Global Funding & Performance Trends

Cleantech Funding

The history of investment in the Cleantech space is volatile and complicated, making it hard to identify simple, durable investment trends in the sub-sector. A wave of enthusiasm for Cleantech saw investors pouring funding into the sub-sector starting in 2006. Five years later, a sector-wide bust cost those investors billions and dampened the appetite for Cleantech investing for years afterward.

However, the increasing urgency of the climate crisis, technological developments, a series of alarming reports from the Intergovernmental Panel on Climate Change, and the high-profile COP26 dealmaking among world leaders have all pushed investors to re-evaluate the sub-sector.

Hard numbers reflecting this trend are still hard to come by, however. This dearth of data is due to both the usual lag in availability of data on deals, as well as the complications of the COVID-19 pandemic, which temporarily accelerated investment into sub-sectors that were highly relevant to pandemic challenges, such as Life Sciences, and delayed investments in sub-sectors that were not, including Cleantech.

But there are clear early signs of a renewed interest in Cleantech. There was a dramatic drop in the number of Series B+ deals in the sub-sector during the second half of 2020 and first half of 2021, almost certainly due to COVID-19. This is concerning as funding for all other sub-sectors bounced back from the initial shock of the pandemic from early 2021 onwards. However, momentum is returning to Cleantech. In the second quarter of 2021, the number of Series B+ rounds reached an all-time high a 77% increase from the same quarter in 2020. Post-money valuation increased by 23% in 2020 and by 176% in 2021.

Limited partners are also pouring money into climate-focused VC funds, suggesting a likely future spike in deal volume and amount. Long-term observers of the space observe that this funding is also flowing to a larger variety of companies, from hydrogen fuel to micronutrient fertilizer startups, rather than being concentrated in traditional areas of investor interest like renewable energy and transportation.  

LP interest in the sub-sector is an indicator of growing excitement about Cleantech. While deal volumes appear to be increasing very modestly at every investment stage according to currently available data, the average deal size was up over the period 2016 – 2020, with the average Series A amount increasing 69% and Series B+ amount increasing 28%.

Cleantech Exits

The number of Cleantech exits fell to a five-year low of 100 in 2020, but the total exit amount significantly increased, from $7.7 billion in 2016 to $29.5 billion in 2020. This was due in part to two multi-billion dollar exits in China, both EV companies.

This rise in average exit amount is also evident in the global number of exits over $50 million which has increased from 16 in 2016 to 25 in 2021.