VCs Are Scaling Up Climate Software Investments

Climate-focused software startups were a hot area for early-stage investment last year. Now it appears companies are graduating rather quickly to larger rounds and much higher valuations.

That’s the broad finding based on a spate of recent large rounds for companies working on carbon tracking, sustainable investment tools and other areas at the intersection of climate and software.

Using Crunchbase data, we curated a list of 27 climate-focused software companies funded in the past year. Collectively they’ve pulled in more than $1.3 billion. See the full list of companies below:

Now, the sums going into climate software aren’t huge as a portion of venture capital investment overall. Rounds for the 27 companies on our list, for instance, account for less than a quarter of a percent of total venture funding.

What stands out, however, is how quickly this smallish space has been scaling of late. The companies on our list above have collectively pulled in over $640 million in the past year—more than half of their funding to date. Of that sum, over 50 percent came in 2022 alone, indicating there’s a lot of money chasing a limited pool of fundable candidates.

“We’re in a really interesting moment, a sort of Cambrian explosion of companies with a focus on reducing carbon emissions,” said Kiran Bhatraju, founder and CEO of Arcadia, a developer of software and APIs for accessing energy data used in solar power provision and electric vehicle charging.

Cleantech funding takes off

On the fundraising front, too, these are certainly buzzy times. Bhatraju, a serial entrepreneur, recalls his experience raising capital for a prior cleantech startup close to a decade ago. At the time, he recalls, “no generalist VC would even take a meeting.”

This time around, things are quite different. Tiger Global, co-lead investor in Arcadia’s $100 million September Series D round, was actually the one who first approached Bhatraju about investing.

“They had a thesis that data and a data platform to unlock utility-level data was core to decarbonization,” he said, and had done quite a bit of diligence before broaching a deal. Bhatraju didn’t provide a valuation but did confirm that it was a significant up round for the 8-year-old company, which per Crunchbase has raised more than $165 million in equity funding to date.

Valuations for companies at the intersection of software and decarbonization often aren’t disclosed. But when they are, they can be surprisingly large.

Take San Francisco-based Watershed, a developer of software for companies to measure their carbon emissions and drive them to zero. The startup, which counts Airbnb, DoorDash and Shopify among its customers, pulled in $70 million in a February Series B round co-led by Sequoia and Kleiner Perkins.

Watershed’s financing stands out for the $1 billion valuation set for the company. It’s a remarkably high number for a 3-year-old company that raised its Series A just a year ago, and an unusually rapid ascent from nascent startup to unicorn.

We’ve also seen some other big deals in recent weeks:

• Sweep, a French company developing software for businesses to reduce their carbon emissions, raised $72 million in an April Series B round led by Coatue.
• ClimeCo, a Pennsylvania startup focused on developing and trading environmental commodities, raised $50 million in a funding round announced this month that was backed by The Heritage Group and Warburg Pincus.
• NCX, San Francisco-based operator of a marketplace for forest management-related carbon credits, raised $50 million in a March Series B led by Energize Ventures.
• GridPoint, a Reston, Virginia-based energy management platform for commercial buildings, closed on $75 million in a March financing led by the Sustainable Investing Group within Goldman Sachs.

Per Bhatraju, it makes sense at this point to see a mix of traditional VCs, energy-focused firms and growth investors all eyeing climate software, as the metrics are pretty similar to the SaaS space overall. Then, of course, there’s the added appeal that most are also making an impact on decarbonization.

“The cash flow profile at scale can look like your best-in-class enterprise software companies in an asset class that hasn’t seen that,” he said.

Illustration: Dom Guzman