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Where climate VCs are investing

May 19, 2022
Illustration of a collage of trees, leaves and elements of a hundred dollar bill.

Illustration: Aïda Amer/Axios

The majority of venture funding in Q2 is going to just a handful of sectors within climate technology.

Why it matters: Some of these industries, like carbon capture, are still developing the technology while others are banking on the software-as-a-service playbook for predictable returns.

What's happening: Investors have staked out three primary industries as the biggest areas of opportunity.

  • Carbon capture and removal: Investors are eagerly backing carbon capture and removal startups despite many companies' tech being pre-commercialization.
    • Part of the frenzy is driven by the nearly $1 billion Frontier Fund, a joint venture led by Stripe and other technology companies that has pledged to sign on as early customers for carbon removal startups just getting off the ground.
    • Carbon Clean, a carbon capture startup for heavy industry, most recently raised $150 million in Series C funding from Chevron, AXA Investment Managers, Samsung Ventures, Saudi Aramco Energy Ventures and TC Energy.
  • Data analytics: Data analytics startups are also enjoying increased investor interest just as U.S. policy seems poised to bring a windfall to the industry by requiring data disclosures as part of ESG reporting (more on that below).
    • The proliferation of smart meters, especially in commercial buildings, warehouses and manufacturing facilities has opened the doors to data analytics startups that claim to make sense of all that disparate data. Some go as far as to recommend action based on the data, in a climate software trend reminiscent of 2014-era Big Data startups in the enterprise software world.
    • Arcadia, a startup that pulls energy-use data from smart meters via its API, most recently raised $200 million in Series E funding at a $1.45 billion valuation.
  • ESG software: Axios coined "ESG-as-a-service" just weeks ago as pitches for startups selling easy-to-use software products for ESG reporting filled both reporters' inboxes.
    • Much like SaaS startups of yore, ESG-as-a-service startups are selling software products for businesses that want to track and report ESG data, including emissions and other initiatives around diversity.
    • The revenue model is proven and many investors are comfortable taking a moderate risk on an industry they understand extremely well.
    • Eventually, however, the market will consolidate and just a handful will emerge as industry leaders.
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