Deep dive: funding trends & deal flow — where the value pools are (and who captures them)

Climate tech venture capital reached an estimated $30-38 billion in 2024, representing a 14% decline from 2023's peak. Yet beneath the aggregate numbers lies a dramatic reshaping of capital flows. Energy investments surged 31% to $14.4 billion, capturing 36% of total climate VC. Nuclear and fusion technologies reached all-time funding highs. Meanwhile, batteries collapsed 79% and green steel dropped 80%. For founders, investors, and corporate strategists, understanding these shifting value pools is essential for positioning in 2026 and beyond.

Why It Matters

Climate tech has entered a new phase that demands different strategies from the growth-at-all-costs era. The 2021-2022 funding boom saw unprecedented capital deployment into climate solutions, driven by net-zero commitments, policy tailwinds, and abundant cheap capital. That environment has fundamentally changed. Higher interest rates have increased the cost of capital. Public market retractions have compressed valuations. Corporate sustainability budgets face scrutiny as economic uncertainty persists.

These macro shifts have created a Darwinian selection pressure across the climate tech landscape. Companies with clear paths to profitability attract capital; those dependent on future fundraising face existential challenges. The Series C stage has emerged as a new "valley of death," where companies too large for venture-scale checks but too early for project finance struggle to find appropriate capital.

Yet the energy transition continues accelerating. Global clean energy investment exceeded $1.8 trillion in 2024, with renewables and electrification capturing the majority. The Inflation Reduction Act has deployed billions in tax credits and grants. European policy support remains robust despite political headwinds. China continues massive clean energy buildout. The total addressable market for climate solutions keeps expanding, even as venture capital contracts.

For founders, this environment requires strategic pivots: extending runway, demonstrating unit economics, and pursuing non-dilutive capital. For investors, it demands more selective deployment and longer hold periods. For corporates, it creates opportunities to acquire distressed assets and secure strategic partnerships at favorable terms.

Key Concepts

The Capital Stack Evolution

Climate tech companies now access a more sophisticated capital stack than traditional software startups. Understanding the full range of financing instruments is essential for optimal capital structure.

Venture capital remains important for early-stage technology development but has shifted toward more rigorous return expectations. The era of funding science projects with 10-year commercialization timelines at venture-scale dilution is over. Investors now seek companies with nearer-term revenue potential and clearer competitive moats.

Project finance has emerged as a critical growth capital source for asset-intensive climate companies. This non-dilutive debt financing funds specific projects rather than corporate operations. A solar developer might raise project finance to build a particular installation, secured by that project's contracted cash flows. Total project finance in climate reached $72 billion in 2024, dwarfing venture capital volumes.

Strategic capital from corporate venture arms and strategic investors provides more than money. These investors bring customer relationships, distribution channels, and operational expertise. In the current environment, strategic investors are often the marginal capital source that enables rounds to close.

Government capital through grants, loans, and tax credits has become essential for hardware-intensive climate companies. The Department of Energy's Loan Programs Office has deployed billions to climate projects. State and international programs add additional pools. Companies that effectively access government capital extend runway while preserving equity value.

Sector-Level Capital Reallocation

Capital is flowing aggressively toward sectors with clear market pull and demonstrated economics, while retreating from areas requiring longer technology development or uncertain customer adoption.

Energy leads the rebound, driven by insatiable electricity demand from AI data centers and continued renewable economics improvement. Solar, wind, and grid infrastructure companies attract both venture and project finance. Nuclear renaissance is real: fusion and advanced fission companies collectively raised record amounts as utilities and tech companies seek 24/7 clean power.

Transportation remains a major category but has segmented sharply. EV infrastructure and fleet electrification attract capital; EV manufacturing has consolidated to established players. Sustainable aviation fuels show strong momentum as airlines face regulatory mandates and passenger preferences.

Industrial decarbonization has proven more challenging than anticipated. Green hydrogen, green steel, and carbon capture companies face long sales cycles, high capital intensity, and uncertain offtake. The few winners are those with secured customers and operating demonstration plants.

Climate adaptation is emerging as a significant new category. Insurance tech, resilience infrastructure, and climate risk analytics attract increasing attention as physical climate impacts accelerate.

What's Working and What Isn't

What's Working

Companies with contracted revenue close rounds at reasonable valuations while peers struggle. In a risk-off environment, investors reward de-risked cash flows. Climate companies that can show signed customer agreements, power purchase agreements, or offtake contracts differentiate themselves from those with pipeline-only narratives.

Capital-efficient business models attract disproportionate interest. Software platforms, marketplace models, and asset-light services require less capital to scale than hardware manufacturing. This doesn't mean hardware is unfundable, but capital efficiency has become a key evaluation criterion.

Non-dilutive capital strategies enable companies to extend runway without crushing equity valuations. Companies that combine modest venture rounds with project finance, government grants, and strategic partnerships preserve founder and early investor ownership while accessing the capital needed for growth.

Consolidation plays are accelerating as stronger companies acquire distressed peers. The best acquirers are using the current environment to build market position at attractive valuations, integrating complementary technologies and customer bases.

What Isn't Working

Deep tech with long commercialization timelines struggles to raise at any valuation. Investors have limited appetite for companies requiring multiple additional rounds and many years before revenue. The venture model works poorly for these companies; grant funding and patient government capital provide better fits.

Undifferentiated solutions in crowded categories face harsh selection. Markets like carbon accounting software, EV charging networks, and home solar now have clear leaders. Late entrants without distinctive advantages find little investor interest.

Growth-at-all-costs survivors that raised at peak valuations face difficult realities. Down rounds damage team morale and cap table dynamics. Many of these companies will fail, merge, or be acquired at distressed valuations.

Companies dependent on policy subsidies face scrutiny around subsidy expiration scenarios. Investors ask what happens when tax credits phase out or regulatory requirements change. Sustainable business models independent of policy support command premium valuations.

Examples

Commonwealth Fusion Systems: Nuclear Renaissance Leadership

Commonwealth Fusion Systems (CFS) represents the nuclear renaissance in action. The company raised $1.8 billion in Series B funding in 2021, the largest private fusion investment ever. Subsequent funding rounds have continued at substantial scale, positioning CFS as the leading private fusion company globally.

The company's approach uses high-temperature superconducting magnets to create compact fusion reactors. This technology, spun out from MIT's Plasma Science and Fusion Center, enables smaller, cheaper fusion plants than previous approaches. CFS has demonstrated key technical milestones, including the world's most powerful superconducting magnet.

Critically, CFS has secured customer commitments that de-risk commercialization. Technology companies hungry for 24/7 clean power have signed memoranda of understanding for fusion energy. Utilities are exploring fusion as part of long-term generation portfolios. These demand signals give investors confidence in commercialization pathways.

The company exemplifies what works in current markets: breakthrough technology with demonstrated progress, commercial partnerships that validate demand, and scale capital access from investors willing to hold through long development timelines.

Climeworks: Scaling Carbon Removal Infrastructure

Climeworks has emerged as the leading direct air capture company, raising over $650 million to build industrial-scale carbon removal facilities. The company's approach captures CO2 directly from the atmosphere using modular collector units, then permanently stores it underground or supplies it for industrial use.

The company's Orca plant in Iceland, operational since 2021, demonstrated technical feasibility at scale. The successor Mammoth plant, with 10x the capacity, came online in 2024. Climeworks has announced plans for additional facilities that would further scale capacity by orders of magnitude.

Revenue comes from carbon removal credits sold to corporate buyers and from advance purchase agreements with companies seeking to offset emissions. Microsoft, Stripe, Shopify, and other tech companies have collectively committed hundreds of millions to carbon removal purchases, with Climeworks capturing significant market share.

The company's capital structure reflects sophisticated climate finance: venture equity for corporate operations and technology development, project finance for individual facilities, and advance purchase agreements that de-risk construction. This multi-source approach enables growth while managing dilution.

Form Energy: Grid Storage Breakthrough

Form Energy raised $450 million to commercialize iron-air battery technology for long-duration energy storage. The company's batteries can discharge for 100 hours or more, enabling renewable energy to provide baseload power by smoothing multi-day weather variations.

The technology uses iron, air, and water as primary materials, avoiding the supply chain constraints and cost challenges of lithium-ion systems. Manufacturing at scale promises dramatically lower costs per kilowatt-hour of storage capacity, potentially transforming grid economics.

Form has secured multiple utility contracts for pilot deployments, with larger commercial projects in development. These customer commitments, combined with demonstrated technology, enable continued fundraising despite broader energy storage sector challenges.

The company's path illustrates how differentiated technology with clear customer value can raise capital even in difficult markets. Generic energy storage companies struggle; Form Energy's distinctive approach attracts continued investor interest.

Action Checklist

• Assess current capital runway and develop scenarios for 24+ month extension without new equity
• Identify and pursue non-dilutive capital sources including grants, project finance, and tax credits
• Develop and articulate clear unit economics, even if not yet profitable, showing path to profitability
• Secure customer commitments that demonstrate market validation and de-risk commercialization
• Evaluate strategic partnership opportunities that provide capital alongside commercial relationships
• Consider M&A opportunities, both as acquirer of distressed assets and as potential acquisition target
• Prepare data room and financial models for fundraising in a more diligence-intensive environment
• Build relationships with investors making new climate commitments, including infrastructure funds and corporate venture arms

FAQ

Q: Is climate tech still attracting new investors despite the market correction?

A: Yes, but investor profiles are shifting. Traditional venture firms have become more selective, but new entrants continue entering climate. Infrastructure funds with longer time horizons and larger check sizes are increasingly active. Corporate venture arms are deploying strategically to secure technology access. Family offices with multi-generational perspectives commit patient capital. Government-backed funds in Europe and Asia actively deploy. The investor base is evolving rather than contracting.

Q: How should founders think about valuation in the current environment?

A: Prioritize company survival and progress over valuation optimization. A completed round at a lower valuation is infinitely better than a failed round at a higher one. Consider structured terms like participation rights or anti-dilution provisions that allow investors to manage risk while providing capital. Focus on milestones that create genuine enterprise value, as these will support future valuation recovery.

Q: What makes a company "fundable" in 2026?

A: Four factors dominate investor evaluation: clear path to unit economics, demonstrated customer demand, differentiated technology or business model, and capital-efficient growth potential. Companies meeting all four criteria find capital, often from multiple interested investors. Companies missing multiple factors struggle regardless of sector or narrative. The bar for "fundable" has risen substantially from 2021-2022 levels.

Q: How important is climate policy exposure in investment decisions?

A: Very. Investors increasingly differentiate between companies dependent on subsidies and those with subsidy-enhanced but fundamentally viable economics. The ideal company benefits from current policy support but could survive policy changes. Companies whose economics depend entirely on tax credits or mandates face skeptical investors pricing in policy risk. Founders should articulate their policy exposure clearly and demonstrate paths to policy-independent viability.

Sources

1. CTVC. "Climate Tech VC 2024 Year in Review." 2025. https://www.ctvc.co/climate-tech-vc-2024/

2. BloombergNEF. "Energy Transition Investment Trends 2025." 2025. https://about.bnef.com/energy-transition-investment/

3. PitchBook. "Q4 2024 Climate Tech Report." 2025. https://pitchbook.com/news/reports/q4-2024-climate-tech-report

4. IEA. "World Energy Investment 2024." 2024. https://www.iea.org/reports/world-energy-investment-2024

5. Department of Energy Loan Programs Office. "LPO Portfolio and Impact Report." 2024. https://www.energy.gov/lpo

6. Sightline Climate. "Climate Tech Funding Database Q4 2024." 2025. https://sightlineclimate.com/

7. Commonwealth Fusion Systems. "Company Milestones and Funding History." 2024. https://cfs.energy/

8. Climeworks. "Annual Impact Report 2024." 2024. https://climeworks.com/