2024 was in many ways an unpredictable year. There was anticipation of interest rates coming down, figuring out what type of landing (if any) the economy was going to undergo, and that is to say nothing about the presidential election due at the end of 2024. Additionally, at this point last year we were coming hot off the heels of a 2023 that was largely healthy in the public markets, but quite the opposite in the non-AI corners of the venture capital market. Those of us in the industry were optimistic that multiple interest rate cuts would facilitate the continued growth of venture-backed startups, particularly in the capital-heavy cleantech sector. And while that rosy outlook did not quite come to fruition (see: the divergence between the short-term Federal Funds rate and the yield on the all-important 10-year Treasury), it was also not the case that 2024 continued the poor environment CleanTech VC experienced in 2023. In this post, we’ll take a closer look at how 2024 venture capital data, specifically in the field of clean tech, compared to years past, and what other data points might portend for the short term.
At a high level, 2024 was a year that saw positive year-over-year growth in capital being deployed in the CleanTech venture capital sector. However, this was juxtaposed with a year that saw a slower rate of growth in capital deployment and a sharper contraction in deal flow compared to the venture capital sector as a whole. If you are reading this post, then you are probably well aware of the transformative effects being promised by Artificial Intelligence. You may also be aware of the gargantuan capital raises that have occurred in the sector (examples #1, #2 and #3, for starters). These large raises have taken up lots of oxygen in the venture capital market, leaving less for all of the other sectors. As such, the YoY growth seen in the CleanTech VC sector, while still positive, trailed the growth seen in the overall VC market. Here are two tables comparing annual deal count and capital raised from 2019 through 2024:
As seen in the tables above, while the CleanTech sector has seen a larger CAGR (33%) in capital deployment compared to the VC sector as a whole (21%) from the years 2019 through 2024, the YoY comparison shows a markedly larger growth rate for the broad VC sector, likely due to the previously mentioned AI mega fundraise rounds.
Another interesting way of dissecting this data is to look at what share of all venture capital dollars has gone into the CleanTech sector. This can indicate whether the amount of hype and attention a sector is getting is sustainable, or maybe a bit over its skis. If we’re in the latter state, a relative pullback in VC dollars is more probable. As can be seen in the chart below, the overall share of VC dollars going to the CleanTech sector did decrease quite a bit in 2024 and was at the lowest level since 2019. However, this is not inherently a bad thing, especially when considering the considerable growth the sector has seen in its level of funding from that period of time. Being at a below-average share of the VC market could portend to a more durable rise in funding for the sector in coming years.
Taking a closer look at the CleanTech sector, we see that the dramatic rise in 2021 and 2022 is far from a blip.
An interesting observation is that the years 2023 and 2024 are basically on the previous trendline growth, if you don’t count the outlier zero-interest rate policy years of 2021 & 2022, from previous years. This is quite surprising given the heavy capital requirements associated with a large portion of CleanTech opportunities, and the negative impacts a high cost of capital would have on these businesses. What is indisputable is that the current level of VC funding in the clean tech sector is more than 2x higher than the 2019/2020 period, and when looking back to previous years, the difference is even more marked.
Taking a deeper look at the individual deals, 5 of the largest 10 cleantech deals in 2024 occurred in the last quarter, including 3 of the largest 5. This could be indicative that regardless of the outcome of the presidential election in November, investors wanted clarity on the short term environment. The return of these large deals (such as Crusoe’s $600m Series D, X Energy’s $500m Series C, and Form Energy’s $405m Series F) is also a positive development for the cleantech sector, given that this area of the market saw the largest pullback in 2023 compared to previous years, and was the market segment most responsible for the 30% contraction in VC dollars seen from 2022 to 2023. While no one is expecting the hyperactive years of 2021/2022 to come back, it is still a positive sign that later stage capital is available for more mature companies to raise large rounds and seek to grow and scale their operations in order to cross the Valley of Death.
Evergreen focuses its investments in the Midwest, and here we can see that there has been a large increase over the years that shows a stronger durability than exists elsewhere, specifically when it comes to deal flow. While the entire country has seen a drop in deal count on the order of 20% from 2022, in the Midwest that contraction is less than half at about 7%. This shows that there is still a robust sea of opportunities to invest in early stage climate solutions.
Only time will tell if the growth seen in 2024 in the CleanTech VC sector will extend into 2025. The sector obviously finds itself in a different environment which will likely have a negative impact on certain segments of the CleanTech industry, but there will also be winners as the themes of an industrial build out and deregulation take hold. Given this data, we are confident that the market will continue providing the capital to fuel entrepreneurial opportunities in this space, and we are excited to see what those opportunities are in 2025 to add to our portfolio.
Note: all data provided in this blog post were queried from Pitchbook.
