KUALA LUMPUR (Feb 14): Climate-tech companies raised US$51 billion (RM241.24 billion) in venture capital (VC) and private equity (PE) funding across more than a thousand deals, according to research firm Bloomberg NEF (BNEF).

In a blog post on Feb 13, the firm said though this was 12% lower than 2022, the slide was a fraction of the 35% reported for all startups by PitchBook Data.  

Most of the funding went to low-carbon energy and low-carbon transport companies.

BNEF said the climate-tech sector had so far escaped the trend of declining VCSolar pales since the pandemic — funding for climate-tech increased 4% in 2022 compared to 2021.

However, it said high interest rates continue to impact market sentiment and rising costs forced many projects to shut down.

From a deals perspective, BNEF’s Climate-Tech VC/PE Investment Database shows a 15% decline in the number of deals completed in 2023 compared to 2022.

For the same timeframe, Pitchbook reported a 27% decrease in deal count for the global market.

The overall market had 34% of investors abstain from dealmaking in 2023, as per Pitchbook.

In contrast, within climate-tech, BNEF has tracked a 26% growth in the number of active investors, defined as those participating in two or more deals.

BNEF said irrespective of this strong performance, there is cause for concern for climate investors.

Public markets — the route to exit for many startups — saw a much bigger decline in activity. Funding for initial public offerings slumped by 65% as many startups raised growth-stage equity to avoid undervaluation in the public market.

Battery makers Northvolt and Envision AESC, as well as energy-services provider Redaptive, raised large rounds from VC/PE investors in anticipation of potential future public listings.

Should interest rates continue to remain high for longer periods of time, investors may struggle to successfully exit their portfolios and return a profit.

BNEF said that regionally, the US continued to be the largest market for climate-tech in 2023, which marked one year since the passage of Biden’s Inflation Reduction Act or IRA.

A total of US$14.6 billion was allocated to startups in the region — almost US$3 billion more than the second largest market of China.

Some 300 deals were completed by American clean-tech companies, more than double that of the next largest market.

Among the largest raises during the year were by energy developer Plus Power (US$1.8 billion) and battery recycler Redwood Materials (US$1 billion).

In China, there was strong activity seen in clean-energy-equipment and electric-vehicle manufacturers.

The US$11.7 billion mobilised was 23% lower compared to 2022, likely driven by a perceived oversupply of clean-tech manufacturing capacity in the region.

This overcapacity comes at the exact moment the US and EU are pivoting towards onshoring their clean energy supply chains.