The rumors of the demise of funding for climate solutions are greatly exaggerated.
While there's been a downturn in early stage venture funding, some analysts are predicting around $36 billion will be invested into climate solutions in 2023.
That number is roughly half of the $70 billion which poured into the sector in 2022, it's not the total collapse that investors witnessed in the dark days of the industry after funding ground to a halt in the middle part of the last decade.
That's the word from HolonIQ and recent news seems to support the industry analyst's prediction.
Venture funds operating in the climate tech space continue to find traction with the limited partner (LP) investors coming from wealthy individuals, pension plans, and university endowments despite being some of the worst times to raise capital in recent memory.
Just look at the group of Japanese banking and industrial companies that announced a $1 billion fund for climate technologies called the Marunouchi Climate Tech Growth Fund.
Big corporates aren't the only ones who are doubling down on their commitments to climate.
Late last month, Congruent Ventures, an investment firm focused on early stage climate tech companies, announced that it had closed its latest fund with $300 million in commitments from pension plans, university endowments and family offices.
“The fast-paced innovation and change now powered by funding from the 2022 Inflation Reduction Act must be met with sufficient venture funding,” said Abe Yokell, co-founder and managing partner, Congruent Ventures, in a statement. “We saw a strategic need to help our existing portfolio companies and are delighted by the support of our Limited Partners despite the broader pullback in venture investing.”
Yokell's partner, Josh Posamentier thinks what's true for Congruent is actually playing out across the broader market as well.
"Public sentiment doesn’t really match the reality. It’s a little bit of a pullback from the tourists and the people who have been investing on momentum and really looking back on fundamentals," Posamentier said. "There’s still this ridiculous interest in climate… it feels to me like a reversion to the mean… a reversion to the mean of two years ago.. It doesn’t feel like 2008 or 2010. It’s all good."
In fact, a shakeup could ultimately good for companies once public markets open back up.
Many companies that raised significant cash in 2021 and 2022 were overvalued and needed to readjust to a new market reality.
"Prices were pretty out of whack for a while and this is reality catching up," said one climate investor.
Now may actually be a better time for limited partners to commit capital to investors, given that prices are falling and demand for new renewable technologies isn't going away.
"Much of the perception of an LP nuclear winter isn't real," one venture capital investor said. "They’re not looking for anything in enterprise SAAS or consumer anymore. But they’re still actively looking for climate stuff."