Climate Insider Brief:

• In the first quarter of 2024, climate tech startups secured a staggering $8.1 billion in funding, signalling a near-record level of investment in the sector. 
• This surge in capital reflects robust investor confidence in climate solutions, despite a slight decrease in the number of deals compared to the previous quarter.
• The $8.1 billion raised in Q1 highlights a significant emphasis on materials, particularly in segments like green steel and battery materials. 

In a promising sign for the climate tech sector, startups focusing on climate solutions raised a substantial $8.1 billion in the first quarter of 2024. This figure marks near-record investment levels, suggesting that any concerns stemming from 2023’s subdued closure may have been premature.

Despite a slight decrease in the number of deals compared to the previous quarter, the total value surged by nearly 400%, indicating a robust investor appetite for climate tech initiatives. A closer examination of the $8.1 billion raised shows a notable emphasis on materials, particularly within segments such as green steel and battery materials and minerals.

Leading the charge in deal closures were three early-stage firms: Climate Capital, Lowercarbon Capital, and SOSV, the latter tallying higher if including its Hax and IndieBio programs. However, it’s worth noting that the first quarter commenced with a lower deal count compared to Q4 of 2023, with the total deal count witnessing a 20% decline to 244.

Nevertheless, despite this dip in deal count, the capital influx into climate tech startups during Q1 stands as the second highest on record, trailing only behind Q3 of the preceding year. Noteworthy deals played an important role in sustaining the sector’s momentum.

Among the standout transactions, Swedish startup H2 Green Steel secured a substantial investment, raising $4.5 billion in debt and $215 million in equity to fund a significant new plant in northern Sweden. This endeavour aims to produce steel with significantly reduced emissions, leveraging green hydrogen as a substitute for coal. Similarly, battery recycler Ascend Elements bolstered its Series D funding by an additional $162 million, positioning itself in the competitive market for recyclable battery materials.

Continuing the trend, battery manufacturer Natron secured a $189 million Series B round to commence construction on a commercial-scale factory in Michigan, specialising in sodium-ion batteries. Additionally, Lilac Solutions closed a significant Series C round, raising $145 million to scale its ion-exchange technology for lithium extraction.

While the substantial deals of Q1 may appear exceptional, they could signify a broader trend where significant capital raises become more commonplace in the climate tech sphere. The necessity for such large-scale investments stems from the nature of many climate tech ventures, which often entail the development and scaling of physical infrastructure.

However, this landscape presents challenges for early-stage founders seeking immediate funding. Investors, mindful of inflated valuations and the imperative for revenue-generating startups, have displayed a preference for established companies with customer traction. This bias towards de-risked investments was reflected in Q1’s numbers, which saw established firms securing substantial rounds.

Nonetheless, as the urgency to address climate change intensifies, the demand for innovative technologies and business models in the climate tech sector will likely persist. Looking ahead, as companies navigate the challenges of scaling, the insights gained will inform both investors and startups alike, potentially paving the way for more predictable funding landscapes and larger rounds in the future.