Climate tech startups raised $8.1 billion in the first quarter, a near-record amount of money that suggests the quiet shutdown of 2023 could have been more abrupt than a sign of a lingering recession.
The figure, contained in a new exhibition from PitchBook, shows that climate tech hasn’t succumbed to the same slowdown that has dragged down the rest of the venture community.
While the number of deals was down slightly from the quarter, the value was up nearly 400%, according to the report. A deeper look at the $8.1 billion raised in the first quarter shows that investors focused their attention on materials, including green steel and battery materials and minerals.
Three early-stage companies closed the most deals. Climate Capital landed 94, Lower carbon capital he turned 70 and SOSV came up with 59 (a number that would be higher if you included the Hax and IndieBio programs). Despite these tallies, this year started with fewer deals closed compared to Q4 2023. The total number of deals fell 20% this quarter to 244.
Despite the lower number of deals, the amount of money raised by climate tech startups in Q1 was second only to Q3 last year. A handful of notable deals have helped keep the industry thriving.
Top deals
Swedish startup H2 Green Steel led the pack, raising $4.5 billion in debt and $215 million in equity to finance a massive new plant in northern Sweden. The company claims it can produce steel with up to 95% less emissions from burning green hydrogen rather than carbon. The new plant will initially produce 2.5 million metric tons of steel per year, and the company says customers have already committed to buying half of that volume over the next five to seven years. H2 Green Steel follows Northvolt, a Swedish battery maker, in attracting major investment to build large-scale production facilities in the country.
Battery recycler Ascend Elements It followed by adding another $162 million in its Series D, bringing the total to $704 million for the round. The company, a $1.6 billion post-money unicorn, is vying for a stake in an increasingly competitive market for recyclable battery materials against former Tesla executive JB Straubel’s Redwood Materials.
Continuing the materials theme, battery maker Natron raised a $189 million Series B round to begin construction of a commercial-scale plant in western Michigan. The startup specializes in sodium-ion batteries, which are cheaper than lithium-ion but less energy-dense.
Lilac Solutions it also closed a major Series C last quarter, raising $145 million to improve ion-exchange technology that can extract lithium from saltwater. Most of the world’s lithium is produced in evaporation ponds, which require land and water ponds. Lilac Solutions’ approach is more like a normal factory, with modular units buzzing around inside an enclosed building. It promises to make lithium mining commercially viable in the US, which automakers will need if their electric vehicles are eligible for federal tax incentives, which depend on domestic minerals.
A preview?
The numbers posted in Q1 may feel bloated because of these big rounds, but they could also be the start of a trend in which nine-digit increases are no longer exceptional.
Today, it would be easy to dismiss huge deals like H2 Green Steel’s as outliers, but that would also ignore the fact that many climate technology companies, which often sell physical goods rather than software, need large sums if they are to successfully commercialize. scale. Currently, there are simply fewer companies ready to make the leap. As early stage companies mature, this should change.
Large rounds combined with fewer offerings can be cold comfort to early-stage founders who need cash now. But the reality is that investors have been trending in this direction for several quarters. The exuberance seen during the pandemic caused valuations to skyrocket, making it difficult to justify additional investment without a downward spiral.
In conversations over the past few months, VCs have told me they prefer to put their money behind companies with customer traction and some revenue on the books. In climate tech, there’s a much smaller pool to draw from, as many companies still take a decent amount of technical risk. Investors’ bias toward risk-free, revenue-free startups is reflected in Q1 numbers, which were dominated by established companies that raised large rounds.
However, this dynamic cannot continue forever. Over the next 25 years, the world will need to invest $230 trillion to reach net zero carbon emissions. according at McKinsey. For investors, it’s an opportunity that’s too big to ignore, and founders are rushing to fill the void with new technologies and business models.
Investors meet early-stage founders, but as early-stage companies begin to think about scaling, they often face a challenging fundraising environment, which has become known as the “valley of death.”
As companies like H2 Green Steel, Ascend Elements and others make their way through the Valley, the lessons learned will inform investors and startups on a similar journey. It may take a few years for a playbook to develop, but once that happens, big rounds like the one we saw this quarter will start to become the norm rather than the exception.
