Climate Tech is (almost) just Tech

During a PitchBook climate panel in May, SNØCAP GP Jonathan Azoff said that someday "climate tech" will just be "tech." Recent news gives a glimmer of hope that this future might be closer than we think. But like all good things, it's going to need a little help from its (investor) friends.

The first bit of good news is that despite what's happening in the rest of the venture world, early stage funding in climate is going strong. Climate Tech VC noted that overall deal count is up 8% in H1 2023, compared to H1 and H2 2022, and seed funding actually grew 23%. That's pretty impressive given the current economic climate.

There are a number of reasons for this, and they keep piling on the good news. First, the IRA, the one year old, sweeping legislation pushing $367 billion of tax credits, incentives, and other support for climate innovation. As PitchBook noted in June, the IRA has helped North America capture 58% of global climate-tech VC deal value, up from 43% in 2022.

There's a long way to go before the IRA is fully implemented, but even now the breadth of the bill has given investors enough confidence to keep those climate checks coming. "To meet our global climate goals, we need moonshot ideas that move the needle," said Aaron Fitzgerald, CEO and co-founder of Mars Materials, which turns our everyday materials into permanent storage for captured carbon. "Both the IRA and the Infrastructure bill have reduced financial risk for investors and enabled them to deploy money into earlier stage climate technology ventures."

Which brings us to the next good news topic, the opportunity in early tech. The "Big 3" climate sectors - transportation, food and land use, and energy - have received the lion's share of investor attention for years, accounting for about 60% of the climate-focused deals since 2020, reaching over $100 billion. As these industries mature and competition tightens, frontier technologies are setting the stage for the next big impact and breakthrough sectors.

Often overlooked areas, such as materials manufacturing, industrial processes, and waste remediation, are getting more attention. The incredible confluence of mature technologies, like machine learning, cheap renewable energy, and ultra efficient computing are enabling startups to develop and test ideas that stand to decarbonize everything. This is especially true in novel sectors such as synthetic biology, agritech, and generative AI, which are all seeing commercially viable startups emerge this year. Take AI and robotics company Aigen, which is combining recent advancements in edge computing and solar to help decarbonize agriculture.

Even more good news: Some hard to decarbonize industries are at their own tipping point. Instead of fighting against new materials or methodologies, industrial customers are welcoming startups like Mycocycle, which uses mushrooms to recycle construction waste and create reusable byproducts. "Large corporations are putting more and more money into climate tech, for a number of reasons. In construction, companies are facing both resource scarcity and pressure to meet net zero goals, but they have no way to get there," said CEO and founder Joanne Rodriguez. "Thanks to recent technology breakthroughs, we can offer a circular product that is both sustainable and saves money."

Other heavy industries are also opening up to decarbonization. "This isn't the auto industry resisting EVs ten years ago," said Matin Hanifzadeh, CEO and co-founder of Rushnu, which is developing point-source carbon capture that decarbonizes industrial processes using renewable catalysts. "Investors should know that industry is ready to decarbonize, but needs VC help to develop and scale early stage tech."

Lastly, there's increasing pressure for asset managers to have sustainable investment funds in their portfolios. In PitchBook's 2023 Sustainable Investment Survey, a small percentage of respondents said they have no sustainable investments, as more and more allocators are asking for them.

Between billions of government dollars, public pressure and policy incentives to decarbonize, and immense potential in early stage tech, the world of climate conscious innovation has a lot going for it. We are so close to a (good) tipping point where everything has a climate angle, where climate tech is just tech. Investments in early stage sectors will help us get there.