Carbon tech defies 2022 funding slump

Carbon technology startups raised more VC funding over more deals in 2022 compared to 2021, per a new PitchBook report.

Why it matters: Carbon tech startups can rely on the twin tailwinds of government incentives and customer groups like Frontier as other climate tech companies start to run into fundraising challenges.

By the numbers: Startups working on carbon capture, carbon storage, carbon accounting and industry-specific decarbonization raised roughly $4.2 billion across 204 deals in 2022, per PitchBook data.

• Startups working on industrial decarbonization — which includes companies working on electric industrial heating or decarbonized cement — outraised most other sub-sectors in Q4 with roughly $1.6 billion raised over 60 deals.

The intrigue: PitchBook identified two areas within carbon tech that it says are primed for growth in 2023 due to the confluence of abundant demand for carbon tech and newly deployed government funds courtesy of the Inflation Reduction Act.

• The first is ocean-based carbon removal, which includes startups building seaweed farms. These startups often rely on selling carbon credits as a primary revenue model, which has proven a tricky model to pull off in land-based carbon removal sectors.
• The second is in companies making biopolymers to replace plastics and other materials that are difficult or impossible to recycle. The report cites increased consumer demand as a factor in driving down costs of the historically expensive biopolymer materials.