Top climate investors on 2023 venture capital trends

Macroeconomic trends heading into 2023 are a source of anxiety in the tech industry, but they don’t tell the whole story when it comes to climate-tech investing.

Along with the urgency of the climate crisis, investors expect that countries, companies, and individuals seeking less expensive, more reliable energy will continue to fuel growth in cleantech. With nearly $300 billion in dry powder for climate-tech startups toward the end of last year, per Climate Tech VC, there appears to be plenty of funding for these technologies in 2023.

“We have not seen any slowdown in activity, in interest, in company formation, or in talent coming into climate tech,” Sarah Sclarsic, co-founder and managing partner at investment firm Voyager, told Emerging Tech Brew. “I think this speaks to the fact that there’s a very foundational problem that’s being addressed by these companies that are building climate solutions, which is the climate crisis, and that’s unfortunately not going away on its own.”

2021 was a record-setting year for climate-tech funding. The dollar amounts and deal counts for 2022 are still being tallied, but estimates range widely, from climate-tech funding dropping at about the same rate as VC investments overall, per PitchBook data shared with us, to the sector growing by nearly 90% year over year.

Climate-tech investments tend to have relatively long time horizons, but they often also promise potentially transformational solutions.

“There is a lot more optimism in the clean energy and whole cleantech transition that we’re seeing, compared to other parts of the economy,” Ryan Panchadsaram, technical advisor to John Doerr at Kleiner Perkins, told us. “It’s a world of investing in new technologies that could truly beat the old—on cost, on performance, and a lot of things. Sure, we’ve got to work our way down these cost curves, but I think the reason why you’re seeing investor optimism is that they do see true growth in this area.”

Climate-tech startups made up more than a quarter of total VC investments over the first three quarters of 2022, according to PwC.

The last year has also brought energy prices and energy security to the forefront, highlighting the short-term cost savings and long-term benefits of moving away from fossil fuels. Renewable energy capacity is now projected to increase much faster than previously expected, per the IEA.

“The value proposition of these kinds of products is not trend-driven,” Sclarsic said. “As the macroeconomic state of the world sees more volatility in energy prices, particularly driven by the geopolitics of fossil fuels, the value of domestically produced sustainable energy and bringing energy costs down and making them more reliable—because they’re not dependent on these global fossil-fuel supply chains—that value proposition just gets stronger.”

While new climate-tech startups are still forming and raising new rounds, Sclarsic said that there seems to be less of a rush to close those rounds, unlike last year when there was “kind of a feeding frenzy.”

The Inflation Reduction Act will likely lead to greater private-sector investment in climate tech in the US this year, she said.

While Panchadsaram said there are opportunities this year for longer-term categories like carbon removal, others emphasized that 2023 could be big for climate tech that is ready to deploy in the near term.

Startups focused on decarbonizing transportation have been the largest recipients of funding, per PwC—and perhaps the most publicly visible sector of climate technology—over the last few years, but investors told us they expect that innovation aimed at reducing emissions from heavy industry, improving efficiency in buildings and processes, and energy generation will receive increased attention in 2023.

Amit Chaturvedy, global head and managing partner of SE Ventures, anticipates that electrifying industrial processes and reducing waste will be two major trends in climate tech this year, along with improvements in carbon management tech.

“We are interested in tools that enable faster, efficient, effective decarbonization. We are interested in tools that can enable faster and more efficient proliferation of management of distributed energy resources, across both residential and [commercial and industrial] customers, including solar batteries, heat pumps, and EV chargers,” he said. “Tools and software that are related to climate resilience that help companies with their short-term and long-term goals in this ever-changing environmental condition.”

The capital for deploying tech that is ready today, from better mining to scaling wind and solar, is growing, Panchadsaram said.

“If you talk to a lot of corporate companies that are on the leading edge—trying to buy and put their dollars to work on decarbonization—they can’t find enough solutions. So the money is flowing,” Panchadsaram said. “I think what’s exciting about those companies is you’re going to see results and real things in 2023 [and 2024] at scale.”