Sustainability Atlas
Climate Finance & Markets·14 min read··...

Trend analysis: Funding trends & deal flow — where the value pools are (and who captures them)

Signals to watch, value pools, and how the landscape may shift over the next 12–24 months. Focus on KPIs that matter, benchmark ranges, and what 'good' looks like in practice.

Global climate technology investment reached a pivotal inflection point in 2024-2025: while total energy transition investment surged past $2.1 trillion for the first time—an 11% year-over-year increase according to BloombergNEF—venture capital and growth equity flows into climate tech startups contracted by approximately 29%, dropping from $79 billion in 2022-2023 to $56 billion in 2023-2024 (PwC, 2024). This bifurcation reveals a maturing market where capital increasingly concentrates in proven technologies and later-stage ventures, while early-stage climate innovation faces a more challenging fundraising environment. For investors, entrepreneurs, and policymakers navigating this landscape, understanding where value pools are forming—and who captures them—has become essential for strategic positioning in the decade ahead.

Why It Matters

Climate tech funding dynamics carry implications that extend far beyond startup ecosystems. The flow of capital determines which technologies scale, which regions lead the energy transition, and ultimately whether the world meets its net-zero objectives. BloombergNEF's 2025 analysis reveals a stark investment gap: current annual investment of $2.1 trillion must nearly triple to $4.8 trillion per year through 2030 to align with Paris Agreement goals (BloombergNEF, 2025).

The stakes for European investors are particularly significant. While the United States attracted $24 billion in climate tech investment in 2024 and the United Kingdom saw a 24% surge to £4.5 billion, the Asia-Pacific region's share of global funding plummeted from 19% to 7%—creating both competitive pressures and opportunities for capital deployment (PwC, 2024). The continent's regulatory frameworks, including the EU Taxonomy and CSRD requirements, are reshaping how capital flows evaluate climate-aligned investments.

Beyond macroeconomic implications, funding trends signal technological viability. When venture capital concentrates in grid modernization, battery storage, and nuclear energy—as it did in 2024, with nuclear and fusion capturing 44% of all energy sector funding—markets are effectively voting on which solutions will define the next phase of decarbonization (Sightline Climate, 2025). Conversely, sectors experiencing funding contractions, such as industrials (down from 17% to 7% market share despite representing 34% of global emissions), may represent either market inefficiencies or fundamental technology barriers.

Key Concepts

The Climate Tech Funding Taxonomy

Climate tech investment spans multiple capital categories with distinct risk-return profiles:

Venture Capital and Growth Equity encompasses early-stage (Seed through Series B) and growth-stage (Series C+) investments in climate-focused startups. In 2025, this category totaled approximately $40.5 billion globally, with an 8% year-over-year uptick driven primarily by energy sector deals (Sightline Climate, 2025).

Project Finance and Infrastructure Capital funds deployment of proven technologies at scale—solar farms, wind installations, battery storage facilities, and grid infrastructure. This category commanded $390 billion in grid investments alone in 2024, marking a record high (BloombergNEF, 2025).

Corporate Venture Capital represents strategic investment from incumbent corporations. Corporate participation remained steady at 28% of all climate tech deals in 2024, reflecting ongoing interest from energy majors, automotive manufacturers, and industrial conglomerates in accessing innovation pipelines.

Green Bonds and Debt Instruments provide fixed-income financing for climate projects and companies. Energy transition debt reached $1.01 trillion in 2024, with corporate issuance increasing 5% as interest rate cuts globally improved borrowing conditions.

Value Pool Dynamics

Value pools in climate tech concentrate around three primary vectors:

Technology-to-Deployment Conversion: The ability to take proven laboratory or pilot-scale technology to commercial deployment captures significant value. This explains why Series B funding increased 23% in 2024 even as overall VC contracted—capital flows toward technologies crossing the commercialization threshold.

Grid and Infrastructure Integration: As renewable penetration increases, technologies enabling grid stability—storage, transmission, demand response, virtual power plants—capture growing shares of value. Grid-related investments hit record levels in 2024 precisely because system integration challenges intensify with each percentage point of renewable generation added.

AI-Climate Convergence: Artificial intelligence applications in climate tech raised $6 billion in the first nine months of 2024 alone, exceeding the $5 billion raised in all of 2023 (PwC, 2024). AI now represents 14.6% of total climate tech funding, up from 7.5%, as machine learning enhances everything from materials discovery to energy optimization.

Climate Tech Funding KPIs by Stage

StageTypical Round SizeTime to Next RoundKey Metrics for InvestorsTarget IRR Range
Seed$1M–$5M18–24 monthsTechnology validation, team strength25–40%
Series A$5M–$20M18–24 monthsPilot deployments, first revenue20–35%
Series B$20M–$75M24–30 monthsCommercial contracts, unit economics18–30%
Series C$75M–$200M24–36 monthsMarket expansion, EBITDA trajectory15–25%
Growth$200M+VariablePath to exit, cash flow positive12–20%

What's Working

Late-Stage Concentration Delivers Returns

The shift toward later-stage investments reflects market maturation rather than retreat. Series C and growth rounds increased by more than 20% in 2024, as investors prioritized companies with proven unit economics and clear paths to profitability. This concentration benefits companies that have survived the "valley of death" between pilot and commercial scale.

Breakthrough Energy Ventures exemplifies this approach, participating in the largest growth rounds for companies such as Koloma (geological hydrogen, $246 million), while maintaining earlier-stage positions in breakthrough technologies. The strategy of building portfolios across stages while concentrating follow-on capital in winners has proven effective in the current environment.

Energy Sector Dominance Creates Clarity

Energy-focused investments captured $14.4 billion in 2025—the highest level in three years—representing 26% of all climate tech deals (Sightline Climate, 2025). This clarity benefits investors seeking allocation frameworks. Nuclear and fusion alone captured 44% of energy sector funding, driven by AI data center electricity demand projections.

The AI-energy nexus has become self-reinforcing: as artificial intelligence requires massive computational resources, data center operators increasingly seek clean, reliable baseload power. This creates natural offtake agreements for nuclear developers and grid-scale storage providers, improving project bankability.

The United Kingdom's 24% funding increase to £4.5 billion demonstrates that supportive policy environments can counteract global capital contractions. UK-based AI climate tech saw 128% growth, with investment rising from £440 million to £1.01 billion. The UK now captures 22% of global AI climate tech investment (PwC, 2024).

What's Not Working

The "Missing Middle" Persists

Despite $41 billion in dry powder raised but not yet deployed, climate tech companies face acute challenges securing capital for commercial-scale deployments. The gap between pilot projects (typically $5–20 million) and infrastructure-scale financing (typically $200+ million) remains the sector's most significant structural problem.

The "All Aboard Coalition" fund—a $300 million vehicle launched in 2024 targeting $100–200 million rounds—directly addresses this gap, but represents only a fraction of required capital. Companies report 2+ years between Series A and Series B rounds, compared to 18 months in more liquid venture markets.

AI Capturing Investor Attention

Climate tech now competes directly with artificial intelligence for investor attention. AI startups raised $47 billion in H1 2024—more than triple climate tech's $22 billion (BloombergNEF, 2025). Climate tech's share of total global VC fell from 9.9% to 8.3%, and the category now represents only 12% of venture funding compared to 21% at its 2021 peak.

This attention competition manifests in delayed fundraising timelines, compressed valuations, and increased difficulty securing term sheets from generalist investors who might previously have allocated to climate innovation.

Sector Misallocation Relative to Emissions

Industrial sector funding share dropped from 17% to 7% despite industrial processes producing 34% of global greenhouse gas emissions (PwC, 2024). Similarly, food and agriculture, buildings, and heavy transport remain underfunded relative to their climate impact. This misallocation reflects both technology maturity gaps and investor preference for software-like returns in hardware-intensive categories.

Geographic Concentration Risks

With 85% of adaptation and resilience investment flowing to North America and Europe, emerging markets remain underserved despite facing disproportionate climate impacts. Asia-Pacific's funding share collapse from 19% to 7% reflects both China's economic headwinds and insufficient capital deployment in Southeast Asian and South Asian markets where climate solutions are most urgently needed.

Key Players

Established Leaders

Breakthrough Energy Ventures (BEV): Founded by Bill Gates, BEV manages over $3 billion across multiple funds and has become the reference investor in hard-to-abate sectors. Portfolio includes TerraPower (nuclear), Form Energy (long-duration storage), and Koloma (geological hydrogen).

Temasek Holdings: Singapore's sovereign wealth fund maintains one of the largest climate tech portfolios globally, with significant positions across electrification, sustainable agriculture, and circular economy. Active in both growth equity and project finance.

Energy Impact Partners (EIP): Utility-backed investment platform with $5+ billion under management. Strategic value-add through utility partnerships accelerates pilot deployments and commercial adoption.

TPG Rise Climate: TPG's dedicated climate fund closed at $7.3 billion, focusing on growth equity and buyout opportunities in climate solutions. Portfolio includes renewable developers and climate-aligned industrial companies.

Emerging Startups

Koloma: Developing extraction of naturally occurring geological hydrogen. Raised $246 million in 2024 from BEV and others, representing one of the year's largest climate tech rounds.

280 Earth: Direct air capture technology developer that secured $50 million from Builders VC, representing continued investor interest in carbon removal despite sector challenges.

Form Energy: Iron-air battery technology for 100-hour duration storage. Positioned to capture grid-scale storage value as renewable penetration increases system flexibility requirements.

ZEEKR: Chinese EV manufacturer that completed a $441 million NYSE listing—the largest Chinese IPO since 2021—demonstrating continued public market appetite for scaled climate tech.

Key Investors and Funders

Lowercarbon Capital: Closed $550 million fund in 2024, maintaining position as most active early-stage climate investor by deal count.

World Fund: European-focused climate VC that closed €300 million fund, anchoring continental early-stage dealflow.

Goldman Sachs: Increasing climate tech allocation through both direct investments and asset management products, particularly in infrastructure and growth equity.

CPPIB (Canada Pension Plan Investment Board): Pension fund pioneer in climate infrastructure, with significant renewable energy and grid investments globally.

The Inflation Reduction Act (US): While not an investor, IRA subsidies effectively de-risk domestic US climate investments, contributing to the country's $24 billion annual investment level.

Examples

1. Octopus Energy: Scaling Through AI and Grid Services

Octopus Energy, the UK-based energy retailer, demonstrates how AI-enhanced grid services create investment value. The company's "Kraken" technology platform—licensed to other utilities globally—uses machine learning to optimize energy procurement, customer engagement, and grid balancing services. This platform business model attracted over $1 billion in funding at valuations exceeding $5 billion, making Octopus one of Europe's most valuable climate tech companies. Key success factors include technology licensing revenue diversification and regulatory support for flexible grid services under UK Ofgem frameworks.

2. Northvolt: The Perils of Scaling Hardware Too Fast

Swedish battery manufacturer Northvolt illustrates "missing middle" risks despite raising over €10 billion in debt and equity. Production challenges at its Skellefteå gigafactory, combined with delayed customer deliveries and quality issues, led to covenant concerns and restructuring discussions in late 2024. The case demonstrates that even well-funded hardware ventures face execution risks during scale-up, and that abundant capital cannot substitute for manufacturing discipline. European investors increasingly scrutinize unit economics and production roadmap feasibility following Northvolt's challenges.

3. Climeworks: Carbon Removal's First Mover

Climeworks, the Swiss direct air capture pioneer, secured over $700 million in funding and operates the world's largest DAC facility in Iceland (Orca, Mammoth). The company's advance purchase agreements with corporate buyers including Microsoft, Stripe, and Shopify demonstrate offtake-first financing models applicable across carbon removal. However, costs remain approximately $600–1,000 per tonne, well above the $100–200 range required for large-scale viability—highlighting both proof-of-concept success and the commercialization gap remaining for the sector.

Action Checklist

  • Map portfolio allocation against emissions contribution by sector to identify misallocation risks (target: <30% variance between funding share and emissions share)
  • Evaluate AI-climate convergence opportunities across existing portfolio companies and new deal flow
  • Assess exposure to "missing middle" companies requiring $50–200M rounds—consider co-investment platforms or structured products
  • Develop geographic diversification strategy beyond US/UK, particularly for adaptation and resilience investments in emerging markets
  • Establish relationships with specialist climate investors (BEV, Lowercarbon, EIP) for deal flow access and co-investment opportunities
  • Track regulatory developments including EU CSRD implementation and potential Inflation Reduction Act modifications
  • Build grid and energy storage allocation as renewable penetration creates infrastructure investment opportunities
  • Model exit scenarios under current M&A and IPO market conditions—89% of climate tech exits are acquisitions

FAQ

Q: Is climate tech still a viable investment category given AI's dominance of investor attention?

A: Climate tech remains viable but increasingly selective. The category's share of global VC has contracted from 9.9% to 8.3%, and competition with AI for investor attention is real. However, $40.5 billion in annual VC/growth investment and $2.1 trillion in total energy transition investment demonstrate continued capital availability. Success increasingly depends on differentiated technology, proven unit economics, and strategic positioning in sectors with clear deployment pathways (grid, storage, nuclear). Generalist investors may reduce allocation, but specialist climate funds continue raising capital—Lowercarbon ($550M), World Fund (€300M)—suggesting category-committed capital remains robust.

Q: How should investors evaluate the "valley of death" risk for early-stage climate hardware companies?

A: Evaluate three factors: (1) Offtake visibility—companies with advance purchase agreements or strategic partnerships have materially lower commercialization risk; (2) Government support exposure—IRA subsidies, European Green Deal funding, and similar programs provide capital buffers but create policy dependency risk; (3) Technical derisking—pilot project completion, third-party validation, and manufacturing partnership announcements reduce technology risk. Companies should demonstrate clear bridges from current funding through commercialization rather than assuming Series B/C availability. The 2+ year average between rounds means runway management is critical.

Q: What metrics distinguish successful climate tech investments from underperformers?

A: Beyond standard venture metrics (revenue growth, burn multiple, retention), climate tech requires category-specific KPIs. For hardware companies: manufacturing yield, cost learning curves, and capacity utilization. For energy companies: levelized cost trajectories, capacity factors, and grid interconnection timelines. For carbon management: cost per tonne, permanence validation, and buyer contract duration. Top-quartile climate tech companies demonstrate 18–24 month technology cost improvement rates exceeding 15% annually and maintain customer diversification beyond early-adopter corporate sustainability buyers.

Q: How does European regulatory evolution affect climate tech deal flow?

A: The EU's Corporate Sustainability Reporting Directive (CSRD) creates disclosure requirements that increase demand for MRV (measurement, reporting, verification) technologies and carbon management solutions. The EU Taxonomy's technical screening criteria influence which technologies qualify for sustainable finance labeling, affecting both deal flow and exit multiples. European investors increasingly integrate regulatory trajectory analysis into due diligence, evaluating whether portfolio companies benefit from tightening standards or face compliance burden increases.

Q: What are realistic exit expectations for climate tech investments in 2026?

A: IPO markets remain constrained—only 6 climate tech IPOs exceeded $100 million in 2024 (BloombergNEF). M&A comprises 89% of exits, predominantly acquisitions by strategic buyers seeking technology capabilities, project pipelines, or team talent. Realistic planning assumes 7–10 year hold periods for early-stage investments, with M&A to energy majors, industrial conglomerates, or infrastructure funds as primary exit mechanism. SPACs, which drove 2021's IPO surge, have largely exited the market. Secondary transactions provide some liquidity for later-stage positions.

Sources

Topics

fundingtrendsstandardscarbon pricecapexadditionalityIRR

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