The Exchanges

Q overall dollar data. It seems like some of that is skewed by, you know, we talked about the big mega rounds. There was really one mega, mega round in twenty-twenty-three. There had been more in previous years, right? Like, Commonwealth Fusion raised 1.8 billion a couple years ago and stuff, but In twenty-twenty-three, there was one mega round that seems to have contributed a lot to that industry vertical, right?

A Yeah. I mean, the one that, the one that everyone's been talking about, it seems like, in these later stage growth circles in climate tech is H-II green steel. Um, and I think if you look at, we, we tracked the top 10 largest deals in climate tech this year. If we zoom in on industry, steel in particular had a pretty breakthrough year. So there was H-II green steel Which raised a billion to fund a green steel plant in, uh, Sweden. And then Boston Metal was, you know, uh, not insignificant as well. They raised two hundred million dollars also to build, uh, green steel, but more from a, uh, uh, electrolysis standpoint. And I think what's notable about these large mega deals that happened in twenty-twenty-three, there's probably two things, in my opinion, That'll enable these companies to raise such significant rounds. The first one is, these companies had, most of these companies already had projects in motion, right? So H-Green Steel, they're building a massive steel plant in Sweden and Europe where there's a lot of policy tailwinds, you know, think CBAM. That's enabling, enabling that project to, to kind of, uh, develop, and that's what that one billion dollar round was really financing. The second major thing we're noticing across these mega deals is if you look at the, the funding they've raised in the last two years, I think six out of 10 had raised significant hundreds of m…

AI assessment note: “the one that everyone's been talking about... is H-II green steel”

Q able to measure those outcomes, so let's talk about both sides of that, starting with, with exit activity. Um, what have we seen? I mean, Year there. There had been lots of exit activity, and then, 20, 23 is where it sort of turned overall. The IPO markets basically shut down, and so, did we see significant exit activity in 20, 23, and what did it look like if so?

A Yeah. Exits did, um, fall off a little bit in twenty-twenty-three. I mean, it's, it's not, it's not a little bit, actually. It, it cut in half, so we tracked 50% less exits in twenty-twenty-three, and, 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, um, but the count of SPACs were, climate tech SPACs were down 80% compared to the prior year. However, what's notable, you know, there's still acquisitions happening in this space, although, as you probably know, acquisitions aren't always a sign of healthy success in the exits market, and 80% of those acquisitions were undisclosed, which, you know, if you, if you have a successful, massive acquisition, you, you probably want to shout it from the rooftop, so we can assume a lot of those might have been smaller tech and acquisitions that, that might not be something to be as proud of. However, there were a few, you know, notable IPOs to kind of kick off this year, including NextTracker, which I'd call, I'd say is more from the kind of cleantech one-point-o error, but still a sign of, um, you know, climate tech hardware being able to successfully IPO. There's also Enlight Renewables Development, a renewables developer that IPO'd as well, and a few successful SPACs like Lanzatech that's been a climate tech darling for some time and was able to su…

AI assessment note: “we tracked 50% less exits in twenty-twenty-three”

Q like, You know, I think there was, there are real macro tailwinds for this category, but it also suffered from the lots of, uh, traditional tech investors getting interested in climate, looking for things that they recognize, finding B to B SaaS in the form of, you know, uh, enterprise carbon accounting or whatever, and then maybe overfunding that sector. Is that the sense that you've picked up as well?

A Yeah. I mean, I think it's similar to the case of alternative protein, right? Where there's, A lot of market oversaturation of a category that people felt like they knew really well, whether it came to consumer tastes like alternative protein or enterprise software. And at the end of the day, I don't think the, I don't think the numbers or the milestones necessarily match to a lot of the valuation expectations or the funding rounds. And so in that sector in particular, it feels like a bit of a wait and see, you know, it's not necessarily a Market that needs, carbon accounting isn't necessarily a market that needs 200 or 300 players. Um, and also I think a lot of them end up being a bit more consulting advisory based than, um, than traditional enterprise SaaS like generalist investors, um, understood. So in many ways that sector feels like it's been, it's been, you know, playing wait and see to figure out whether or not there's actually an opportunity there. However, we are noticing a lot of those companies Either moving or starting to invest in Europe because of regulations like SFDR that are driving more kind of compliance requirements for that type of reporting, whereas in the US we're still kind of waiting to hear back on the SEC climate risk disclosure.

AI assessment note: “carbon accounting isn't necessarily a market that needs 200 or 300 players”

Q broader macro economic environment starts to deteriorate. That is, Has an initial effect on the stuff that's closest to the public markets, which is later stage, and then takes time to sort of bleed back through the value chain to eventually have an impact at, like, seed in series A. How did that look in the data in twenty-twenty-three? Was there a significant bifurcation between early stage and later stage?

A Yeah, I mean, so we put this report out in H-one, and the headline there was that late-stage venture and growth plummeted, 30%. That also holds true at the end of the year, so investment at the later stage dropped 30%. The big change in this end-of-year report was that we saw for the first time an impact in the early stage as well. So deal count was still the same, if not, you know, relatively, uh, Marginally higher, but 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. And I think what that means, and maybe this is a symptom of larger venture, not just specific to climate tech, that's the first time this macro downturn is starting to impact the early stage market. We're starting to see Early stage investors also pulling back, um, rather than just later stage deals and, and, and growth rounds, um, getting smaller.

AI assessment note: “series A investment was down 41% compared to twenty-twenty-two.”

Q lots of reasons why people want to be investing in climate tech, and so they would dip their toes in the water, but never really dive in and deal with all the complexities of it. Do you have the ability within that data set to sort of figure out whether the climate tech tourists, first of all, did they ever exist, and, and if they did, are they still around?

A Yeah, it's a good question. I think the, so the count of investors overall this year declined, um, and so it was marginal, right? It declined five percent, investors doing, uh, more than, more than one deal, um, I'd say a lot of that decline was, was from what you call tourist investors, those that dipped their toe in, maybe did one deal over the last five years or so, especially in more software kind of centric areas. So across, across all stages, across all verticals, unique investors that were active in twenty-twenty-three was, was definitely below twenty-twenty-two levels, and I would ascertain that most of those were those that, you know, had kind of trialed Trialed climate tech when it was, when it was hot and, uh, the, the, the cool venture thing to do, whereas now it's really made up of more repeat investors or climate tech specific funds.

AI assessment note: “a lot of that decline was, was from what you call tourist investors”

Q talk about the individual sectors than it is to talk about climate tech as a whole, albeit there, there is a lot of capital and interest in climate tech generally. But let's talk about, um, sectors. What do you think of as a sector that sort of relatively speaking, right, like dollars were down across the board, but relatively speaking, what sectors saw more investment and what sectors saw less?

A Yeah. And so, just for those on the, those catalyst listeners that, that don't know our methodology, we think about climate tech across seven broad verticals that really encompass, you know, the way we eat, the way we move, et cetera, et cetera. So that's food and land use, transportation, energy, industry, climate management, which is what we call, you know, things like climate risk, emissions and sustainability reporting, um, and, uh, built environment and, and carbon. So those are kind of the seven Verticals, categories we think of when we talk about climate tech. The biggest surprise in terms of verticals this year was really the decline in food and land use. Um, food and land, transportation, energy, and food and land use have historically always been the big three. We've even called them the big three in all of our reports, because they're just so far, in a way, you know, the largest sector is the most mature. This time around, in 23, appetite for food and land use evaporated. Um, 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. Um, and I think, you know, for those who have been tracking the space in the public markets, the performance of Beyond Meat and some of these other alternative protein, as well as a pretty significant trail of bankruptcies in indoor and vertical farming, h…

AI assessment note: “The biggest surprise in terms of verticals this year was really the decline in food and land use.”

Q And then, of course, we should look at the other side of the coin, um, which is, which is bankruptcies and companies that went out of business. You know, I think as the market started to turn, the expectation, of course, was that you would see a higher proportion of that. Overall, how much have we already seen in terms of companies shutting down or effectively shutting down?

A Yeah, I mean, this is also one of those things where there's probably a lot more companies that went bankrupt or went out of business, but it didn't necessarily make the headlines. I think some of the more notable ones, um, the first one was Proterra. That was one where it's been, Proterra's been around for a while. It's been a climate tech darling. They've, you know, raised from some of the largest climate tech investors like Gitu Venture Partners, and at the end of the day, you know, inflationary pressures, higher interest rates, supply chain disruptions, They, despite making it to, all the way to, you know, going public, they SPAC'd, I think, in 20, 22. Despite making it all that way, they still couldn't quite get over those hurdles, and I think, at the end of the day, that's a, that's a symptom of these business models, which are reliant on long supply chains, which are reliant on, um, on, on, you know, hardware, and a lot of, a lot of, kind of, various factors outside of their control, um, going their way, so. They filed for bankruptcy and then their battery business actually ended up getting acquired by Volvo. So that was another thing we saw this year too, where there were some acquisitions, but, um, some of them were more so kind of acquisitions, scooping up companies that were struggling, um, at, at lower valuations.

AI assessment note: “there's probably a lot more companies that went bankrupt... didn't necessarily make the headlines”