When it comes to climate tech innovations, there is a lot to be said for Europe: a third of the leading research institutions in this field are based in Europe and 28 percent of all patents in the industry are registered in Europe – more than in any other economic area in the world.
Europe is not only a leader in research and development, political ambitions are also the greatest in this country: The European Union has committed itself to becoming the first climate-neutral continent – and is also following up on this announcement with action: 30 percent of the two trillion budget of the EU in the period 2021 to 2027 should flow into the fight against climate change.
Of this, 33 billion euros are earmarked for climate tech, i.e. for technologies that explicitly relate to the reduction of greenhouse gas emissions. This amount comes in addition to the €58 billion from the Horizon 2020 program and €100 billion from the research and development budget.
Europe founds the most climate tech companies in the world, but venture capital is lacking for growth
The innovations also leave the laboratory and lead to company start-ups: According to the data from our World Fund, Europe leads every other economic area in the world when it comes to climate tech start-ups. In the energy sector, for example, 363 climate tech companies were founded in Europe in 2021, compared to 243 in the USA. In the battery industry, we recorded 102 start-ups in Europe in the same year – more than the 80 start-ups in China and the USA combined.
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All of this is also more than gratifying for Europe as a business location, because climate tech start-ups will be among the most valuable companies of the next decade when the decarbonization of our global economy begins.
The untapped market potential is estimated by the Big Four of business consultancies at several trillions of dollars. According to Blackrock CEO Larry Fink, the next 1000 unicorns will be climate tech companies, and since 2014 investments in climate tech have generated higher returns than companies without a climate focus.
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So rosy prospects for Europe when building the next 1000 climate unicorns? Unfortunately not quite: From 2006 to 2011, mostly American venture capitalists invested 25 billion dollars in clean tech – with great success. Today, these companies – including Tesla, Beyond Meat, Quantum-Scape – are worth more than $600 billion. Europe, on the other hand, has largely missed this wave.
Europe is now in danger of repeating this mistake: from 2013 to 2019, 29 billion dollars flowed into climate tech start-ups from the USA, 20 billion from China and only 7 billion dollars from Europe. US investors have long recognized the potential: Because European climate tech companies are often technological leaders thanks to the enormous research expenditures on the continent, but are at the same time underfinanced and undervalued, US investors are specifically looking for European companies.
Climate-Tech in particular requires a lot of staying power before it is ready for the market
The problem: many groundbreaking innovations from Europe have not yet survived the valley of death on the way to market maturity. The reason: climate tech innovations often take place in the hardware and deep tech areas, where a particularly long breath is required until they are ready for the market. With comparatively little money available for this in Europe, this gave some European investors the wrong impression that investments in first-generation clean tech companies were a failure.
Europe’s green economic miracle therefore needs venture capital with staying power to close the gap between research and development and market launch. European investors – especially those from Germany – still often have a misunderstanding in their way: “What creates impact cannot generate returns”.
But current data shows that the market is finally moving: According to an analysis by venture capital data provider Dealroom, European investments in climate tech are on track to surpass the record investments of 2021 again this year – despite the general grim situation in the VC market.
Europe had previously seen the strongest growth in climate tech investments worldwide, with investment sums increasing sevenfold from 2016 to 2021.
Rightly so, because a look at research, knowledge, people, start-ups and the political framework shows that Europe has the best prerequisites for producing the climate unicorns of the coming decades. In the meantime, more and more investors are realizing that overcoming the climate crisis is not only necessary, but also extremely profitable.
The author: Danijel Višević is a partner at the European climate tech venture capitalist World Fund.
More: “In the US there is money to invest – in Europe there are laws and regulations”