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Climate Tech Investing Falls 40%, But Holds Up Better Than Overall Funding Market, PwC Research Finds

October 18, 2023 by Joe Panettieri

Venture capital and private equity investments in climate technology startups has declined 40% so far in 2023, according to PwC research.

At first glance, the reduced funding is a painful reality for entrepreneurs who lead green IT, renewable energy and circular economy startups. But take a closer look at the PwC research and the percentage declines in other categories. The revelation: Funding in the green market is holding up better than the overall startup funding market.

Startup Funding: 2023 Trends From PwC

Emma Cox, global climate leader, PwC UK

Among the anecdotes to note from the the PwC 2023 State of Climate Tech report:

  •  Investment in other categories fell even more sharply - down 50%.
  • The result: Despite falling in absolute terms, climate tech investments as a proportion of start-up investments continued to rise.
  • In basic math, climate tech startups accounted for 10% of VC and private equity investments in 2023, up from 7% in 2018.
  • Early-stage deals made up over two-thirds of all climate tech deals in 2018 and 2019, dropping to around 47% in 2023.
  • Irrespective of challenging market fundamentals, 2023 also saw a steady influx of first-time climate tech investors, highlighting the industry remains attractive as a whole.

The PwC research is based on more than 8,000 climate tech start-ups and over 32,000 deals worth more than US$490 billion, the IT consulting and accounting firm said.

Startup Funding: Where VCs and Private Equity Are Focusing Their Investments

So, what type of green companies have attracted funding in 2023? Hot areas include:

  • Solar power’s share of investment is proportionally up 24%.
  • Green hydrogen is up 64%.
  • Carbon capture, utilization and storage are up 39% since 2022 although it still represents less than 2% of total climate tech funding.

Meanwhile, these sectors apparently have cooled off for investors, PwC said:

  • Light-duty battery electric vehicles’ proportional share of investment fell 50% since 2022.
  • Micromobility fell 38%; though mobility in its different forms still accounts for 45% of investments.

Climate Tech Startup Funding 2023: PwC Expert Perspectives

In a prepared statement about the research, PwC UK Global Climate Leader Emma Cox said: "The development and scale-up of climate technology is an essential part of meeting the climate challenge. So, while it is not surprising that absolute levels of investment in climate tech have fallen along with the market, it is concerning. The good news is that the sector has performed well in relative terms, with investment falling less than in other areas. It is also encouraging to see a shift in the balance of investments towards technologies that can cut emissions the most. Now we need to see that shift continue, coupled with an increase in the absolute levels of investment in all technologies with the potential to cut emissions."

Will Jackson-Moore, global sustainability leader, PwC UK

Added Will Jackson-Moore, global sustainability leader for PwC UK: "A challenging macroeconomic environment, sinking valuations, and geopolitical turmoil has seen capital flows to climate tech ventures drop 40% at a time when climate tech needs it most. But while such industry and macroeconomic dynamics may cloud investor confidence, they also present significant first-mover opportunities for investors to engage in the current dip, as the need for climate tech innovations will only grow stronger."

Related: Here's a list of green startups that have raised funding.

Disclosure: Sustainable Tech Partner Editorial Director Joe Panettieri also is managing director of Channel Angels -- an angel investor group that funds technology and sustainability startups.

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