For the third consecutive year, venture capital investment in climate tech fell in 2024. Investment in the sector reached only $37.8 billion, nearly 40% lower than its all-time high in 2021.
Looking ahead to 2025, a report from PitchBook suggests climate tech investments could fall even further. The broad scope of climate tech means the companies focused on it are subject to policy and industry changes impacting many sectors, such as energy, agriculture, and transportation. However, even as tariffs and shifting policy priorities threaten companies’ bottom line, many venture investors in the space say there is no cause for alarm.
“This isn’t surprising to us,” says Sara Simonds, executive director of Venture Climate Alliance, an organization that brings together climate-focused venture capital firms. “Many of the VCs that we work with have been investing in these sectors for the better part of a decade or longer and are accustomed to the ebbs and flows in industry outlook.”
The last surge of investment started in 2021, when the market for renewable energy and other climate technologies looked very different. Favorable policies under President Joe Biden bolstered the sector and made it a hotbed of activity even for venture capitalists who weren’t previously involved in the space.
The Inflation Reduction Act of 2022, for example, invested billions in clean energy, electric vehicles, and other climate-friendly technologies. That act built on tax credits for electric vehicles, carbon sequestration, and other initiatives provided by the Infrastructure Investment and Jobs Act passed by Congress in 2021. On the venture capitalist side, those policies led to expensive deals that pushed the annual VC deal value over $60.5 billion in 2021 and $53.8 billion in 2022, according to the PitchBook report.
Now some climate-favorable policies and tax breaks are gone under President Donald Trump, and tariffs are raising the cost of clean energy in the U.S. (China remains the leading supplier of solar panels, wind turbine components, and lithium-ion batteries used in electric vehicles, according to the International Energy Agency.)
Many “tourist investors” who temporarily entered the climate space during its period of high growth have taken these changes as a sign to scale back investments or leave the space. This, combined with declines in the number of VC deals in the tech sector more broadly, has added to climate tech’s troubles.
However, venture capitalists who specialize in climate tech investments aren’t worried. In fact, they see opportunities for growth that may outweigh the financial risks these policy and market changes bring.
Part of their confidence in the sector comes from having experienced past boom-bust cycles in climate technology markets. The CleanTech 1.0 era—a period in the mid-2000s when venture capitalists heavily staked renewable energy startups that ultimately failed—was a formative experience for many of today’s climate tech investors. They observed not only how these businesses failed but also how others succeeded in their wake as the need for climate-friendly solutions grows.
“Climate change is the macro of all macro trends,” says Andrew Beebe, managing director at Obvious Ventures. “Maybe not as a human, but as an investor, the macro on climate is amazing. The challenge becomes greater by the day and that means the opportunities just become greater by the day.”
Additionally, many of the changes on the policy side have greater impacts on mature industries that venture capitalists are less directly involved in, says Matt Eggers, managing director at Prelude Ventures. Venture capitalists tend to invest in startups and other early-stage companies with potential to grow.
While there is always innovation going on behind the scenes of mature industries, some that are well-established (like traditional solar and wind technologies) are less appealing to investors looking for groundbreaking new technologies or unexplored areas of industries.
What many dedicated climate tech investors are looking for remains the same as when the sector hit its peak three years ago—new or improved technologies that are scalable and have strong market potential.
Last year, North America remained the largest market for climate tech investment, and it saw big gains in the energy sector, according to the PitchBook report. In particular, growth was notable in dispatchable energy sources whose output is easily increased or decreased to meet demand, and in infrastructure to produce, store, and transport hydrogen. Similarly, the first quarter of this year saw more investments in energy, with large fusion and nuclear deals.
“We’ve got technology that we’re really excited about in the portfolio,” Eggers says. He and Beebe both see opportunities in companies using electrification and artificial intelligence to transform the climate tech sector. Beyond the technology, Eggers adds that investors look for companies with strong leadership teams and ideas that appeal to big or fast-growing markets, particularly those that have been disrupted by the types of policy and economic changes plaguing many industries today.
“When there’s disruption, there’s opportunity,” Eggers says. This extends to the investment space as well, where investors are finding promising companies to fund in this now less-crowded area of the venture market.
