Sustainability Atlas
Climate Finance & Markets·13 min read··...

Deep dive: Funding trends & deal flow — the fastest-moving subsegments to watch

What's working, what isn't, and what's next — with the trade-offs made explicit. Focus on unit economics, adoption blockers, and what decision-makers should watch next.

Climate tech venture capital experienced a marked recalibration in 2024-2025, with global VC and growth equity investment reaching $40.5 billion in 2025—an 8% uptick from the prior year—even as deal count declined 18% to 1,545 transactions (Sightline Climate, 2025). This paradox of rising capital concentration amid fewer deals signals a fundamental shift: investors are consolidating around deployment-ready assets rather than speculative early-stage bets. After three consecutive years of declining venture funding following the 2022 peak, the climate finance market has entered a maturation phase where unit economics, commercialization timelines, and policy durability now dominate investment committee discussions.

Why It Matters

The trajectory of climate tech funding directly determines whether the world can deploy decarbonization solutions at the pace required to limit warming to 1.5°C. According to BloombergNEF, global energy transition investment reached $2.3 trillion in 2025 (up 8% from 2024), yet climate tech equity specifically struggled for three consecutive years before showing recovery signs. This funding gap matters for three interconnected reasons.

First, climate solutions require patient capital across longer development cycles than typical software ventures. Battery technologies, green hydrogen production, and carbon capture systems often require 7-12 years from lab to commercial scale—far exceeding the traditional VC fund lifecycle. When early-stage funding contracts, as it did with Seed rounds declining 19% and Series A dropping 22% in 2025, the pipeline of future solutions narrows proportionally.

Second, the "Valley of Death" for climate tech has widened considerably. Series B funding dropped 29% in the first half of 2025, emerging as the critical bottleneck between proof-of-concept and commercial deployment. Fewer investors now participate beyond Series B compared to 2021, leaving technically validated companies stranded without sufficient capital to build first-of-a-kind (FOAK) commercial facilities—a gap that 51% of institutional investors cite as the hardest to finance (PwC State of Climate Tech, 2024).

Third, capital allocation patterns signal which sectors will dominate the next decade. The energy sector captured 36% of total funding in 2025—its highest share in three years—with nuclear and fusion technologies alone claiming 44% of energy investments. Meanwhile, transportation and EV technologies saw deal activity plunge 61% in 2024, reflecting rapid sector-specific repricing. Understanding these flows enables investors to position ahead of structural shifts rather than chase receding opportunities.

Key Concepts

Deal Flow Dynamics and Stage Migration

Climate tech deal flow has undergone significant stage migration since 2022. Early-stage deals (Seed and Series A) comprised approximately 60% of transactions by count but captured only 23% of total capital in 2025. Conversely, growth-stage funding surged 78% year-over-year, with later-stage investors seeking "seasoned bets" that demonstrate commercial traction and clear paths to profitability.

This stage migration reflects broader risk recalibration. The 2021-2022 era saw capital flow freely to pre-revenue companies on the strength of total addressable market (TAM) narratives. Today's investors demand demonstrated unit economics, contracted revenue, and technology risk reduction before deploying significant capital. The average deal size reached $26.2 million in 2025 for transactions above $50 million, up from $24 million in 2024.

Sector Rotation Patterns

Capital rotation between climate subsectors follows discernible patterns tied to policy signals, technological maturity, and macroeconomic conditions. In 2024-2025, three sector dynamics dominated:

Energy infrastructure ascendancy: Driven by AI data center power demand, energy sector funding reached $14.4 billion in 2025—a three-year high. Nuclear and fusion technologies attracted unprecedented attention, while distributed energy resources (DERs) and storage captured 24% of energy funding.

Transportation correction: Electric vehicle and battery manufacturing investments contracted sharply following capacity overbuilding and demand normalization. EV deals dropped 61% in 2024 before stabilizing with a modest 4% increase in 2025 on 23% fewer transactions.

Climate adaptation emergence: Adaptation and resilience funding rose to 13.3% of total investment in 2025, up from approximately 5.5% historically. This category—encompassing water treatment, disaster risk management, and climate monitoring—reflects growing recognition that mitigation alone is insufficient.

Sector-Specific KPI Benchmarks

Understanding subsegment performance requires sector-appropriate metrics. The following table presents benchmark KPIs for the fastest-moving climate tech categories:

SectorKey Metric2024 Benchmark2025 TargetTop Quartile
Long-Duration StorageLCOS ($/MWh)$150-200$100-150<$100
Green HydrogenLCOH ($/kg)$4-6$3-5<$2.50
Direct Air CaptureCost per tonne CO₂$400-600$300-500<$200
Nuclear/SMROvernight Cost ($/kW)$6,000-8,000$5,000-7,000<$4,000
Carbon Removal CreditsVerification Rate65-75%75-85%>90%
Climate SoftwareARR Growth Rate40-60%50-70%>100%

What's Working and What Isn't

What's Working

Growth-stage capital deployment: Later-stage companies with proven unit economics are attracting substantial capital. Form Energy raised $405 million in Series F funding in October 2024 to expand its iron-air battery business, bringing total funding to over $1.2 billion across nine rounds. This pattern—concentrated capital flowing to commercially validated technologies—enables faster scaling than dispersed early-stage funding.

Strategic corporate partnerships: Climate tech companies increasingly secure funding through corporate partnerships that de-risk deployment. Crusoe Energy's $11.6 billion debt and equity commitment for OpenAI's Stargate data center in Texas exemplifies how strategic alignment with well-capitalized off-takers can unlock infrastructure-scale financing unavailable through traditional venture channels.

Sector-specific catalyst funds: Breakthrough Energy Catalyst has raised over $1 billion for commercial-scale climate projects in the $25-100 million range—addressing the "missing middle" between venture capital and project finance. Its €840 million partnership with the European Investment Bank and European Commission demonstrates how blended finance structures can bridge deployment gaps.

Policy-linked investment theses: Investors aligning capital with durable policy frameworks have outperformed. The Inflation Reduction Act's production tax credits for clean hydrogen and carbon capture created investable certainty that attracted over $50 billion in announced manufacturing investments by late 2024, though deployment timelines extended beyond initial expectations.

What Isn't Working

First-of-a-kind (FOAK) facility financing: The gap between successful pilot projects and commercial-scale FOAK facilities remains the sector's most persistent failure mode. Companies with validated technology at demonstration scale struggle to secure the $50-200 million required for initial commercial deployment—amounts too large for venture capital but lacking the track record infrastructure investors require.

Early-stage hardware funding: Hardware-intensive climate solutions face particular difficulty in the current environment. The cost of capital for building physical production facilities has increased substantially, while investors have shortened return expectations. Many promising hardware companies are extending runway through bridge financing rather than advancing to scale.

Geographic concentration: Capital remains heavily concentrated in the United States, which received $147 billion in cumulative climate tech investment since 2018. Europe's funding dropped to $10.1 billion in 2025—its lowest level since 2020—despite the region's ambitious regulatory frameworks. This geographic imbalance limits solution deployment diversity and creates systemic vulnerability.

M&A exit pathway: Mergers and acquisitions now comprise 89% of climate tech exits, yet total M&A dropped 25% in 2024 to 284 transactions—the lowest since 2020. The compressed exit environment forces companies to survive longer on primary capital, straining valuations and investor returns.

Key Players

Established Leaders

Brookfield Asset Management: With over $100 billion in renewable power and transition assets under management, Brookfield operates one of the world's largest clean energy portfolios. Its Brookfield Global Transition Fund has deployed billions into grid infrastructure, renewable generation, and decarbonization projects across multiple continents.

NextEra Energy: As the world's largest generator of renewable energy from wind and solar, NextEra provides a market benchmark for utility-scale clean power economics. Its development pipeline exceeds 50 GW, demonstrating the scale achievable with patient infrastructure capital.

Ørsted: The Danish energy company transformed from a fossil fuel utility to a global offshore wind leader. With 15+ GW of offshore wind capacity operational or under construction, Ørsted exemplifies successful corporate transition at scale.

Emerging Startups

Form Energy: Developing iron-air batteries capable of 100-hour duration storage, Form Energy raised $405 million in Series F funding in 2024 and secured $147 million from the U.S. Department of Energy for its Maine project—the world's largest battery by megawatt-hours (85 MW/8.5 GWh). Its West Virginia manufacturing facility, a converted former steel mill, represents climate-driven industrial reinvestment.

Crusoe Energy: Originally converting stranded natural gas into bitcoin mining power, Crusoe pivoted to AI data center infrastructure in March 2025 after selling its mining business. It raised $1.375 billion in Series E funding at a $10+ billion valuation in October 2025, with revenue projected to reach $2 billion by 2026.

H2 Green Steel: The Swedish startup raised over $6 billion in debt and equity financing to construct Europe's first large-scale green steel plant. Using hydrogen produced from renewable electricity rather than coal, H2 Green Steel's Boden facility targets 5 million tonnes of annual capacity by 2030.

Key Investors & Funders

Breakthrough Energy Ventures: Founded by Bill Gates with backing from Jeff Bezos, Michael Bloomberg, and other billionaires, BEV has deployed $3.5+ billion across 110+ portfolio companies. Its BEV III fund raised $839 million in 2024, and the oneworld BEV Fund launched in January 2025 focuses specifically on sustainable aviation fuel technologies.

Lowercarbon Capital: Founded by Chris and Crystal Sacca, Lowercarbon manages $550+ million across 205+ investments, primarily at Seed and Series A stages. Its deep technical diligence and hands-on company-building approach has produced three unicorns, including two decacorns. Recent investments include Epoch Biodesign ($18.3 million Series A, March 2025) and The Standard, an AI-powered climate insurance platform.

TPG Rise Climate: With over $7 billion in committed capital, TPG Rise Climate represents one of the largest dedicated climate-focused private equity strategies. Its investments span renewable energy, sustainable agriculture, and industrial decarbonization, with a focus on growth-stage opportunities.

Examples

  1. Crusoe Energy's AI Pivot: Crusoe Energy demonstrates how climate-aligned business models can capture emerging market opportunities. By repositioning from Bitcoin mining to AI infrastructure in March 2025, Crusoe leveraged its expertise in utilizing stranded and renewable energy to power data centers at 30-50% lower energy costs. The company's revenue trajectory—from $276 million in 2024 to projected $2+ billion by 2026—illustrates how climate solutions can achieve hypergrowth when aligned with secular technology trends.

  2. Form Energy's Manufacturing Renaissance: Form Energy's decision to locate its manufacturing facility in a former West Virginia steel mill showcases climate tech's potential for industrial reinvestment in transitioning communities. The site employs 300 workers with plans to expand to 750, producing iron-air batteries using abundant and inexpensive materials. This approach addresses both climate mitigation and just transition imperatives simultaneously.

  3. Breakthrough Energy Catalyst's Blended Finance Model: Breakthrough Energy Catalyst's €840 million partnership with European institutions demonstrates how catalytic capital can de-risk first-of-a-kind deployments. By combining philanthropic guarantees, concessional public finance, and commercial investment, Catalyst deploys $25-100 million into individual projects across clean hydrogen, long-duration storage, sustainable aviation fuel, and direct air capture—precisely the "missing middle" that traditional capital markets fail to serve.

Action Checklist

  • Evaluate portfolio exposure to sector rotation: Rebalance away from overcapitalized segments (EV manufacturing) toward undercapitalized subsectors (climate adaptation, grid infrastructure, industrial decarbonization)
  • Assess Series B pipeline risk: For early-stage investors, proactively identify portfolio companies approaching Series B and develop bridge financing or co-investment strategies to navigate the funding bottleneck
  • Map policy durability: Stress-test investment theses against potential policy changes, prioritizing technologies with bipartisan support or durable regulatory mandates
  • Develop FOAK financing capabilities: Build relationships with development finance institutions, export credit agencies, and catalytic capital providers who can participate in first-of-a-kind project financing
  • Track geographic diversification opportunities: Monitor European and Asia-Pacific funding gaps for potential entry points as valuations compress relative to U.S. comparables
  • Integrate climate adaptation allocations: Consider dedicating 10-15% of climate portfolios to adaptation and resilience solutions, which historically comprised only 5-7% of climate tech investment

FAQ

Q: Why has climate tech funding declined despite increasing climate urgency? A: Climate tech funding's post-2022 decline reflects capital market dynamics rather than reduced climate concern. High interest rates increased the cost of capital for hardware-intensive projects, AI investments competed for growth-oriented capital (raising $47 billion in H1 2024 alone—60% more than the prior year), and the sector's maturation shifted capital from speculative early-stage bets toward commercially validated companies. The 2025 recovery to $40.5 billion suggests the market is stabilizing around deployment-focused investment theses.

Q: Which climate tech subsectors offer the most compelling risk-adjusted returns in the current environment? A: Energy infrastructure—particularly grid modernization, long-duration storage, and nuclear—commands the strongest investor interest due to AI-driven data center demand. The energy sector captured 36% of 2025 funding, its highest share in three years. Climate adaptation technologies also show improving fundamentals, with 13.3% funding share in 2025 versus approximately 5.5% historically. Industrial decarbonization (19.3% of funding, up from 9.6% in 2020) offers substantial opportunity given the sector's emissions profile and relatively recent investor attention.

Q: How should investors approach the Series B "Valley of Death"? A: The 29% decline in Series B funding in H1 2025 creates both risk and opportunity. Early-stage investors should extend runway for promising portfolio companies through bridge financing and prepare for longer holds. Growth-stage investors can selectively acquire stakes in technically validated companies at compressed valuations. Strategic investors should consider structured partnerships that provide capital alongside off-take agreements, reducing technology and market risk simultaneously.

Q: What role does policy play in climate tech investment decisions? A: Policy increasingly determines which climate technologies achieve commercial viability. The Inflation Reduction Act's production tax credits for clean hydrogen ($3/kg) and carbon capture ($180/tonne for direct air capture) transformed unit economics for these sectors. However, policy uncertainty—particularly following the 2024 U.S. election—has created deployment hesitation. Investors now emphasize technologies with bipartisan appeal, strong state-level support, or regulatory mandates (such as EU carbon border adjustments) that provide durability beyond electoral cycles.

Q: How do European and U.S. climate tech markets compare? A: The United States leads global climate tech investment with $147 billion cumulative funding since 2018, while Europe dropped to $10.1 billion in 2025—its lowest since 2020. This gap reflects several factors: the IRA's generous tax credits, larger average deal sizes in U.S. markets, and European investors' traditional preference for project finance over venture structures. However, European regulatory frameworks (EU Taxonomy, CSRD, CBAM) create demand-side certainty that may attract deployment capital even as venture funding lags.

Sources

Topics

fundingtrendsstandardsportfolio constructionbenchmark KPIsMRVunit economics

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