When you think of investing in clean tech, you might be picturing a field of wind turbines or solar-powered lamps—but according to VCs focusing on emerging technology in the climate tech sector, this image is outdated.
Investor interest—and dollars—in climate tech (the umbrella term that includes a range of technologies that aim to address the impact of global warming, whether that be through decarbonization or sustainable agriculture supply chains) has been gaining momentum since 2021. While the sector has not been completely immune to the venture slowdown in 2023, it has fared relatively well.
“The growth in climate tech funding has been driven by a variety of factors, including regulatory support, which has in turn been influenced by strong growth in the number of decarbonization pledges at the country, city, and company level,” explained John MacDonagh, emerging technology analyst at PitchBook. “This has been particularly apparent in the clean energy sector, where technological maturation has also pushed down technology costs to the point at which they’re competitive with high-carbon approaches, regardless of climate benefits.”
Climate tech, like many other sectors, has gone through hype cycles in terms of VC attention and funding. In a period referred to as “Clean Tech 1.0,” VCs poured billions into climate tech between 2006 and 2011. However, following the financial crisis, many of the investments did not pan out. Now, many of the players investing the most in the space are newer, including SOSV and Breakthrough Energy Ventures. Famed seed investor Chris Sacca, who is known for his winning investments in Instagram, Twitter, and Uber, founded Lowercarbon Ventures in 2018 along with his wife Crystal Sacca to invest in climate tech.
While companies focusing on clean energy are still crucial, VCs are also looking at the next wave of transformational inventions that will transform supply chains for polluting industries that have yet to see sustainable innovation. “Clean tech 1.0 was really somewhat focused on just the energy sector, and now we're seeing a large diversification of really interesting new sectors and investors who are gaining knowledge about those areas and wanting to deploy capital," said Duncan Turner, a partner at SOSV. Turner emphasized some of the most exciting new tech revolutionizes supply chains for some of the most polluting industries like concrete production and agriculture.
Another piece of tech that is seeing a boom? Carbon removal. “VC investment in carbon removal tech has also been growing strongly—in the U.S., the Inflation Reduction Act’s support for carbon removal is particularly strong,” explained MacDonagh. One recent example is carbon removal firm Charm announcing its $100 million Series B today. General Catalyst led the round.
While climate tech may be having a moment, investment in the sector is meager compared to funding going to A.I. software companies. Yet VCs say those on board have huge returns ahead. “[Agriculture] is still in need of a good digital revolution that has happened in so many other sectors and I think capital now senses that that's coming—there's just nothing but a green field of opportunity,” said David Barnes, partner at Astanor Ventures, a firm that invests in sustainable agriculture tech.
Binance blow: On Monday the Securities and Exchange Commission filed a big lawsuit against top-dog crypto exchange Binance, alleging, among other things, the exchange mishandled user funds and that the exchange's token, BNB, is an unregistered security. The lawsuit named several other popular tokens—including Solana and Polygon—as securities as well. That's bad news for the broader industry, and for venture capital investors who've bet on crypto projects and tokens, including Solana. One crypto-focused VC told me yesterday shortly after the news broke that "right now everyone is just reading the complaint and discussing which tokens were named (and the fact that [Ethereum] was not...)." It's a significant move and one that could make things tricky for those holding or trading tokens—and it's already taken a hit to the prices of several tokens. A Binance spokesperson said in a statement that "We are disappointed that the SEC chose to file a complaint today against Binance seeking, among other remedies, purported emergency relief," adding that "We respectfully disagree with the SEC’s allegations that Binance operated as an unregistered securities exchange or illegally offered and sold securities, including by offering BNB, or the BUSD fiat-backed stable coin. We work diligently to comply with laws and regulations applicable to our business." —Anne Sraders
Until next time,
Lucy Brewster
Twitter: @lucybrewster
Email: Lucille.brewster@fortune.com
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