How Venture Capitalists Are Trying to Solve the Climate Crisis

• VCs invested $30 billion in climate-tech startups in the first three quarters of 2021.
• That’s about double what they invested in all of 2020, according to PitchBook data. 
• What was once considered a terrible market is now a mighty one. That’s good news for the planet.

When thinking about the people at the forefront of the fight against the climate crisis, venture-capital investors probably wouldn’t be first on the list.

But in 2021, with the climate crisis upon us, VCs saw the growth potential in climate tech and poured money into promising startups that could help save the planet.

They invested over $30.59 billion into climate-tech startups in the first three quarters of the year, nearly double the $15.79 billion invested in all of 2020, according to PitchBook.

The size of the median venture deal was about $8 million, PitchBook found, indicating that much of the money was spent on early-stage startups raising smaller rounds.

Some VCs have become vocal climate advocates, too. Earlier this year, Kleiner Perkins’ John Doerr started evangelizing the need for green-tech investment with his new book “Speed & Scale: An Action Plan for Solving Our Climate Crisis Now.”

But there wasn’t always enthusiasm for green-tech investing. Doerr was one of the earliest to invest in the sector in 2007, when he launched a Green Growth Fund. But by 2015, many of the early startups had stalled or died.  Investors mused that the category was “dead.”

But Doerr said all that was needed was patience, and the returns from his $1 billion fund have tripled over 14 years.

He’s hardly alone. In addition to well-known funds backed by Bill Gates, Tom Steyer, Chris Sacca, and Robert Downey Jr., there are now more than 30 VC funds exclusively dedicated to climate-tech startups, according to the industry aggregator Climate Tech VC.

In addition to a leap in total VC investments, the distribution of funds fell across many sectors.

Electric-vehicle startups and battery tech took the biggest share of venture investment with 48%. Of the 527 climate-tech startups that raised VC funding in 2021, electric-vehicle startups accounted for seven of the 11 climate-tech unicorns, according to PitchBook. 

The electric-vehicle manufacturer Rivian gained the bulk of investment before its IPO in November, with over $2.5 billion raised. And then it proved its investors right with the biggest overall IPO of 2021, netting the company about $12 billion raised and a day-one valuation of about $100 billion, as Markets Insider reported.

Others in the category went public via special-purpose acquisition companies in 2021, such as the electrical-vehicle charging station maker ChargePoint and Lightning eMotors.

Government investment is expected to give climate tech a boost, too: The bipartisan infrastructure law passed this year budgets $7.5 billion for electric-vehicle charging stations and $5 billion for electric and hybrid school buses. That’s good news for investors in startups like the charging-station maker Volta, which raised $125 million early this year, and the hybrid-school-bus company Zum, which raised a $130 million Series D.

Plant-based meat products and sustainable farming are also gaining VC investment. Food systems and green food tech had the second-largest share of funding with 13%, according to PitchBook.  Examples include Future Meat Technologies, which raised a whopping $347 million Series B and Eat Just’s Good Meat, which raised $170 million.

Energy-grid tech came in third, getting 9% of 2021’s climate venture investment, PitchBook found.

Should more successful IPOs in climate tech come in the new year, that would likely spur even more interest from venture investors. One contender: Impossible Foods’ CEO Pat Brown told Forbes that an IPO was “inevitable.”