Climate tech funds show positive trajectory
despite fundraising headwinds
SAN
FRANCISCO, April 21, 2025 /PRNewswire/ -- The climate
tech sector is seeing signs of recovery as venture capital (VC) is
flowing into energy, manufacturing, and carbon tech, according to
the latest report from Silicon Valley Bank (SVB), a division of
First Citizens Bank. Additionally, Climate tech funds are
outperforming overall VC, reaching a 9% higher internal rate of
return (IRR) in the 2020-2024 fund vintage.
"With continued investor interest, the Climate tech sector is
showing reasons for optimism this year," said Dan Baldi, National Head of SVB's Climate
Technology and Sustainability practice. "Clean fuels, dispatchable
renewables and carbon tech are taking the spotlight, sparked by a
shift toward electrification and ongoing goals to reduce
emissions."
Leveraging SVB's proprietary data and insights, the Future of
Climate Tech 2025 Report reveals the current fundraising landscape,
sector trends, and explores how the industry is evolving to address
challenges across the innovation economy.
SVB's Future of Climate Tech report analyzes key themes shaping
the future of climate technology, including:
- Raising Equity is Tough, But Signs of Growth Persist:
57% of US VC-backed climate tech companies need to raise in the
next twelve months even as more than half of companies are reducing
burn YoY. Yet there are encouraging signs of growth – trailing
12-month venture investment is increasing, company formation
remains strong, and early-stage activity is still vibrant.
- Early-Stage Resiliency: Early-stage investment has
remained more resilient than later-stage activity over the last
three years, showing a healthy pipeline of companies fueling future
growth of the industry.
- Electrification Continues, Demand Accelerates: By 2030,
half of electricity generation will come from renewable resources.
Climate tech solutions from storage to demand response and improved
transmission are poised to transform the energy and power
sector.
Key findings from the Future of Climate Tech Report include:
- Valuations and Rounds on the Rise: After valuations
bottomed out in 2023, they are on the rise again with climate tech
valuations overtaking VC investment at the later-stage. Aside from
seed, where median deal sizes have held steady, rounds are getting
bigger. Series B and C+ rounds reached decade highs of $30M and $60M,
respectively in 2024.
- Extinguishing Burn, Improving Margins: Margins improved,
but revenue growth rates fell. Climate tech hardware companies saw
growth rates fall from a median of 58% at the end of 2021 to just
19% by the end of 2023. While growth rates have since marginally
improved, climate tech software companies are seeing higher profit
margins than hardware companies. The median climate tech software
company with over $50M in revenue saw
a 30% higher profit margin in 2024.
- All-Time High for Clean Power Deals: Bolstered by
incentives within the IRA and Chips and Science Act that improve
profit margins for many renewable energy producers, clean energy
and power companies closed 382 deals and surpassed $7B investment in 2024, up 15% YoY and a more
than 3x increase over pre-COVID levels.
- M&A Back to 2020 Levels: Between mid-2023 and early
2024 deals coming from financial buyers jumped from 15% of
transactions to 40% of transactions, signaling that financial
buyers may be stepping in as VC investment remains low.
Learn More
To read the complete 2025 Future of Climate
Tech report, click here: The Future of Climate Tech 2025
SVB is a leader in providing market insights on sectors across
the innovation economy. For the complete library of SVB's signature
reports, please visit Market Research Industry Trends &
Insights | Silicon Valley Bank (svb.com)
About Silicon Valley Bank
Silicon Valley Bank (SVB), a
division of First Citizens Bank, is the bank of some of the world's
most innovative companies and investors. SVB provides commercial
banking to companies in the technology, life science and
healthcare, private equity, and venture capital industries. SVB
operates in centers of innovation throughout the United States, serving the unique needs of
its dynamic clients with deep sector expertise, insights, and
connections. SVB's parent company, First Citizens BancShares, Inc.
(NASDAQ: FCNCA), is a top 20 U.S. financial institution with over
$200 billion in assets. First
Citizens Bank, Member FDIC. Learn more at svb.com
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SOURCE Silicon Valley Bank
