Sustainability Atlas
Climate Finance & Markets·12 min read··...

Myth-busting Funding trends & deal flow: 10 misconceptions holding teams back

Myths vs. realities, backed by recent evidence and practitioner experience. Focus on implementation trade-offs, stakeholder incentives, and the hidden bottlenecks.

Climate tech venture capital reached $40.5 billion in 2025—an 8% increase from the prior year—yet deal count declined 18% to just 1,545 transactions, signaling a fundamental shift in how capital flows to decarbonization solutions (Sightline Climate, 2025). This paradox of rising investment concentration amid fewer deals has generated persistent misconceptions that actively impede fundraising strategies, portfolio construction, and capital deployment decisions. Teams operating under outdated assumptions about climate finance find themselves pursuing misaligned investor targets, misunderstanding stage-appropriate metrics, and overlooking emerging capital sources that could accelerate their commercialization timelines.

Why It Matters

The gap between perception and reality in climate tech funding directly affects which solutions reach commercial scale. According to BloombergNEF, global energy transition investment reached $2.3 trillion in 2025, yet climate tech equity specifically struggled for three consecutive years before showing recovery signs. Understanding the actual funding landscape—rather than myths propagated through industry echo chambers—enables more effective capital allocation across the climate solution stack.

Deal flow statistics from 2024-2025 reveal structural shifts that contradict common narratives. Early-stage funding (Seed and Series A) declined 19% and 22% respectively in 2025, while growth-stage funding surged 78% year-over-year. The energy sector captured 36% of total funding—its highest share in three years—with nuclear and fusion technologies claiming 44% of energy investments. Meanwhile, transportation and EV technologies saw deal activity plunge 61% in 2024 before stabilizing.

Geographic distribution shows pronounced concentration: the United States received $147 billion in cumulative climate tech investment since 2018, while Europe dropped to $10.1 billion in 2025—its lowest level since 2020. Climate adaptation and resilience funding rose to 13.3% of total investment, up from approximately 5.5% historically, reflecting growing recognition that mitigation alone is insufficient.

Key Concepts

Climate Tech Venture Capital

Climate tech VC encompasses equity investments in companies developing solutions to reduce greenhouse gas emissions or adapt to climate change. Unlike traditional venture capital, climate tech VC often requires longer time horizons (7-12 years from lab to commercial scale), larger capital requirements for hardware development, and deeper technical due diligence. The average deal size reached $26.2 million in 2025 for transactions above $50 million, reflecting the capital intensity of climate solutions.

Growth Equity and Project Finance

Growth equity investments target commercially validated companies requiring expansion capital—typically $25-100 million for manufacturing scale-up or market expansion. Project finance, by contrast, funds specific infrastructure assets (solar farms, battery storage facilities, hydrogen plants) based on contracted revenue streams rather than corporate balance sheets. The transition from venture equity to project finance represents a critical inflection point where many climate companies struggle to secure appropriate capital.

Blended Finance and Catalytic Capital

Blended finance structures combine concessional capital (from development finance institutions, philanthropies, or governments) with commercial investment to de-risk first-of-a-kind deployments. Catalytic capital—typically grants, guarantees, or below-market-rate loans—absorbs early losses or reduces perceived risk, enabling commercial investors to participate in projects that would otherwise exceed their risk tolerance. Breakthrough Energy Catalyst's €840 million partnership with European institutions exemplifies this approach.

Climate Tech Funding KPIs

Metric2024 Benchmark2025 PerformanceTop Quartile
Total VC/Growth Investment$37.5B$40.5BN/A
Deal Count1,8901,545N/A
Seed Round Size$2-4M$2-5M>$5M
Series A Round Size$10-20M$12-25M>$30M
Series B Round Size$25-50M$30-60M>$75M
Growth Round Size$75-150M$100-200M>$250M
Time to Series A18-24 months20-30 months<18 months
Revenue Multiple (Software)8-12x6-10x>15x
Revenue Multiple (Hardware)2-4x2-3x>5x

What's Working

Deep Tech Investments with Clear Deployment Pathways

Investors increasingly favor deep tech solutions with validated commercial applications. Form Energy's $405 million Series F in October 2024 for iron-air batteries—bringing total funding to over $1.2 billion—demonstrates appetite for breakthrough technologies with contracted utility customers. The company's Maine project, backed by $147 million from the U.S. Department of Energy, represents the world's largest battery by megawatt-hours (85 MW/8.5 GWh).

Government Co-Investment Programs

Public-private partnerships have emerged as critical enablers for capital-intensive climate solutions. The Department of Energy's Loan Programs Office deployed $72.7 billion across 74 active loans by 2025, while the Inflation Reduction Act's production tax credits ($3/kg for clean hydrogen, $180/tonne for direct air capture) transformed unit economics for entire sectors. Companies securing government commitments signal reduced technology and offtake risk to private investors.

Corporate CVCs and Strategic Partnerships

Corporate venture capital arms increasingly lead or participate in climate tech rounds, providing not just capital but customer relationships, distribution channels, and technical validation. Energy majors, industrial conglomerates, and technology companies have expanded climate-focused CVC programs, with strategic investors often offering higher valuations in exchange for commercial collaboration rights.

What's Not Working

The Valley of Death at Series B

Series B funding dropped 29% in H1 2025, emerging as the critical bottleneck between proof-of-concept and commercial deployment. Companies with validated technology at demonstration scale struggle to secure the $50-200 million required for first-of-a-kind commercial facilities—amounts too large for venture capital but lacking the track record infrastructure investors require. Fifty-one percent of institutional investors cite this gap as the hardest to finance.

Hardware Bias in Software-Oriented Funds

Many generalist and climate-focused funds lack the technical expertise or risk tolerance for hardware investments. The cost of capital for building physical production facilities has increased substantially with higher interest rates, while investors have shortened return expectations. This bias leaves promising hardware companies underfunded relative to software solutions with comparable decarbonization potential.

Deployment Gaps in Emerging Markets

Capital remains heavily concentrated in North America and Western Europe, leaving emerging markets—where emissions growth is fastest and deployment needs are greatest—underserved. Limited infrastructure investor familiarity, currency risk, and political uncertainty compound the challenge, even as climate impact per dollar invested may be substantially higher in these regions.

Key Players

Key Investors and Funders

Breakthrough Energy Ventures: Founded by Bill Gates with backing from Jeff Bezos and other billionaires, BEV has deployed $3.5+ billion across 110+ portfolio companies. Its BEV III fund raised $839 million in 2024, and Breakthrough Energy Catalyst addresses the $25-100 million "missing middle" through blended finance structures.

DCVC (Data Collective): With $3+ billion under management, DCVC focuses on deep tech and computational approaches to climate challenges. Recent climate investments span precision agriculture, grid optimization, and industrial decarbonization, with partners bringing technical backgrounds from Lawrence Livermore, Stanford, and leading technology companies.

Lowercarbon Capital: Founded by Chris and Crystal Sacca, Lowercarbon manages $550+ million across 205+ investments, primarily at Seed and Series A stages. Its hands-on company-building approach has produced multiple unicorns, with recent investments including climate insurance platform The Standard and bio-manufacturing company Epoch Biodesign.

Congruent Ventures: Managing over $400 million across three funds, Congruent focuses on climate solutions leveraging technological innovation and favorable policy dynamics. The firm's portfolio spans renewable energy, sustainable agriculture, circular economy, and transportation electrification, with notable investments including Dandelion Energy and Generate Capital.

10 Misconceptions About Climate Tech Funding

Misconception 1: Climate Tech Funding Has Collapsed

Reality: Global climate tech VC and growth equity reached $40.5 billion in 2025—an 8% increase from 2024. While funding declined from the 2022 peak, the market has stabilized and matured rather than collapsed. Capital concentration has increased, with larger rounds going to fewer companies with demonstrated commercial traction.

Misconception 2: Generalist VCs Won't Fund Climate

Reality: Generalist investors increasingly participate in climate rounds, particularly for software-based solutions and later-stage opportunities. Andreessen Horowitz, Sequoia, and other top-tier generalists have made significant climate investments. The key differentiator is commercial momentum—generalists engage when companies demonstrate enterprise adoption rather than relying purely on climate mission narratives.

Misconception 3: You Need a Climate-Focused Lead

Reality: While climate-focused leads provide sector expertise and patient capital, diverse investor syndicates often strengthen companies. Strategic corporates, growth equity firms, infrastructure investors, and government programs each bring distinct value. Companies limiting outreach to climate-dedicated funds unnecessarily constrain their capital access.

Misconception 4: Hardware Is Unfundable

Reality: Hardware-intensive climate companies raised substantial capital in 2024-2025, including Form Energy ($405M Series F), H2 Green Steel ($6B+ total financing), and Crusoe Energy ($1.375B Series E). Hardware investments require different investor profiles—typically later-stage funds with longer hold periods and infrastructure financing experience—but capital is available for technologies with clear unit economics and deployment pathways.

Misconception 5: Carbon Removal Is Too Early

Reality: Carbon removal companies raised over $3 billion cumulatively through 2025, with direct air capture and enhanced weathering attracting significant venture and corporate investment. Policy support ($180/tonne 45Q tax credits), advance market commitments (Frontier's $1B+ buyer coalition), and improving unit economics have de-risked the sector. Heirloom, Climeworks, and others have secured hundred-million-dollar rounds.

Misconception 6: European Investors Require European Headquarters

Reality: European climate investors increasingly invest globally, particularly in U.S. companies benefiting from Inflation Reduction Act incentives. Cross-border investment has accelerated as European institutional investors seek climate tech exposure regardless of domicile. Conversely, U.S. investors back European companies with strong regulatory tailwinds (EU Taxonomy, CBAM compliance).

Misconception 7: You Can't Raise Without Revenue

Reality: Pre-revenue climate companies continue raising significant capital, particularly in deep tech categories with clear development milestones. Fusion companies (Commonwealth Fusion, TAE Technologies) raised billions pre-revenue based on technology de-risking. The critical requirement is demonstrated progress—milestone achievements, letters of intent, pilot deployments—rather than revenue specifically.

Misconception 8: Government Funding Creates Investor Red Flags

Reality: Government grants, loans, and tax credits increasingly signal investor validation rather than concern. Companies securing DOE Loan Program Office commitments, ARPA-E grants, or IRA tax credits demonstrate technology credibility and reduced deployment risk. Savvy investors view public funding as de-risking leverage rather than crowding-out competition.

Misconception 9: Climate Tech Returns Underperform Software

Reality: Return profiles differ by subsector and vintage. Climate software companies achieve comparable multiples to enterprise SaaS when reaching scale. Hardware investments require different return expectations (2-4x rather than 10x) but can deliver strong absolute returns on larger capital bases. Crusoe Energy's trajectory from $276 million in 2024 revenue to projected $2+ billion by 2026 demonstrates climate tech's upside potential.

Misconception 10: The Fundraising Playbook Is the Same as Tech

Reality: Climate tech fundraising requires distinct approaches: longer relationship development with specialized investors, deeper technical validation processes, more extensive regulatory and policy analysis, and different metrics emphasis (unit economics over growth rates, technology risk reduction over market expansion). Teams applying pure software fundraising tactics often struggle.

Action Checklist

  • Map your investor universe across specialized climate funds, generalists with climate mandates, strategic corporates, and government programs rather than limiting outreach to dedicated climate VCs
  • Develop stage-appropriate metrics: technology de-risking milestones for early-stage, unit economics for growth-stage, contracted revenue for project finance transition
  • Build government funding into your capital strategy, leveraging DOE programs, IRA tax credits, and state incentives as de-risking signals for private investors
  • Identify blended finance opportunities for first-of-a-kind deployments, connecting with development finance institutions and catalytic capital providers
  • Prepare for longer fundraising cycles (6-12 months versus 3-6 months for software) with deeper technical due diligence and reference customer validation
  • Develop relationships with infrastructure investors and project finance providers 12-18 months before needing deployment capital

FAQ

Q: How long should climate tech companies expect fundraising to take? A: Climate tech fundraising typically requires 6-12 months—significantly longer than software venture rounds. Hardware companies with significant technology risk may experience 12-18 month processes. Companies should begin investor relationship-building 12-24 months before requiring capital and maintain multiple financing tracks simultaneously.

Q: What metrics matter most for climate tech Series A? A: Series A investors prioritize technology de-risking evidence, pilot deployment results, early customer letters of intent, and credible unit economics projections. Unlike software where growth rates dominate, climate tech Series A evaluates technology readiness level advancement, manufacturing cost trajectories, and regulatory/permitting progress.

Q: Should climate companies pursue government funding before private capital? A: Sequencing depends on capital intensity and timeline. Non-dilutive government funding (SBIR, ARPA-E) can extend runway and validate technology before private rounds. For larger capital needs, securing conditional commitments from DOE Loan Programs Office or IRA tax credit eligibility can significantly strengthen private fundraising positioning.

Q: How do valuation expectations differ between climate tech and software? A: Climate tech valuations generally compress relative to software, with hardware companies trading at 2-4x revenue versus 6-12x for climate software. Generalist investors applying software multiples to climate hardware create valuation mismatches. However, strategic investors and climate-dedicated funds often pay premiums for technology leadership in critical decarbonization categories.

Q: What causes most climate tech fundraises to fail? A: Common failure modes include: targeting inappropriate investor profiles (pitching hardware to software-oriented funds), insufficient technology validation for the capital sought, unclear unit economics trajectories, regulatory dependency without policy durability analysis, and fundraising timelines misaligned with runway. Companies failing to articulate credible paths from current stage to commercial deployment struggle regardless of climate impact potential.

Sources

Topics

fundingtrendsscenario analysisopexportfolio constructionunit economicsstandards

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