding in October 2024, reaching a $3.42 billion valuation. The company's iron-air battery technology stores energy for up to 100 hours at costs projected to undercut lithium-ion for grid-scale applications. Rather than rushing to scale production, Form Energy spent years optimizing cell chemistry and manufacturing processes to ensure competitive unit economics at commercial scale. The company now employs over 900 people across Massachusetts, West Virginia, and California, with utility partnerships providing contracted revenue visibility.

Redwood Materials, founded by former Tesla CTO JB Straubel, raised over $2.2 billion in equity funding and achieved valuations exceeding $6 billion. The battery recycling company generates approximately $200 million in annual revenue by recovering cathode and anode materials from end-of-life batteries. Redwood's business model captures value from a resource stream that otherwise creates disposal costs, demonstrating positive unit economics from launch rather than relying on future scale to achieve profitability.

Both companies share common traits: deep technical differentiation, clear paths to cost competitiveness with incumbents, and capital structures mixing equity with strategic partnerships and project finance.

Action Checklist

• Evaluate supplier financial stability by reviewing capital structure, not just funding totals
• Prioritize vendors demonstrating positive unit economics over those promising future scale advantages
• Assess exposure to companies in the Series B "Valley of Death" requiring imminent fundraising
• Consider multi-year agreements with startups backed by project finance or strategic corporate investors
• Monitor sector funding trends through CTVC and PwC reports to anticipate supply chain risks
• Engage with Breakthrough Energy portfolio companies for validated technology options

FAQ

Q: How can procurement teams assess whether a climate tech startup will survive the current funding environment? A: Focus on three indicators: capital runway (at least 18-24 months of operating expenses), revenue quality (contracted versus projected), and investor composition (committed climate specialists versus generalist VCs). Companies backed by strategic corporates or project finance typically have more stable outlooks than those dependent on sequential venture rounds.

Q: What does the shift to unit economics mean for hardware-heavy climate solutions like green hydrogen or carbon capture? A: Hardware companies face higher bars for funding but benefit from policy tailwinds. The Inflation Reduction Act provides production tax credits that effectively improve unit economics by $3/kg for hydrogen and $85-180/ton for carbon capture. Successful hardware companies combine venture equity for R&D with project finance for deployment, reducing reliance on dilutive rounds during capital-intensive scaling.

Q: Are climate tech valuations still attractive compared to 2021-2022 peaks? A: Valuations have reset significantly, with median Series B valuations down approximately 40% from 2022 highs. However, climate-focused funds continue to demonstrate IRR outperformance versus general venture capital. For buyers evaluating acquisition targets or investment opportunities, the current environment offers more reasonable entry points while benefiting from policy-driven demand tailwinds.

Sources

• PwC State of Climate Tech 2024. https://www.pwc.com/gx/en/issues/esg/climate-tech-investment-adaptation-ai.html
• CTVC/Sightline Climate 2024 Annual Analysis. https://www.ctvc.co/30bn-and-14-fall-as-market-finds-new-normal-in-24/
• BloombergNEF US Climate Tech Financing Report 2024. https://about.bnef.com/blog/us-is-top-climate-tech-financier-in-2024-china-led-last-year/
• Form Energy Series F Announcement, October 2024. https://formenergy.com/form-energy-secures-405m-in-series-f-financing-to-expand-iron-air-battery-business-and-operations/
• Breakthrough Energy Ventures Portfolio. https://www.breakthroughenergy.org/our-work/breakthrough-energy-ventures/bev-portfolio/
• Net Zero Insights Global Climate Tech Funding Report. https://netzeroinsights.com/resources/global-climate-tech-funding-on-track-to-surpass-2023-levels-in-2024/
• Silicon Valley Bank Future of Climate Tech 2025. https://www.svb.com/trends-insights/reports/future-of-climate-tech/