The top climate tech investing trends to watch 2023

⚡️Climate tech investing in 2023 — Carbon Equity's top 12 market and tech trends

2022 was a relatively strong year for private climate tech investing. Against the backdrop of the public market downturn last year, the general venture funding market decreased by 35%. Still, the climate tech VC market managed to grow by about 3%.

That means that climate tech investments now represent 10% of total venture funding, compared to 6% in 2021.

As we look to the rest of 2023, it's clear that both challenges and opportunities await private climate tech investors. Let's dive into them!

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Top 6 trends driving climate tech market dynamics

  1. The competition to take the lead in climate tech is on
    The Inflation Reduction Act (IRA) of the United States has intensified the race between countries to become the leader in climate tech. China, Japan and Europe have already responded with similar domestic incentives.
  2. Increasing corporate commitments to net zero
    As more corporates align themselves to reduced emissions, we anticipate that they will continue to lead acquisitions, resulting in more exit opportunities for private climate tech companies.

  3. The electricity grid bottlenecks the energy transition
    As long as the demand far outpaces our speed and capacity to build it, the grid will continue to be a bottleneck for the energy transition. This creates opportunities for technologies that can create flexibility in the grid.

  4. Biomass in mass demand
    Biomass is an important lever in decarbonizing our economy but its supply is and will remain limited. We anticipate prices will rise due to this scarcity, leading to more focus and investments in securing supply and improving efficiency.

  5. Climate tech remains a significant part of VC
    Backed by dry powder, clear demand signals from the energy crisis, increased policy support, and a decline in green premiums, climate tech investing is well positioned to continue along its breakout growth trajectory.
  6. It's trending toward a buyer’s market
    The interest rate hikes and weak public markets over the past year have decreased venture capital valuations. As such, 2023 could shape up to be one of the better vintage years for climate venture capital.

Top 6 climate tech trends

  1. Precision fermentation becomes a force in food
    Whoever helps precision fermentation overcome its bottlenecks (manufacturing capacity and regulatory constraints) is set up to win big as the precision fermentation industry is anticipated to generate $34.9 billion by 2031.

  2. Carbon removal takes the stage
    With all its recent funding activity and government support, 2023 is lined up to be a strong year of growth for the carbon removal industry. Keep an eye out this year for another mega deal like Climework’s $650M round last year. 👀

  3. Flexibility in demand solutions
    Given the persistent variability in electricity prices, climate solutions that enable companies and consumers to benefit from the best electricity prices have the potential to thrive in 2023.

  4. Grid-scale batteries become more attractive
    Alongside the push for renewables, governments have supported this trend with a record amount of policies for energy storage in 2021, followed by the IRA in 2022. We expect to see this reflected in funding raised by startups in 2023.

  5. Clean heating without overheating our planet
    With the increases in gas prices, government policies, consumer demand, and declining costs, the market opportunity for sustainable space heating (i.e. heat pumps, district heating and geothermal energy) is growing.
  6. Innovation in raw materials
    The current mining capacity of critical minerals is not enough to get us to net zero, which is why we expect to see more funding directed to innovations that extract more raw materials and reduce our dependence on certain materials.

Did we miss out on any of the trends you are paying most attention to in 2023? Let us know in the chatbot or connect with Liza, our Co-Founder and Head of Impact, on LinkedIn!