Climate tech gets 70% of ‘built world’ VC investment, report finds

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We have all seen the gloomy headlines over the past week. VC funding for European tech startups will have dropped by a whopping $45bn in 2023. However, some sectors, such as build world climate tech are faring… less horribly than others. 

Specifically, a new report by sustainability investor A/O released today has found that despite the global downturn, climate tech is attracting as much as 70% of built world VC investment — up from around only 20% five years ago. In addition, investment in early stage rounds in European startups in the sector has, for the first time, exceeded that in North America. 

The built world includes anything that is human-made and created to adapt the natural environment into a habitable and usable area for the purpose of living, working, and playing. This includes architecture and parks, and covers everything from road infrastructure to building construction and operations. Nearly 40% of global greenhouse gas emissions come from buildings — a number that is set to double by 2050 if left unchecked. 

According to the report by A/O, the largest European built world VC firm, the trend has been driven by the energy crisis along with mounting pressures from regulators to decarbonise the real estate and construction industries. 

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Indeed, while total venture capital funding has dropped by over 30% in the first half of 2023, and climate tech overall lost 40%, built world climate tech only saw a 13% decrease in funding. 

“The built world is not immune to the wider macroeconomic challenges in the tech and startup world in 2023,” Gregory Dewerpe, Managing Partner at London-based A/O commented. “However, climate themes have proven more resilient relative to the wider venture market, and within the built world specifically, we have observed both a more muted downturn and faster recovery.”

Meanwhile, not all themes throughout the sector fared equally well. While retrofit installers, grid storage, infrastructure monitoring, and renewable energy procurement continue to see the most investment, areas such as water efficiency and heat pump technology remain significantly underfunded. 

The report also found that for the first time Europe and North America now see the same dollars invested for early stage built world climate tech. Germany and the UK grew significantly (+73% and +27% respectively), while the US contracted (-32%). Indeed, the top three cities for dollars invested were all European — London, Berlin, and Munich. 

“It’s great to see Europe’s ecosystem continue to grow with early-stage investment in Europe on par with North America for the first time, showcasing that some of the most exciting innovation is coming out of the continent,” Dewerpe continued. 

On a more sombre note, later-stage rounds have suffered the most with total investment volumes and median deal size dropping -53%.