Climate tech got an enormous cash infusion in 2021

In 2021, the world got a glimpse of the impacts of climate change, from extreme heat waves on the West coast of the U.S. to unprecedented flooding in New York City. But the world also saw an increased response: more funding went to companies working on climate solutions than in any previous year. As of early December, the figure was more than $43 billion.

The biggest deals included:

• $2.8 billion to Northvolt, a Swedish EV battery manufacturer focused on sustainability
• $2.7 billion to the electric vehicle manufacturer Rivian in January, followed by another $2.5 billion round in July
• $1.8 billion to Commonwealth Fusion Systems, a company aiming to build a compact thermonuclear fusion power plant
• 10.28 billion yuan ($1.6 billion) to Svolt, a Chinese EV battery maker
• $800 million to GoodLeap, a marketplace for sustainable home upgrades
• $700 million to Redwood Materials, a EV battery recycling company from former Tesla cofounder JB Straubel
• $664 million to the Chinese EV manufacturer Leapmotor
• $600 million to London-based Octopus Energy, which helps customers shift to renewable energy
• $590 million to Sila Nanotechnologies, a company designed next-generation batteries

Climate tech investing has changed significantly, says Jonah Goldman, managing director at Breakthrough Energy Ventures, a fund launched by Bill Gates in 2016 that focuses on companies that can help lead the world to net-zero emissions. “The amount of money going into the space is about tenfold what we were when we raised the fund in 2016,” he says.

Venture capitalists are increasingly willing to make investments that they might not have pursued in the past. “These are are super capital-intensive efforts, and they have long return expectations,” Goldman says. “And there’s a lot of risk. Those things are not traditionally the deals that venture capital tends to look at. And so for a long time, there wasn’t really the infrastructure to develop the network of entrepreneurialism and innovation in this space.” That has changed.

“We’re seeing more generalist investors, even private equity firms like TPG, General Atlantic, coming into the space,” says Sophie Purdom, cofounder of Climate Tech VC, a newsletter that tracks climate tech investing. The newsletter will publish an analysis of the full year in early January, but halfway through 2021, it found that 1,000 firms had invested in climate tech companies so far. Around 200 had invested in multiple deals; roughly 75, including Breakthrough Energy Ventures, are focused specifically on climate change as firms.

“I think that they are now really interested in climate not only because of the headlines that we’re seeing every day, but also because they see a massive opportunity here,” says Purdom. “Three verticals alone—energy, mobility, food, and water—are going to be driving a lot of how we think about the next couple of decades and change the fundamental infrastructure of how our planet has been has been built today, in order to combat and mitigate the forces of climate change.”

Customers are now also more willing to adopt new technologies, even when there’s a price premium at first. “The second tremendously optimistic piece of what we’re looking back at at the end of 2021 is that the private sector is making real commitments to basically building the building blocks of commercialization for these technologies, understanding that at first instance, they’re more expensive than their fossil competitors,” says Goldman. Several other factors are also driving growth, including pressure from customers and investors and voters for companies to find low-carbon solutions.

More work can be done to make sure the best ideas get support, he says. “If I had a wish for 2022, it would be that we take all of that effort, and we channel it through a productive set of metrics to say, ‘This activity is the most effective that we could have towards our decarbonization goals and climate goals,’” he says. “I think we’re pretty far away right now from knowing exactly where all this effort should be channeled. But that’s a great problem to have.”

Source: https://www.fastcompany.com/