Those of us who follow climate change news are used to seeing the bad tidings outweigh the good.

We’re slogging through what’s shaping as the hottest summer on record. Glaciers are melting at an alarming rate. And fossil fuel consumption continues to grow.

Now, here comes another grim data point: Equity funding to startups focused on cleantech and sustainability is down this year.

In the first half of 2024, around $9.6 billion went to seed through growth financings for companies in Crunchbase’s sustainability, EV, and cleantech categories. That’s a decline of 61% from the second half of last year, and about 10% from year-ago levels.

For perspective, we charted investment and round counts for the aforementioned categories below:

As industries go, cleantech-related sectors overall weren’t as hard hit in the post-2021 downturn as other categories like consumer products or fintech. Funding to the space last year was flat for example, even as overall investment declined.

This year, even though overall equity investment declined, the broader picture is more nuanced. For one, we’ve seen huge sums go into debt-based project financing.

Sweden leads in this arena, with two giant rounds for Stockholm-based companies in January. Northvolt, a sustainability-focused battery manufacturer, landed $5 billion in project financing to expand its facilities, and H2 Green Steel closed on $4.6 billion in debt financing to go toward what it described as the world’s first large-scale green steel plant.

Those aren’t the deal sizes we see for sectors in decline. Since infrastructure-heavy cleantech companies commonly turn to debt financing as they scale, the shift from equity rounds to project finance may be more an indication of a maturing startup pipeline than a change of heart among investors in the space.

Hot themes include EV charging, battery supply chain and hydrogen

Back to equity rounds, meanwhile, a few investment themes stand out so far this year.

One is around the battery supply chain. Amid growing EV adoption and a hoped-for shift to cleaner energy sources, we’ll need more batteries and a more robust, reliable supply chain to produce them. As a result, we’re seeing strong investment in alternative battery materials and battery recycling.

In the first category, Alameda, California-based Sila Nanotechnologies, a next-generation battery materials company, raised $375 million in a June Series G led by Sutter Hill Ventures and T. Rowe Price.

In the recycling camp, Westborough, Massachusetts-based Ascend Elements was the standout, securing $162 million in a February financing. Ascend makes battery materials using valuable elements reclaimed from spent lithium-ion batteries.

Electric vehicle charging has been another popular investment theme in recent months. Those that raised large rounds this year include charging spot operators Electra, based in Paris, which landed a $330 million Series B in January, and FLO, based in Quebec City, which picked up $136 million in June.

There’s also strong venture interest around hydrogen energy, particularly startups developing electrolyzers, devices that use electricity to split water into hydrogen and oxygen.

An Australian electrolyzer startup, Hysata, picked up $110 million in a financing co-led by BP Ventures and Templewater in May. And in February, Denver-based Koloma, which focuses on identifying and commercializing geologic hydrogen resources, closed on $246 million in a Series B led by Khosla Ventures.

The exit climate has not warmed

While big venture rounds are still happening, the pace of IPOs and M&A deals involving venture-backed cleantech companies remains rather slow. So far in 2024, we haven’t seen much in the way of big exits of any kind.

One exception to the slowing was Chinese EV maker Zeekr. The company carried out a NYSE IPO in May and had a recent market cap around $5 billion. However, shares have been trending lower since its debut.

“It’s a colder exit environment than it was in 2021 and 2022,” observed Anthony DeOrsey, a research manager at the Cleantech Group, who attributes this to the overall decline in technology IPOs, particularly for U.S. companies. The collapse of the SPAC as a route to the public market has also impacted cleantech, as many had gone public this way around the market peak.

Hopefully, the exit climate will warm up a bit beginning next year. There’s certainly a large enough pipeline of well-funded private companies at this point to make for a compelling list of IPO candidates.

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Illustration: Dom Guzman