Climate Tech Reflects Market Maturity as Investment Focus Shifts to Later Stages in 2024

Investment Patterns Shift Amid Broader Market Dynamics

In 2024, the climate tech sector witnessed a noticeable shift in investment trends, as new data suggests that the industry is maturing with investors favoring larger rounds and later-stage companies. Although venture investment in climate tech fell by 7% to total $12.9 billion, this was only $1 billion less than the previous year's figures.

Later-Stage Companies Gaining Favor

The latest report from PitchBook indicates that while round size increased, signaling investors' growing confidence in companies emerging from their seed phase. This trend marks a departure from previous years when investors predominantly targeted early-stage startups due to the nascent nature of climate tech. A renewed focus on new markets and technologies has led to increased backing for more developed projects, linked to lessons learned from the clean tech downturn post-Great Recession.

Increased Valuations and Deal Evolution

Median deal sizes have reached $7 million, rising by $1 million from the previous year. The median pre-money valuations also surged, hitting $44.5 million, compared to $31.5 million in the prior year. Despite a decrease in the total number of deals by 27% to 568, these figures underscore a maturation, as 2023 saw climate tech startups raising a total of $13.9 billion across 782 deals.

Influence of Broader Market Trends

The data reflects wider market trends, where overall deal counts have dropped even as total deal value inches closer to 2022 levels, driven largely by AI investments in major firms such as Anthropic, Databricks, OpenAI, xAI, and Waymo. These entities together accounted for 43.2% of the deal value in the last quarter of 2024.

Investor Outlook and Challenges

The dampening in climate tech investments follows a pandemic-driven surge, during which investment volumes and valuations soared. As these early-stage companies seek further funding, they now face more scrutiny over unit economics, posing challenges for those yet to show profitable models. Those startups demonstrating sustainability in their economics are securing more favorable terms as described by several investors.