Dusseldorf, Berlin Larry Fink already announced it a year and a half ago: “The next 1000 billion dollar start-ups will be created in the field of climate tech,” said the head of US wealth manager Blackrock. Coping with climate change requires companies that develop green hydrogen, agriculture, steel or cement.
The latest figures prove Fink right: more than 12.3 billion US dollars were invested in green technologies last year.
That’s another billion dollars more than in 2021 and more than ever before. This is the result of a new analysis by the management consultancy Oliver Wyman. The figures are exclusively available to the Handelsblatt. “Although investments tend to be declining overall, we see a new record in investments in green tech solutions,” says co-author Thomas Fritz from Oliver Wyman in an interview with the Handelsblatt.
Last year, the sum that start-ups were able to collect through financing rounds fell by 53 percent. Only the sustainable founders were able to increase the venture capital. From 2019 to 2022, the venture capital raised by them even increased sixfold.
There are several reasons why the climate start-ups are doing so well with investors compared to almost all other young companies. The energy crisis triggered by the Ukraine war plays a major role. The US subsidy program Inflation Reduction Act (IRA) and its European counterpart, the Net Zero Industry Act, are also providing momentum.
According to Danijel Visevic, partner at the climate investor World Fund, this is superimposed by a threat: “The climate crisis will worsen over the next 20 years – and with it the need for and demand for climate technologies will continue to rise.”
Politics drives investments in green technologies
“In many areas, the demand for sustainable products has increased massively in recent years, also due to the political support mentioned,” says Andreas Schwarzenbrunner, who is responsible for all investments in climate tech start-ups at the early-stage investor Speedinvest, the Handelsblatt. This also includes the analysis software company Twaice from Munich, which predicts the behavior and lifespan of a battery and has since collected a total of 75 million dollars from investors.
About 85 percent of the investments last year went to start-ups from the USA or Europe. Germany did surprisingly well. According to energy expert Fritz, this is mainly due to the high number of renewable wind and solar systems and the early phase-out of coal. “The leap from basic research at the university to practice is very short here,” explains Fritz. The energy crisis accelerated this trend again. Visevic confirms this with reference to surveys by the data service Tracxn: Last year, 363 climate start-ups in the energy sector were founded in Europe and only 243 in the USA.
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While disillusionment has set in throughout the rest of the start-up industry and many start-ups are having difficulties, especially with follow-up financing, things are looking comparatively good in the climate tech sector. This is due to the fact that the current economic downturn was triggered by high energy prices, says Arne Morteani, founding partner of the Kiko Ventures fund, which specializes in climate technologies.
Invest to reduce dependencies
As a result, investors are increasingly looking for ways to reduce energy dependency. At the same time, industries like auto and energy are at a turning point, Morteani says. They had understood that they had to initiate the change themselves and were now trying to get in front of the movement as quickly as possible. In Germany, “Kiko Ventures” has invested in the reusable tableware specialist Vytal and the heating app pioneer Tado, which just last month expanded its financing round to 55 million euros.
That’s nothing compared to the new German flagship start-up Enpal. The lessor of solar systems secured 215 million euros at the start of the year and was valued at more than two billion euros for the first time. This was one of the few rounds of financing this year in which the company was significantly upgraded.
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The fact that many professional investors now have to invest in sustainable trends should also have helped Enpal and others when soliciting investor funds. “This is where the ESG trend and the associated regulations for institutional investors come into play,” says Schwarzenbrunner, who is currently mainly on the lookout for start-ups in the energy sector. He is particularly interested in “new business models that are becoming possible with the increased spread of renewable energies and e-mobility”.
The experts at Oliver Wyman also come to the conclusion in their calculations that a particularly large amount of money is flowing into the areas of battery technology and storage. The start-up Voltfang, which produces energy storage devices from recycled car batteries, recently scored with such a focus. It received a cash injection from specialist investors Proptech1 Ventures and Aenu, among others.
Similar to the start-ups, a whole series of specialized climate investors has also emerged among the financiers. In addition to Aenu, these include the World Fund and Planet A.
In addition, completely new fields are emerging into which, according to Wyman expert Fritz, significantly more money should flow in the future. Not only did the amount invested in innovations related to the separation, storage and further use of CO2 increase from 100 to 600 million US dollars within three years. Hydrogen, fusion power and emission data tools are also attracting more and more attention and financially strong investors.
Weak financing should also affect green start-ups
However, investment in green start-ups is also likely to decline this year, forecasts the management consultancy Oliver Wyman. “The overall market is under pressure, the availability of capital is lower, but the field of sustainable technologies will remain the focus,” believes Fritz. One will not be able to completely escape the trend. According to a current study by the World Fund, which the Fund developed together with the Cleantech Group and PwC, there is a particular lack of capital for companies that have survived the start-up phase and now have to assert themselves on the market. Only 16 percent of the need for climate finance is currently covered.
According to Oliver Wyman, almost 900 billion euros would have to be invested in Germany alone by 2037 in order to drive economic change. It would take 650 billion euros of that alone to set up enough wind farms, solar parks and storage facilities.
For comparison: According to Bloomberg New Energy Finance, a total of 6.7 trillion dollars has been invested worldwide in the energy transition since 2004.
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