Climate tech is an investment bright spot, even as venture capital deals decline.
Startups in the climate and energy space raked in a significant share of venture capital funding in the third quarter, according to an analysis by CB Insights. Climate tech companies claimed five of the 10 biggest deals done in the third quarter, including the top two spots.
Swedish battery manufacturer Northvolt raised $1.1 billion in convertible notes from a collection of European investors, putting it at the top of the equity deal list. That influx of cash will be used to expand the company’s European factories as it scales its operations. The company’s largest shareholder so far is the automaker Volkswagen, which is one of a growing number of automakers investing in battery companies as electric vehicle sales pick up steam.
Fleet-focused EV charging company TeraWatt Infrastructure raked in $1 billion, putting it second on CB Insights' list. Advanced nuclear startup TerraPower came in fourth, securing $750 million in funding in the third quarter. Investments in Black Sesame Technologies ($500 million) and EnergyX ($450 million) rounded out the quarter’s top climate tech deals. The Chinese chipmaker Black Sesame’s offerings include vehicle-to-everything charging technology, and EnergyX is a lithium extraction company that is angling to go public by 2024.
This boon for climate tech came as overall investments slump. The quarter saw $74.5 billion in venture capital funding, a total that's down by 34% compared with the year’s second quarter. Silicon Valley tech startups specifically received 36% less funding. A separate report from Pitchbook found that venture-backed exits are set to hit a five-year low in 2022, which could further slow investments.
But climate startups continue to attract capital, particularly certain types of technology. Companies that could speed up the EV transition were big winners in the third quarter, but a Pitchbook analysis also shows that carbon capture and removal is going strong this year. The sector saw $882.2 million in investments across 11 deals in the second quarter of 2022.
Policies and government funding that could help these sectors grow, notably provisions in the Inflation Reduction Act, make EVs and carbon removal more of a sure bet. Tech companies have also committed nearly $1 billion to purchasing carbon removal services in an attempt to stimulate the nascent market.
A number of smaller VC firms are also popping up to make niche climate investments, whether into decarbonizing everyday goods or fighting wildfires. The surge in interest comes as the urgency to address the climate crisis grows.
Climate TRACE's data show emissions at the facility-level.Image: Climate TRACE