Two climate investors on raising in today's tough market

It’s no secret that there’s a new normal in climate tech, where investment numbers, round sizes, and valuations are all down. In today’s environment, VC investors are becoming increasingly skeptical of high valuations and averse to capital-heavy solutions, while hungry for those ever-elusive returns. 

So what does this mean when it comes to raising a fund right now? We’ve been tracking it all ahead of our H1 investment trends report, out later this month, and wanted to hear directly from two folks who’ve actually closed capital and lived to tell the tale.

First, our very own CTVC co-founder Sophie Purdom, who recently closed Planeteer Capital Fund I, a $54m first-time fund led solo, with a thematic focus on software, climate, and frontier tech. Around the same time, John Tough, managing partner at Energize Capital, a $1.8bn platform, closed its third venture fund with $430m. While John brings a veteran lens from a multi-fund platform, Sophie’s got the on-the-ground reality of pitching as a first-time solo GP. The upshot? There’s still capital, conviction, and real opportunity – if you know where to look.

Key takeaways:

• Flight to quality now defines the market. LPs are still leaning into firms with clear strategies and track records. But successful fundraisers are intentionally designing fund sizes for flexibility, and LP composition for diversification. 
• Newly closed funds are increasingly targeting smaller, early-stage investments in asset-light sectors. After witnessing the high costs of large infrastructure projects, in many ways, VC is returning to what it has always liked (and understood): software. New opportunities are emerging from increasing power demand and business model innovation.
• AI is reshaping startup efficiency and investor strategy. It allows technical founders to scale faster with lower burn, potentially skipping traditional Series A rounds altogether, while AI is fueling demand (especially in compute) and unlocking new layers of physical-digital interface — from drone data to grid optimization.

CTVC: What was LP interest like while you were fundraising?

Sophie: To raise this as a GP who hasn't raised a fund before and is not spinning out of a larger platform, I couldn’t rely on a legacy Rolodex and had to meet the potential LPs as I went. And so I pitched over 400 different organizations over roughly two years. What's changed over that time period is almost 180-degree shifts in LP perspectives and preferences, across a couple different vectors.

One shift was in the conversations themselves — from “What is climate tech?” to “Climate tech is too hot. We've already over-allocated.” So that's one eighty degree shift on, climate as a theme. We've had a 180-degree shift, from, “We want pure impact,” to, “We want pure returns.” And then, it went from, “We want more venture, it's working well for us,” to “We're completely turned off and will not participate in any more privates at all.” 

Those are the main ones, but on the micro level, it's shifted as well. So, for example, from “We love first time funds,” to, “We only want Fund IV.” “We care about you getting a tiny part of the best companies,” to “All we care about is DPI, distributions and liquidity.” “We like solo GPs,” to “We want to see a big robust IR function and platform.” And that's not to mention any of the diverse manager preferences that were hot for a minute.

John: We launched the fundraise about fifteen or sixteen months ago. Our goal was to raise $350m to have dry powder for this period of dislocation. Since 2021 and 2022, we've seen a step down in interest in the climate space. Generalists have left. Rounds become more scrutinized. “Growth at all costs” went away, and as investors, frankly, this made the space a little bit healthier.

We are excited that this vintage — 2024, 2025, 2026 — represents a return to more normalcy in the market. At the same time, there's been incredible investment in the technology stack, which should lead to better businesses. We went out with that message to LPs: we've been investing across several funds, we have a strong track record with concrete returns. Ultimately, they believed we could do it again and that this would be a really healthy market to be an active investor in.

CTVC: How has the environment changed in the past few years? Has it gotten harder?

Sophie: I genuinely haven't known anything different. We held our first close in the middle of the SVB collapse, which marked the beginning for us. Since then, the fundraising market has continued to be volatile.

I think the name of the game is flight to quality. Managers with right-sized thematic funds that continue to stay at the edge and can win significant allocation into the best companies in those categories — that’s what the product we're trying to offer. It will always resonate.

John: For context, this is our third fund. When you’re raising your first fund, you’re talking to everyone and taking capital from every angle. Our first fund was about 50% corporate capital, companies we approached with both financial and strategic value.

This time around, we had real returns from our first fund, and that opened the door to institutional investors. Many won’t even engage until a firm is on its third fund. They want to see a repeatable process, strong financial performance, and team stability. So we focused almost exclusively on institutional LPs.

That included endowments, pensions, outsourced CIOs, and sovereign wealth funds. In this third fund, about 80% of the capital came from institutional LPs, and around 10% from corporates. It was a deliberate shift. We kept some corporates for strategic value, but prioritized institutional backing. These LPs were extremely thorough. Beyond portfolio returns, they scrutinized each company’s performance. With so many funds posting inflated paper valuations, they wanted to know: are those values real? When was the last deal done? Was it during the hype cycle? Have you marked it down? We laid it all out, our full portfolio, performance data, valuation marks, even CEO contacts. That level of transparency, combined with our results, helped us get these major institutions over the line.

And corporate, impact, or institutional — there can be overlap between all of those. The goal, number one, is always financial returns. Nobody's in this business for charity, despite what some of the press may say. These are financial-returns-oriented investors. And yet, we as a firm believe that you don't have to make a financial sacrifice to have great impact returns as well.

We had the LP base target that we tell everybody: we're targeting 25 to 30% net IRRs, net of fees, for this fund, which is four to five times cash-on-cash. That's the fund-level target. That's been the same since our first fund. We've messaged consistently that that's the target for this fund.

One addition here is in the institutional base — we’ve stepped up our exposure to Europe from our LPs. Where the US has had much more volatility in policy and maybe sentiment toward impact and ESG terms, Europe has been much more steady-handed. Their highs are more medium, their lows are more medium, frankly, on this topic. So we actively went to Europe as part of our fundraising strategy for this fund. Over half of our capital now is outside of the US, which would have shocked me a few years ago if you'd told me that. But these other countries, Canada and Western Europe, are thinking beyond this administration.

CTVC: How did you think about right-sizing your fund?

John: The target was $350m. As we got into the fundraise, two things happened. One, we continued to see deterioration in the later-stage investment stack. The generalists who had entered our space first showed up at the growth stage—Series C, Series D, etc.—where the metrics were more understandable for them.

Now that they've left the space, we looked at our portfolio and realized we probably need a little more reserve capital in our strategy, in case the growth stack isn’t as available. So we decided to go for slightly more capital — hence the $430m.

In addition, a lot of our institutional LPs aspire for us to allocate some SPV capital for them. So, beyond the fund, there will be incremental dollars available in sidecar vehicles. The real spending power of our fund is probably double what we announced, thanks to LPs who have the appetite to do more.

Sophie: We're purposefully structured to be more nimble than the bulk of Series A funds that have to move $200m. I think the place to play is either the $50-100m range, where you can lead first rounds with full ball control, but you're very nimble and it's easy enough to return that fund size. Or, you’re around the $200 size where you're leading Series A deals and can still follow on. But it's really, really freaking difficult to return much more than a $250m early-stage fund, especially in this space.

We're lucky to have our anchors be both very institutional and then very strategic and heavily partnered, as in they're investing in companies alongside us. We’re anchored by an Ivy League endowment who chose to partner with us, not just from a selection of other climate funds, but out of the entire market. It's neat to represent those two sides of the market, and have a heavily diversified LP base for Fund I including corporates, foundations, and family offices from Australia to London to San Francisco.

CTVC: Where are you still seeing opportunities in the space? Have they changed?

Sophie: We've made eight investments so far. We'll make about 20 out of this Fund I, and we lead at the pre-seed and seed stage. We're often the first real money in and partner with the founders to build the syndicate. Our companies tend to fall into two buckets. 

The first is hardware-enabled software, most with a dual revenue or business model which is defensible by gathering new data through a device.There's a big edge on net new information, new data. We're seeing that play out a lot with AI applications. They capture that and then often run an efficiency play off of it—be that maintenance and life extension of an asset, running your farm better and more cheaply, or fewer energy inputs. The cool part about these hardware-enabled software businesses is that when they hit a certain scale, they have enough data to then do a proper network effect business model on the back end—like insurance or financing or a marketplace sale.

That's the hardware-enabled software, dual-purpose business model, of which we've got a bunch of examples. Then increasingly, we're noticing opportunities outside of traditional pure-play decarbonization and mitigation. These are often attractive to repeat founders — sometimes from climate, sometimes not.

I think that's a counter-narrative: Most people think experienced founder types are no longer building in climate, that they're building just in AI — but that's not true. The past three folks that we've invested in have all run large companies before and are now starting new businesses in climate. They're all heavily AI-enabled, but I wouldn't call them “AI for climate.” They're climate companies that happen to be way more efficient to operate. The "why now" is because of the underlying AI tooling.

The second theme that we’ve been investing in is this concept of "climate causes more volatility," and what do you do about that? That opens up pricing plays, ratings and risk opportunities, financing, marketplaces, etc., that are in business because of climate-induced volatility. Be that for land prices, data center ratings, or credit transaction underwriting. If I had to call it a thing, it would be broadly "climate fintech" — because of increased volatility from systemic climate risks, which I think is the next generation of the adaptation conversation.

John: One lesson from Cleantech 1.0 was that a lot of the investments helped decline the cost curve. Solar is 99.9% cheaper. Batteries are cheaper than they used to be. Most of that value, when something goes down the cost curve, accrues to the customer through lower prices. And that's great. But the shareholders of the company that actually created that widget rarely make money.

The reason we focus on software is that software is really good when the industry is at pari passu with an incumbent cost structure and helps us scale. The areas we're most focused on right now for growth are, believe it or not, the fact that we are in an energy demand cycle — that means you can make growth investments into grid management software, grid resilience, grid interconnection, grid interoperability. All of those grid terms are back on the table as growth opportunities. Industries, despite this administration, are still becoming far more decarbonized, and there are a lot of great tools and software tools helping industry get there. 

So we'll do software. We'll do services. We think services will play a bigger role going forward. The concept of AI has changed how much you can do as an individual. You can have a lot more leverage. In the energy transition, in industrial digitization, in the climate space — subject matter expertise matters. We're revisiting: what if there's a really powerful subject matter expert at the core of a technology company? How much more can they do with the latest AI tools? We're looking at that. But generally, we think about these big infrastructure trends — mobility, energy demand, industrial digitization, decarbonization — how can we index to all those in a capital-light way? That’s the Energize strategy. 

I think the interest that came into climate around 2020 led to a real step change. The number of companies we see per year is probably 3–4x what we saw in 2017 when we launched. The quality of entrepreneurs has improved, and the volume of opportunities has gone up.

It used to be all Silicon Valley: 10 of the 14 companies in our first fund were based there. This time, it’ll probably be two or three. It’s become much more global and decentralized, even within the US, which is a positive for the ecosystem. 

Historically, we focus about 25% in Europe. It's probably high amongst our peer set, but we think Europe still offers a good future for sustainability markets in some regions. Every time we look at an EV-related investment — EV charging software, EV software, battery software — we study the Nordics, because they're about ten years ahead of the US in adoption rates. We look at certain regions or countries to understand what the future in the US may look like, and that’s helped us find investments in those countries. We have a few in Germany, a couple in the Nordics, one in Lithuania. We go far and wide.

In terms of strategy, there are one or two areas where we’ve increased exposure. One is circular economy and supply chain — we made an investment in Archive, a secondhand retail infrastructure platform. We think consumers, especially younger generations, are far more educated on the ecological cost of their footprint.

Another big area is how the financial services world will interact with climate. The cost of catastrophes is increasing. Historically, that sector has been slow to adapt, but now it’s front-page news almost weekly. There’s a forcing function for new technology adoption in that cohort.

CTVC: Is AI changing the space?

Sophie: Net-net, we’re transitioning out of a long period where most tech solutions were about efficiency, slightly bending the curve, because we were in a flat energy demand environment. But that doesn’t work during a massive period of energy expansion and demand.

The world is growing, capitalism demands more stuff, and we’re seeing that in compute. Soon, it will also show up via another billion HVAC units coming online. Big jumps in electricity and broader energy demand will keep coming – some of which is driven by climate change itself as the world gets hotter.

So, efficiency measures alone won’t bend the curve. That opens up tons of opportunities from a climate perspective. We need to draw emissions down, be efficient, and create more—all at once. That’s infinite opportunity: new electricity generation, better transmission and distribution, and remediation or drawdown solutions.

There’s also this ironic effect where AI makes it more efficient to run a whole range of businesses. Every single one of our portfolio companies has essentially restructured — needs fewer people to do more. Leadership can now be technical — coding themselves. These founders are now themselves mid-level developers. That means lower burn.

As a first-money-in investor, that makes it even more important to pick the right companies—the ones that break out—because they ultimately won’t need large checks at Series A, B, or C. They’ll take pre-seed and scale so quickly they’re not reliant on extension capital. I wouldn’t want to be a Series A fund right now—you’d have to drop into pre-seed territory. You either lead early and ride the breakout, wedge in mid-stage, or become a capital aggregator happy to play anywhere for management fees.

It’s a threefold shift: first AI and energy are creating opportunity areas, second every company can hypothetically operate more efficiently, and lastly fund structures need to adapt.

John: It’s a tailwind. AI is fueling growth. On the power side, it's causing a major step-up in demand. The current system can’t serve future needs — it requires innovation. That means new budgets. Microsoft effectively becoming an energy company is very good for the ecosystem; they spend a lot and make decisions faster than utilities.

If more stakeholders enter the sustainability conversation, we can get new software and tools into the market faster. That’s really positive. On the application side, even when we’re investing in software, it's often interacting with a physical asset — drone imagery, rooftop solar analysis, and so on. There’s a strong cyber-physical connection.

AI is very good at helping companies scale in training and datasets for this kind of image capture and physical interaction. We’ll see a lot of innovation at the intersection of the physical and digital layers in the coming years.

We have one company, DroneDeploy. It's been flying work sites for over a decade. It’s a $100m+ company. They’ve been capturing high-quality infrastructure imagery for years — more than anyone else in the world. Now, with today’s AI engines, how do you reimagine that business?

Entrepreneurs are realizing this is a fundamentally different technology. The customer, whether it’s a construction firm or energy company, doesn’t care if it’s AI or not. They just want the answer. But the takeaway is: do more with less.

That means some of our companies are more capital efficient. Historically, 5–10% of a startup’s budget went to cloud compute. That might increase if AI compute costs rise. We'll see.

CTVC: What do people get right and what do people get wrong about the market today? And what’s next?

Sophie: There are genuinely a lot of really interesting founders entering the market. That’s not the current narrative, but we’re seeing it. Great deal flow.

But there will also be a lot of dropouts. Other funds are busy dealing with mid to underperformers which will either get lapped, roll together, or end in mediocre outcomes. There’ll be a lot of uninteresting consolidation. And most of it will be noisy, distracting, and immaterial. Companies that weren’t going to make it anyway, but got high valuations during the vintage, they’re all being repriced, which is painful. Even the “fine” ones doing $5–10m ARR, they all look the same. They’ll get bundled by buyout players, operated 30% more efficiently.

John: It’s probably the best time to deploy. Usually, when it’s easy to raise, it’s not a good time to deploy. When it’s hard to raise, it is. There’s a belief that the space is going through a tough period, but that doesn’t mean it’s not a great time to invest. I think it is. That’s a little contrarian to what the market is saying these days.

And another one: we probably talked to hundreds of people on this topic. There’s a huge set of LPs still in education mode. They were probably really close to committing to the climate space, but the current administration delayed that. It became a risky topic. If you're at an endowment or university, you probably delayed your decision. If we met someone still educating themselves, we’d help, but we knew they were probably 2–3 years away from making a commitment. That’s partly why I went to Europe — Europe is more educated and more committed to the theme. When we’re raising a fund like ours, we don’t need 100 people to love us. We need 25 or 30. That’s a key takeaway: you can’t please everybody, you have to find your tribe.

I’ve been in this for 15 years. There’s been a significant loss of capital for generalist firms who came into the space. The biggest mistake was validating extreme tech risk because of a big TAM. “Let’s take this next-gen nuclear thing — if it works, it’ll take over the world.”

That never works in our space. The cost of capital and cost to get things into production are so extreme. And those companies make for punchy headlines: “XYZ company raised $500m and went out of business.” Those are the headlines LPs are terrified of.

For LPs to come back in a significant way, there need to be more positive stories. Hopefully, we’re one of them. Hopefully, Sophie is one of them — funds that can deliver 3–5x returns. The space is healthy enough to support strong outcomes. Until we can say that consistently, LPs will stay on the sidelines. We need more wins on the board to attract more capital to the space, and distributions to LPs — that’s the key.