SAN FRANCISCO – June 21, 2023 – With global efforts underway to achieve a goal of net-zero greenhouse emissions by 2050, the climate technology sector is more stable than other sectors, according to a new report from Silicon Valley Bank (SVB), a division of First Citizens Bank. While the venture capital (VC) ecosystem has experienced the most significant valuation correction in over a decade, climate tech valuations have remained at or above their 2021 levels since investors recognize the growing opportunity for climate technologies.
“While market and economic challenges may continue in the short term, the resiliency of the climate tech sector and the critical role it plays in reaching net zero is reason to be optimistic,” said Dan Baldi, national head of SVB’s Climate Technology and Sustainability practice. “Tech companies are commercializing and scaling existing solutions while also creating new innovations that can accelerate the transition.”
When looking at both fundraising and investment activity in Q1, climate tech saw a 60% decrease in YOY fundraising, mirroring the overall decline in US VC fundraising. However, investment activity remained steady compared to other sectors. According to the report, the number of active investors in seed-stage U.S. climate tech companies decreased by 37% while the decline in active investors in seed-stage fell by 51% across broader tech, reflecting an optimistic view for the future of climate tech.
SVB’s Future of Climate Tech report provides an in depth look at current fundraising activity and challenges, investment trends, and emerging technologies. The 2023 report also analyzes four themes shaping the future of climate technology:
- Government Support: Significant federal spending is creating momentum for clean energy projects and improving the economics for climate tech investors.
- Climate Tech Diversification: Opportunities to optimize, decrease costs and develop new markets arise when scaling clean tech innovations with artificial intelligence (AI), machine learning (ML) and software.
- Data Measurement: Capturing and synthesizing large amounts of data from climate tech innovations generate new revenue streams and drive improved decisioning and management capabilities. This opens the door for both hardware and software companies to optimize deployed systems and infrastructure.
- Decarbonization: Carbon-free electricity from wind and solar will continue and is made possible by climate technologies such as virtual power plants, improved weather forecasting and long-term storage on the supply side.
Key 2023 Report Findings:
VC Investment Remains Robust
- Since the start of 2022, investment in climate tech has outperformed broader tech sectors and is now 20 percentage points above the tech market at large.
- While most companies do not have 18-24 months of cash runway, climate tech companies with 12 months of runway may have enough to weather a continued slowdown.
- While the VC ecosystem has seen the most significant valuation correction in over a decade, climate tech valuations have remained at or above 2021 levels.
- Valuations in climate tech have remained flat or up, compared to general tech. This is likely due to the large market opportunity for climate tech companies.
- Median series D+ climate tech valuations are up 13% from the peak in 2021, while the median series D+ tech valuation (excluding climate tech) fell 67%.
Overcoming High Capital Requirements
- Renewable energy technologies, including solar and wind, have proven to be effective, reliable, and economic, leading to scaling and increased adoption.
- Moody's data shows that global green infrastructure projects have a lower default rate than non-green projects.
- In 2022, the Inflation Reduction Act (IRA) expanded the Department of Energy’s (DOE) loan authority from $40B to more than $400B over the next decade. As a result, those loan requests have spiked by 74% since January 2022.
Baldi, along with other industry leaders, will discuss key findings from the report during a live webinar on June 27, 2023, at 11 am PT. For additional details and to register, click here: The Path to Net Zero: How Climate Tech is Leading the Way (svb.com)
To read the complete 2023 Future of Climate Tech report, click here: The Future of Climate Tech Report | Silicon Valley Bank (svb.com)
About Silicon Valley Bank
Silicon Valley Bank (SVB), a division of First Citizens Bank, is the bank of the world’s most innovative companies and investors. SVB provides commercial and private banking to individuals and companies in the technology, life science and healthcare, private equity, venture capital and premium wine industries. SVB operates in centers of innovation throughout the United States, serving the unique needs of its dynamic clients with deep sector expertise, insights and connections. SVB’s parent company, First Citizens BancShares, Inc. (NASDAQ: FCNCA), is a top 20 U.S. financial institution with more than $200 billion in assets. First Citizens Bank, Member FDIC. Learn more at svb.com.