Jan 11, 2024 · 44m · catalyst
2023 climate tech venture investment trends
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Catalyst, host Shail Khan and Sightline Climate CEO Kim Zou analyze the 2023 climate tech venture landscape, examining funding contractions, sectoral pivots toward heavy industry, and the essential shift toward project finance.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Shayle holds 35.8% of the talking time here. How this is scored →
Shayle as informed peer 6.7 Guest teaching 4.1 Guest disagreement 1.0 Shayle pushing back 1.3
speaking balance: gold is Shayle, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 8:17 Reframing venture capital success metrics
Kim gently counters conventional venture assumptions by arguing that sheer dollar volume growth should not be the benchmark of success in climate hardware.
Hardest push from Shayle ▶ 33:52 Challenging newcomer views on energy decarbonizationShayle forcefully pushes back against the investor trope that clean energy is largely solved, pointing out that electricity is only 20 percent of final energy use.
Biggest teaching moment ▶ 10:05 Unveiling Series A 41 percent plungeKim presents novel Sightline data showing early-stage Series A funding dropped by 41 percent for the first time in four years.
Shayle holds their own ▶ 28:28 Detailed analysis of climate SPAC cohort track recordShayle demonstrates deep market tracking by comparing Proterra's real revenue operations against forty speculative, pre-revenue climate SPACs.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Shayle as informed peer | Guest teaching | Guest disagreement | Shayle pushing back | Why |
|---|---|---|---|---|---|---|
| Macro Trends: Dollar Contraction Versus Resilient Deal Volume | 6 | 4 | 1 | 1 | Shayle demonstrates solid market familiarity by distinguishing deal count from dollar volume and noting how hardware mega-rounds distort data. Kim shares Sightline's latest macro statistics and PitchBook comparison benchmarks. | |
| Stage Dynamics: Series A Pressures and Bridge Financing | 7 | 5 | 1 | 2 | Kim reveals that Series A investment dropped 41% for the first time, while Shayle supplements with on-the-ground VC experience regarding resized rounds and unannounced bridge financing. | |
| Sector Shifts: Industrial Decarbonization Outpaces Food Systems | 7 | 5 | 1 | 1 | Kim explains the collapse of food and land use investment and the rise of industrial decarbonization. Shayle contextualizes the H2 Green Steel mega-deal and traditional software investors misapplying SaaS multiples to carbon accounting. | |
| Sponsor Segment: Bloom Energy, Engie, and Energy Hub | 7 | 4 | 1 | 1 | Following the sponsor break, Kim outlines the 50% drop in exits and SPAC fallout. Shayle offers detailed historical context on Proterra's revenue reality versus 40 pre-revenue climate SPACs. | |
| Capital Misallocation and Investor Ecosystem Evolution | 8 | 4 | 1 | 2 | Kim shares emissions versus funding ratios showing transportation overfunded relative to industry and energy. Shayle strongly elaborates on generalist investor misconceptions regarding electricity versus total primary energy demand. | |
| Regional Clustering: United States and European Hubs | 7 | 4 | 1 | 1 | Kim explains geographic clustering across the US and Europe. Shayle accurately predicts the emergence of Texas and Houston as industrial decarbonization and molecule hubs. | |
| 2024 Outlook: Capital Stack Sophistication and Project Finance | 5 | 3 | 1 | 1 | Kim provides an upbeat forward-looking outlook for 2024 centered on capital stack diversification and project finance graduation, with Shayle wrapping up collaboratively. |
Statements from this episode (13)
Zou: Climate tech venture funding fell 30% to $32B in 2023
“Thirty-two billion dollars in venture and growth funding globally in climate tech, which was a 30% decline from the prior year.”
Zou: Climate tech deal count fell only 3% in 2023
“Deal activity was only down three percent, so you could call that even a tapering relative to twenty-twenty-two rather than a significant decline, so Deals are still getting done. Early stage seed series A still getting done, but that absolute dollar amount th…”
Zou: Climate tech success is graduating to project finance, not mega-rounds
“Specific to climate tech, it might not make sense to define success as an absolute dollar in venture investment, because at the end of the day, when we think about all this hardware and, you know, hard tech that needs to develop into projects, you want these c…”
Zou: Series A climate investment dropped 41% in 2023
“Series A investment was down 41% compared to twenty-twenty-two. That's the first time we've seen series A investment drop since we started tracking the space, you know, four years ago.”
Zou: Food and land use climate investment fell 55% in 2023
“This time around, in 23, appetite for food and land use evaporated. There is a distaste for food and land use, in other words, and we saw that That sector was down 55% in investment to three billion this year.”
Zou: Industry replaced food and land use as third-largest climate tech vertical
“So before this year, industry actually grew a significant amount. That one has always been underfunded relative to the level of emissions coming from that sector, and it replaced food and land use in that third vertical spot.”
Zou: Six of top ten climate mega-deals leveraged major public financing
“The second major thing we're noticing across these mega deals is if you look at the funding they've raised in the last two years, I think six out of 10 had raised significant hundreds of millions of dollars of public financing or government-funded rounds, whet…”
Zou: Carbon accounting is oversaturated and behaves more like consulting than SaaS
“Carbon accounting isn't necessarily a market that needs 200 or 300 players. And also I think a lot of them end up being a bit more consulting advisory based than traditional enterprise SaaS like generalist investors understood.”
Zou: Climate tech exits dropped 50% in 2023 as SPACs fell 80%
“It cut in half, so we tracked 50% less exits in twenty-twenty-three, and this was really driven by SPACs finally fizzing out. I think we started to see that happen towards the beginning of twenty-twenty-two but the count of SPACs were, climate tech SPACs were …”
Kim Zou: Oxy's $1B Carbon Engineering buyout is the first DAC unicorn
“On the acquisition side, I think the one that Climatech investors and founders couldn't stop talking about this year was Oxy's acquisition of carbon engineering at a billion dollars, so the first unicorn we've ever seen in DAC and probably carbon removal.”
Khan: Most of the 40 climate SPACs were pre-revenue without commercial products
“I tracked at some point, I don't remember exactly what the number was, but like close to 40 companies that I would call climate tech companies that, that successfully merged with SPACs and de-SPACs became public companies. Most of them were pre-revenue and had…”
Zou: Transportation gets 30% of climate VC despite causing 15% of emissions
“We've tracked transportation accounting for 15% of total emissions. As per the IPCC 2019 report, but receiving 30% of venture and growth investment since 2020. Whereas on the other hand, you know, energy deals, or energy investment made up 22% of overall fundi…”
Khan: Texas climate tech investment will rise over the next two years
“Be interesting to speculate a little bit on this one, like one region that has not seen nearly as much investment historically, but I would place a bet is going to show up on your rankings at least higher the next couple of years is Texas.”