🌎 $40B and 1,000+ deals in 2022 market downtick

The market slowdown has officially hit climate land. 2022 funding was down 3% from the prior year as investors poured $40B+ into climate companies. But even a global slowdown isn’t slowing the rate of climate innovation - deal activity defied the odds and gained 40% versus 2021’s bonanza, with ~1,000 venture and growth-stage climate deals closed in 2022.

As the market tightens, we’ve reflected the same with our methodology. CTVC’s intention is to be the most accurate source of climate venture funding data - even as the market size retracts. The 2022 market report findings below validate your market survey sentiment and our dry powder predictions of a slower H2’22. We anticipate more, smaller deals, continued diversification into emerging climate technology sectors, and specialization as the mid and growth-stages stay dry into the new year.

Highlights

💸 Climate tech companies raised +$40B across ~1,000 venture and growth deals in 2022

💰 2022 funding was 3% down from 2021’s peak, driven by a 24% drop in Growth stage funding

🪜 A tale of three stages: while the Growth stage dropped, the Middle of the market flattened, and (Seed, Series A) Early stage activity accelerated 61%+

📉 Round sizes were smaller at every stage, with sharper 30%+ declines in Later-stage

📈 Meanwhile, deal count grew ~40% up and to the right across every industry

💨 Carbon and Built Environment are emerging stars, multiplying 2.4x and 3.8x in funding respectively since 2021

💼 ~2,000 investors joined more than 1 climate deal in 2022. Of those, 613 invested in more than 5 climate deals last year

🌱 Specialist investment firms led the most deals in their respective industries

A important note on methodology

As we always say, climate tech is a theme not an industry - but even themes must be defined in pursuit of rigor. Our methodology for defining climate tech comes with two filters: 1) climate impact and 2) climate vertical. Companies must tick the box in at least one category for both filters in order to make the cut.

Climate impact: Climate tech companies must fulfill one or more of the below “climate impacts”

• Mitigation - directly decarbonize across key emissions sectors (electricity & heat, ag & land use, industry, transportation, buildings)
• Adaptation - adapt to a changing climate with new products and economic models (new insurance products, producing food to use, geo-engineering)
• Monitoring - gather information / data about emissions or climate risks and impacts to generate insights (emissions and sustainability reporting, climate risk and intelligence)
• Removal - remove existing emissions from the atmosphere (carbon removal, nature-based solutions, reforestation)
• Regeneration - enhance general environmental “positive externalities” and “do more good, not just less bad” (regenerative ag enhances biodiversity & sequesters carbon)

Climate vertical: In addition to having climate impact, companies must categorize into at least one of the 7 broad climate verticals below (skip to the end for a full definition). These verticals encompass 60+ sectors and 250+ technologies helping us mitigate, adapt, monitor, remove, and regenerate to our warmer and weirder world.

Asset class: This funding report captures defined Venture Capital and Growth Equity only. Where other market observers may promote larger climate market sizes, we stay true to our Climate Tech VC name and carefully exclude:

• Country/ state-level funding (e.g. State-owned enterprise funding)
• Non-dilutive funding (e.g. debt, loans, asset financing, grants)
• Project finance
• Private equity
• Post-IPO funding

Now, without further ado, let’s get down to the data.

The State of the State of climate tech funding

Subtle changes underlie the story of slow but steady diversification away from “clean tech” industries (63% of total count into Food & Land Use, Energy, Transportation) and towards fast-growing emerging innovation areas like Climate Management, Built Environment, and Carbon.

• By count, the hottest - and dare-we-say oversaturated - sectors include alternative proteins (8%), EV charging (5%), batteries (4%), and emissions & sustainability reporting (4%).
• [This year we purposely excluded SPACd companies or those out of business, which have historically skewed transportation-heavy.]

• Compared to their share of ~60% of deals, Transportation, Energy, Food & Land Use make up 80% of total dollars deployed.
• Mega deals in just 5 capital-intensive sectors including autos, batteries, alternative proteins, nuclear, and EV charging made up 40% of total funding over the last three years.
• We’ve previously called out the mismatch of venture dollars to GHG impact. Disproportionate dollars continue to flow into Transportation and Energy deals, versus other critical emissions solution gaps in Built Environment and Industry.

Zooming in on quarterly performance

• The market slowdown is clearly visible as deployment in 2022 stabilized QoQ off the white-hot back half of 2021.
• The midyear deployment flatlining between Q1’22 and Q2’22 continued into Q3’22. The -20% decline in investment became visible in Q4’22 after the delay in deal announcements, though the slower deployment rate was felt in real-time by many earlier in the year.

• Transportation and Food and Land Use mega rounds took a plunge between 2021 and 2022, resulting in an overall decline in climate dollars deployed.
• This industry view demonstrates the investment diversification into emerging industries like Built Environment and Carbon - multiplying 2.4x and 3.8x respectively the last year.

• We passed 1,000+ deals! The market slowdown has not slowed climate tech’s pace of innovation. Deal activity grew substantially (+38%) in 2022 vs. 2021, with steady deal growth quarter-over-quarter and even distribution between industries.

• As dollars deployed declined, deal activity continued its steady trajectory of growth across all industries.

Going stage by stage

• The overall decline in last year’s funding can be entirely attributed to Growth’s $5.2B loss, which offset the $3.7B gain across all other stages particularly in Seed and Series A.
• 2022 was a Tale of Three Stages: early (Seed, A), mid (B, C), and Growth. Overall later-stage funding decreased, while the middle of the market has frozen.
• Early stage activity continued to accelerate (+61% and +40%), with the slight contraction in round size not holding back the growth of overall early stage dollar deployment (+51% and +64%) compared to the same period in 2021.
• The middle funding valley of death (B, C) stayed relatively flat in terms of funding, but faced a small decline (-13%) of deal activity in the later half.
• The market slowdown corrected 2022 Growth stage deal size and therefore total dollars deployed by -24% compared to 2021. Interest rates on the rise and stalled public markets dried up the once white-hot pipeline of pre-IPO and SPAC mega rounds.

• Round sizes were significantly smaller at every stage in H2’22, with sharper declines the later the stage. Series C and Growth median deal sizes dropped 33% and 30% respectively in the second half of 2022.

• In H2’22, the popularity of smaller sized deals (<$5M) emerged from a year-long trough.
• Larger deal sizes (>$20M) appear to have given way to a higher count of smaller deals as of Q2’22.

The bigger, the better?

• 7 of 10 climate mega deals concentrated in the usual mature Energy and Transportation industry suspects, though battery and EV OEM mega rounds last year were notably more scarce compared to 2021.
• Emerging industries Carbon, Climate Management, and Industry posed a few notable mega exceptions via Climeworks’ $600m+ round, EcoVadis’ $500m+ raise, and EnergyX’s $450m for lithium extraction.

Who are the climate tech VCs?

• More than 4,000 unique investors participated in at least one climate deal in 2022, with +2,000 firms invested in >1 deal. 14% of all investors (613 firms) deployed into 5 or more deals last year.
• Compared to prior years, there’s broader participation of generalist investors across industries while specialist climate investors continue to dominate emerging and more technical industries like Carbon and Built Environment.

• Apart from a few climate-generalist giants (we see you BEV, Lowercarbon), 4 out of the 6 sectors were led by specialist investment firms like Fifth Wall in built environment, Volta and Trucks in transportation, S2G in food & land use, and Carbon Removal Partners in Carbon.

Bonus charts‼️

Industry and Sector Methodology

⚡ Energy - The electrons and fuel that power us

Sectors: new generation technologies (e.g., nuclear, solar, geothermal), energy storage, hydrogen and other low-carbon fuels, enabling renewables software, marketplace, and grid management platforms, DER and demand response tools, utility transmission and distribution services

🚗 Transportation - The movement of people and goods

Sectors: battery technologies, EV autos, EV charging and fleet management, electric micromobility and ridesharing, zero-emission planes, boats, and trains, urban public transport

🌾 Food & Land Use - The nutrients and resources that give us life

Sectors: alternative proteins, regenerative farming, vertical farming, sustainable fertilizer and animal feed, nature restoration and ecosystem services, remote sensing for crop yield optimization, autonomous farming equipment, water tech, and food waste reduction

🏭 Industry - The goods and raw materials we use every day

Sectors: low-carbon cement, chemical and plastics, steel, manufacturing, metals and mining, circular economy commerce, sustainable textiles and packaging, waste and recycling

🛰️ Climate Management - The data, intelligence, and risk associated with a changing climate

Sectors: emissions and sustainability reporting, ESG investing and fintech, earth observation through remote sensing, climate risk and intelligence platforms

🏠 Built Environment - The places we live and work

Sectors: sustainable building materials, low-carbon heating and cooling, prefab construction, energy efficiency, building electrification and energy optimization  

💨 Carbon - The avoidance and removal of emitted carbon

Sectors: carbon offset marketplace and procurement platforms, carbon utilization, carbon removal and storage technologies, point-source CCS, verifiers and ratings enablers

***Note: Please note that some of our numbers are larger in this update than previous editions. We constantly update the dataset to have the most accurate data possible, including adding post-dated deals.