Explainer: Funding trends & deal flow — the concepts, the economics, and the decision checklist

In 2025, global climate technology investment reached $40.5 billion—an 8% uptick from the previous year—yet the number of deals plummeted 18% to just 1,545 transactions, the lowest since 2020 (Sightline Climate, 2025). This bifurcation reveals a maturing market where capital concentrates in proven winners while early-stage deal flow contracts. Meanwhile, the broader sustainable finance market has grown to an estimated $13.4 trillion globally, with projections suggesting it could reach $24.3 trillion by 2030 at a compound annual growth rate of 12.59% (Mordor Intelligence, 2025). For practitioners, policymakers, and investors navigating this landscape, understanding the structural dynamics of funding trends and deal flow is essential for allocating capital effectively, de-risking portfolios, and accelerating the transition to a low-carbon economy.

Why It Matters

The flow of capital into sustainability-focused ventures determines the pace and trajectory of global decarbonization. Climate science establishes that limiting warming to 1.5°C requires unprecedented mobilization of finance—the International Energy Agency estimates that annual clean energy investment must reach $4 trillion by 2030, up from approximately $1.8 trillion in 2023. The gap between required and actual capital deployment represents both a systemic risk and an investment opportunity.

From an institutional perspective, funding trends serve as leading indicators of market confidence, technological readiness, and regulatory alignment. The 2024-2025 period demonstrated this dynamic clearly: while overall deal counts declined, energy sector investments surged to $14.4 billion in 2025—a 31% year-over-year increase and the highest level in three years (CB Insights, 2024). This concentration reflects market recognition that grid modernization, energy storage, and power generation infrastructure offer near-term deployment opportunities driven by artificial intelligence data center expansion and electrification mandates.

For European policymakers specifically, understanding deal flow patterns informs the design of public finance mechanisms, de-risking instruments, and regulatory frameworks that can catalyze private sector participation. The EU Taxonomy for Sustainable Activities and the Corporate Sustainability Reporting Directive (CSRD) have created transparency standards that influence capital allocation decisions, while the Sustainable Finance Disclosure Regulation (SFDR) shapes how institutional investors categorize and deploy assets.

Key Concepts

Deal Flow Fundamentals

Deal flow refers to the rate at which investment proposals move through the venture capital and private equity ecosystem. It encompasses the quantity of opportunities (deal count), the quality of those opportunities (conversion rates to investment), and the velocity of capital deployment (time from term sheet to close). In sustainability markets, deal flow metrics reveal sector maturation, investor sentiment, and technology readiness levels.

Funding Stage Dynamics

Climate technology investments follow a staged progression, each with distinct risk-return profiles and capital requirements:

Stage	Typical Round Size	Key Metrics	2025 YoY Change
Seed	$1M - $5M	Technology readiness level (TRL), team experience	-26% funding
Series A	$5M - $20M	Customer validation, unit economics path	-7% funding
Series B	$20M - $60M	Revenue growth, market expansion	-29% funding
Series C	$60M - $150M	Path to profitability, scale	-32% funding
Growth	$150M+	Market leadership, exit trajectory	+78% funding

The 2025 data reveals a pronounced "valley of death" at Series B and Series C stages, where companies with proven technology struggle to secure the capital needed for commercial-scale deployment. Conversely, growth-stage funding increased 78%, indicating investor preference for de-risked assets with clear paths to liquidity.

Blended Finance Structures

Blended finance combines concessionary public or philanthropic capital with commercial investment to de-risk transactions and attract private sector participation. The model is particularly relevant for first-of-a-kind (FOAK) projects in capital-intensive sectors like carbon capture, green hydrogen, and long-duration energy storage. Typical structures include:

First-loss tranches: Public capital absorbs initial losses, reducing risk for commercial investors
Guarantee mechanisms: Development finance institutions provide credit enhancement
Concessionary debt: Below-market interest rates from public sources reduce weighted average cost of capital
Technical assistance facilities: Grant-funded support for project development and capacity building

Unit Economics and Carbon Price Sensitivity

Sustainable investment decisions increasingly hinge on unit economics—the direct revenues and costs associated with a single unit of product or service. For climate technologies, key unit economic metrics include levelized cost of energy (LCOE) for power generation, cost per kilogram for green hydrogen, and cost per tonne of carbon dioxide removed for direct air capture.

Carbon price exposure represents a critical variable. At current compliance market prices (EU ETS averaging €80-90/tCO2 in 2024-2025), certain abatement technologies become economically viable without subsidy. Projects with unit economics that depend on carbon prices above €150/tCO2 face elevated policy risk, while those viable at current price levels offer more defensible investment profiles.

What's Working

Energy Infrastructure Dominance

Energy sector investments have emerged as the clear leader in climate tech deal flow. In 2025, energy transactions accounted for $14.4 billion (36% of total funding), with nuclear and fusion technologies commanding 44% of that allocation and grid technology plus distributed energy resources capturing 24% (Sightline Climate, 2025). This concentration reflects genuine market pull from hyperscale data center operators, utilities facing reliability challenges, and industrial consumers pursuing electrification.

AI-Climate Convergence

The intersection of artificial intelligence and climate technology has created a virtuous cycle. AI applications for energy optimization, materials discovery, and climate modeling attracted over $1 billion in the first nine months of 2024 alone. Simultaneously, AI infrastructure demand has become a primary driver of clean energy investment, as technology companies seek 24/7 carbon-free electricity to power expanding compute capacity.

Policy-Proof Business Models

Investors increasingly favor climate technologies with commercial viability independent of policy support. The Silicon Valley Bank Future of Climate Tech 2025 report notes that 70% of surveyed investors expect capital flows to increase over the next one to three years, with particular emphasis on companies demonstrating customer pull rather than policy dependency. This shift rewards startups with clear value propositions beyond emissions reduction—whether energy security, cost savings, or operational efficiency.

Mega-Round Concentration

Despite declining deal counts, 72 mega-rounds ($100 million or more) closed in 2024, concentrated in nuclear, fusion, electric vehicles, battery technology, and data center infrastructure. This suggests that late-stage companies with proven execution continue attracting significant capital, even as earlier-stage activity contracts.

What's Not Working

First-of-a-Kind Fatigue

FOAK project risk aversion has intensified following high-profile failures in 2024, including the bankruptcy of battery manufacturer Northvolt and electric aviation companies Lilium and Arrival. Investors increasingly require evidence of repeat deployment before committing growth capital, creating challenges for novel technologies with limited track records.

Series C Valley of Death

The 32% decline in Series C funding represents a structural bottleneck. Companies at this stage have typically demonstrated technology validation and initial commercialization but require substantial capital to achieve manufacturing scale. With fewer investors willing to provide $100M+ checks for pre-profitable companies, many promising ventures face existential funding gaps.

Geographic Polarization

European climate tech funding dropped to $10.1 billion in 2025—the lowest level since 2020—while U.S. investment surged 27% to over $27 billion. This divergence reflects regulatory uncertainty, energy price volatility, and the gravitational pull of U.S. Inflation Reduction Act incentives. For European founders and policymakers, addressing this capital flight requires urgent attention.

ESG Skepticism and Greenwashing Backlash

ESG-labeled technology funding declined 54% in 2024 amid intensifying scrutiny of impact claims. Stricter EU fund labeling requirements under SFDR and enforcement actions against misleading sustainability marketing have created a flight to quality—benefiting companies with rigorous impact measurement while penalizing those with vague or unsubstantiated claims.

Key Players

Established Leaders

Breakthrough Energy Ventures: Founded by Bill Gates and backed by a coalition of billionaire investors, BEV has deployed over $2.5 billion into early-stage decarbonization technologies across energy, agriculture, transportation, and manufacturing. The fund's patient capital approach and technical due diligence capabilities make it a benchmark for climate technology investing.

BlackRock: As the world's largest asset manager with over $10 trillion in assets under management, BlackRock's sustainable investment products and net-zero commitments influence capital allocation across global markets. The firm's iShares ESG ETF suite represents a significant portion of sustainable passive investment flows.

European Investment Bank (EIB): The EIB committed €36.5 billion to climate action and environmental sustainability in 2024, making it the world's largest multilateral climate finance institution. Its Green Bond Framework and concessionary lending programs provide critical de-risking for infrastructure projects.

Emerging Startups

Form Energy: Developing iron-air batteries for 100-hour energy storage, Form Energy raised $450 million in Series E funding and began construction on its first manufacturing facility. The company addresses a critical gap in long-duration storage technology.

Fervo Energy: Pioneering next-generation geothermal technology using horizontal drilling techniques from the oil and gas industry, Fervo secured major power purchase agreements with Google and other technology companies.

Climeworks: The Swiss direct air capture company operates the world's largest commercial carbon removal facility in Iceland and has secured significant advance purchase commitments from corporate buyers including Microsoft and Stripe.

Key Investors

Lowercarbon Capital: Led by Chris Sacca, Lowercarbon has become one of the most active seed and Series A investors in climate technology, with over 70 investments focused exclusively on emissions reduction.

Clean Energy Ventures: Closed Fund II at $305 million in 2024 with a science-based investment thesis targeting 2.5 gigatonnes of CO2 mitigation by 2050.

World Fund: The European-focused fund closed €300 million for Fund I in 2024 and is targeting €500 million or more for Fund II in 2025, applying its proprietary Climate Performance Potential methodology to investment selection.

Examples

Example 1: Ørsted's Offshore Wind Transformation

Danish energy company Ørsted demonstrates how strategic capital allocation can drive sector transformation. Between 2017 and 2024, Ørsted invested over $60 billion in offshore wind development, achieving LCOE reductions of over 60% while growing installed capacity from 3 GW to 15 GW. The company's success attracted institutional investors seeking predictable, long-duration cash flows and established offshore wind as a mainstream infrastructure asset class. Ørsted's experience illustrates how patient capital deployment in early-stage projects can create self-reinforcing cost reduction curves.

Example 2: Stripe Climate's Advance Market Commitment Model

Technology company Stripe pioneered the advance market commitment approach for carbon removal by committing to purchase carbon removal credits regardless of price, starting in 2019. Through 2024, Stripe Climate facilitated over $75 million in advance purchases from participating companies, providing crucial revenue certainty for early-stage carbon removal ventures like Climeworks, Heirloom, and Charm Industrial. This model demonstrates how corporate commitments can de-risk nascent technologies and attract follow-on investment.

Example 3: Just Climate's Infrastructure Focus

Generation Investment Management's dedicated infrastructure platform, Just Climate, raised $1.5 billion for its debut fund in 2023-2024, targeting operating assets and growth equity investments in renewable energy, electrification, and sustainable agriculture. The fund's approach—investing in de-risked assets with proven technology and existing cash flows—exemplifies the market's shift toward later-stage, lower-risk climate infrastructure.

Sector-Specific KPIs

Metric	Benchmark Range	Top Quartile	Data Source
Deal velocity (days to close)	60-120 days	<45 days	PitchBook 2024
Series A conversion rate	15-25%	>30%	CB Insights
Blended finance leverage ratio	3:1 to 5:1	>7:1	Convergence
Carbon intensity (tCO2e/$M invested)	50-200	<30	PCAF Standard
TVPI (Total Value to Paid-In)	1.0-1.5x (climate VC)	>2.0x	Cambridge Associates
Portfolio company survival (5-year)	60-70%	>80%	Kauffman Foundation

Action Checklist

Establish baseline metrics for deal flow volume, conversion rates, and average round sizes within your investment mandate or funding pipeline
Map portfolio carbon intensity using Partnership for Carbon Accounting Financials (PCAF) methodology to identify exposure and alignment with net-zero trajectories
Evaluate blended finance opportunities for capital-intensive projects, particularly those eligible for European Fund for Strategic Investments (EFSI) or InvestEU guarantees
Develop relationships with specialized climate venture funds (Lowercarbon, Clean Energy Ventures, World Fund) for co-investment opportunities and deal flow access
Implement due diligence frameworks that assess unit economics at multiple carbon price scenarios (€50, €100, €150/tCO2) to stress-test policy dependency
Monitor Series B and Series C deal flow as leading indicators of commercialization bottlenecks requiring public intervention
Align investment criteria with EU Taxonomy technical screening criteria to ensure eligibility for green bond financing and SFDR Article 9 classification

FAQ

Q: How has climate tech deal flow changed between 2024 and 2025? A: Deal count declined 18% to 1,545 transactions in 2025—the lowest since 2020—while total funding increased 8% to $40.5 billion. This bifurcation reflects capital concentration in later-stage, lower-risk investments, particularly in energy infrastructure. Early-stage funding (seed and Series A) declined 26% and 7% respectively, while growth-stage funding surged 78%, indicating a flight to quality and demonstrated commercial traction.

Q: What sectors are attracting the most climate investment capital in 2025? A: Energy dominates with $14.4 billion (36% of total), driven by grid modernization, nuclear and fusion development, and distributed energy resources. Nuclear and fusion specifically captured 44% of energy sector funding. Built environment investments grew 23% year-over-year, while carbon management and transportation sectors experienced significant pullbacks of 47% and 31% in investor participation respectively.

Q: How can European policymakers address declining regional climate tech investment? A: European climate tech funding fell to $10.1 billion in 2025, the lowest since 2020, while U.S. investment grew 27%. Policy responses should include streamlined permitting processes, expanded public de-risking mechanisms through the European Investment Fund, harmonized green taxonomy implementation, and strategic use of Important Projects of Common European Interest (IPCEI) designations to anchor manufacturing capacity. Creating regulatory certainty around hydrogen offtake, carbon contracts for difference, and grid connection timelines would address investor concerns about deployment risk.

Q: What characterizes successful climate tech companies in the current funding environment? A: Successful companies demonstrate clear unit economics with paths to profitability at current (not projected) carbon prices, signed customer offtakes or letters of intent from creditworthy counterparties, technology that has moved beyond first-of-a-kind risk, and business models with value propositions beyond emissions reduction—such as energy security, cost savings, or operational efficiency. Investors increasingly reward execution evidence over technology novelty.

Q: How should corporate sustainability teams engage with climate tech deal flow? A: Corporate teams can participate through advance purchase commitments (following the Stripe Climate model), strategic venture investments through corporate venture capital arms, pilot project partnerships that provide validation for early-stage companies, and power purchase agreements for renewable energy and low-carbon fuels. These mechanisms de-risk nascent technologies while providing corporates with supply chain resilience and decarbonization pathway access.

Sources

Sightline Climate. (2025). Climate Tech Investment 2025: $40.5B in VC & Growth Trends. Retrieved from https://www.sightlineclimate.com/research/40-5bn-and-8-uptick-as-power-demand-drives-25-investment
CB Insights. (2024). State of Climate Tech 2024 Report. CB Insights Research.
Silicon Valley Bank. (2025). The Future of Climate Tech 2025. SVB Trends & Insights Reports.
Mordor Intelligence. (2025). Sustainable Finance Market Size, Demand, Trends 2025-2030. Market Research Report.
PwC. (2024). State of Climate Tech 2024: Investment, Adaptation, and AI. Global Climate Technology Analysis.
Convergence. (2024). Blended Finance for Climate and Nature: Annual Review. Convergence Finance.
Net Zero Insights. (2024). State of Climate Tech Q2 2024. Investment Analysis Report.
CTVC. (2025). H1 2025 Climate Tech Investment: Capital Stacking Up for Energy Security & Resilience. Climate Tech VC Analysis.