What’s the Deal With Our Climate Tech Deal Flow?

The year was 1970. The US Congress passed the Clean Air and the Clean Water Acts and hopes were high around the world that protecting our environment was being taken seriously by our politicians. Nearly 50 years on, progress has been slow in the US and beyond… to say the least.

The tide is finally turning. 

In 2021 alone, the number of Climate Tech startup pitches we received at Speedinvest jumped by 34% year on year - more than any other sector! 

Which got us wondering… What’s the deal with our Climate Tech deal flow and how does it compare to Europe as a whole?

• What areas are founders most interested in building Climate Tech startups? 
• Are those startups the ones getting the most funding?
• What opportunities are available for all of us as Climate Tech continues to mature? 

We dive into the data 🤓

Climate Tech investment is on the rise, but are the number of Climate Tech startups increasing too?

According to the PwC State of Climate Tech 2021 report, $222B was invested in Climate Tech globally from 2013 through H1 2021. Nearly 40% of those investment dollars come from H2 2020 and H1 2021 alone!

And a recent Dealroom report shows a steady increase in the number of Climate Tech rounds across most of Europe - from pre-Seed and beyond.

On the surface, you might assume that automatically means there are a lot more Climate Tech startups to invest in. But is demand from investors translating into more companies being founded in the sector?

We looked at our deal flow data to find out.

As mentioned above, in 2021 alone, our Climate Tech deal flow (pitches received from sustainability-focused startups) grew by approximately 34% over 2020. This is just a snapshot of a trend we’ve been seeing. For the past several years, more and more of the pitches we’ve received have had some Climate Tech component. Now, of the 10,000+ pitches we receive in a year, about 6% are sustainability-focused. 

Where are these pitches coming from?

When we break down our deal flow, Speedinvest is seeing the greatest increase in Climate Tech pitches from four key regions across Europe - DACH, the UK & Ireland, France & BeNeLux and the Nordics. This finding comes as no surprise since 1) these regions host cities that consistently make lists of the top startup hubs in Europe and 2) we’re active in all of them. 

FYI - We know there’s a noticeably dramatic bump in Nordic deal flow in 2020. When we dove into the sources for those leads, we found that they mostly came from the Slush conference in Helsinki. Even if we ignore those Slush startup pitches, the overall trend line for the region still shows consistent growth.

We know your next question… 

What kind of Climate Tech companies are being founded and funded in Europe?

To find out, we gathered data on founded and funded Climate Tech startups from our friends at Eutopia and categorized each according to the 8 pillars of the EU Green Deal.

While the 8 pillars aren't perfect - it’s impossible to fit every startup neatly into one, specific category - they are useful in helping to get a handle on the bigger picture.

To get started, we zeroed in on Eutopia’s list of sustainability-focused startups founded and funded since 2017 - the year we began to see a sharp increase in Climate Tech pitches. We found the following when categorizing the startups into EU Green Deal sub-verticals.

• Clean & Circular Economy - 25.1%
• Energy - 17.8%
• Food - 17.5%
• Smart Mobility - 16.9%
• Zero Pollution - 13% 
• Sustainable Building - 7%
• Biodiversity - 2%
• Sustainable Finance - 1%

The above breakdown from Eutopia and the breakdown of our deal flow (below) during the same time period is very similar. This is despite the fact that Eutopia only looks at founded and funded startups, while our deal flow is still startups still seeking funding. 

Taken together, the two paint a clear picture of where European entrepreneurs are spending their time and energy in the Climate Tech ecosystem. 

FYI - The obvious outlier in our deal flow is Sustainable Finance. We receive far more pitches in this sector, but let’s not forget that our Fintech portfolio includes 3 unicorns and we’re recognized as one of the most active and successful Fintech investors in Europe.

Counting startups and counting funding are two different things

While the data above shows a large number of startups across a number of Climate Tech pillars, overall investment is a different story. 

Let’s take Smart Mobility as an example. While Clean & Circular Economy, Energy and Food are attracting more founder interest (i.e. more startups), these pillars pale in comparison when it comes to funding.

43 of the 78 Climate Tech unicorns (globally) in 2021 are Smart Mobility startups. And according to PwC, Smart Mobility is dominating Climate Tech investments in Europe - representing more than two thirds of all investment in this space during the H2 2020 - H1 2021 time period and a growth rate of nearly 500%. 

This has primarily been due to multiple big-ticket micromobility funding rounds, into a select few companies like 9x unicorn, Northvolt, and our own portfolio company, TIER Mobility. TIER raised a $200 million Series D in October 2021 for a grand total of $647 million in funding and a 2B+ Euro valuation.

Why? Small electric vehicle fleets, ride/vehicle sharing platforms, and EV tech are easy to understand, relatively low risk and have proven business models that are starting to yield exits and returns. If investors can make a “quick” profit, then that’s where you’ll find them.

But Mathias Ockenfels, General Partner of our Marketplaces & Consumer team, says we’re still only scratching the surface when it comes to the positive impact Smart Mobility can have on the environment, and micromobility is an area where he expects more founder and investor activity in the years to come.

“Developing and adopting new forms of individual transportation will be a key if we are to successfully transition to a climate neutral economy. Micromobility offerings have seen instant acceptance by consumers around the globe and can help us as society to become less dependent on cars and, in the process, reclaim our cities.”

Smart Mobility is just the beginning… 

While Smart Mobility is currently “the hot pillar” in Climate Tech when it comes to funding, things can (and most likely will) change. 

This is especially true in sectors like Clean & Circular, Energy and Food that are already attracting larger amounts of founder focus, according to the data. As businesses in these areas begin to mature and prove long-term traction with consumers, private funding will surely follow. 

This process can be accelerated when governments take notice and dedicate support (from tax breaks to ensuring Europe can attract and keep the best talent from around the world), to encourage innovation and investment in sectors that don’t yet have as many proven business models.

For example, in 2019, the Nordic Council of Ministers established the Programme for Nordic Co-operation on the Environment and Climate 2019–2024.

“Over the last years and decades, the Nordic countries have not only talked but acted,” Andy Schwarzenbrunner, Partner on our Climate Tech and Industrial Tech team, says. “Through coordinated policy measures and capital, they’ve created an ecosystem that is world-leading in many aspects of Climate Tech and, as a result, has been able to produce global leaders in the sector like Vestas, Tomra and Northvolt. Other countries and regions could learn a lot about where the future is heading by looking up north.”

There’s still so much more we can do and invest in

While we wait for the above sectors and new technologies to arise and reach their fullest potential, there are many areas that are primed for (and in desperate need of) funding today.

Remember that Clean Air Act and Clean Water Act from 1970? Yeah, our industries are still dirty. 

Marie-Helene Ametsreiter, General Partner of our Climate Tech and Industrial Tech team points out that, “the biggest carbon-contributors of this world are traditional, energy intensive industrial production, as well as global logistics. Since these sectors account for over 30% of carbon emissions, the industrial world must take significant action. 

Technology will play a vital role in helping us to understand where and how impact is created along the whole value chain, for example ESG measuring and reporting solutions. We also need to improve recycling technologies and extend life-cycles.”

There are already startups tackling the immense difficulties surrounding ESG measuring and reporting. One example is Planetly, a startup from our Marketplaces & Consumer portfolio that recently exited to OneTrust. The company is helping businesses (including Speedinvest!) calculate and reduce their carbon footprints as much as possible, while offsetting whatever remains.

To improve the effectiveness of these offsets, they need to be made more verifiable. Our SaaS & Infra portfolio company, Sylvera, that recently closed their $32M Series A, is making that possible by combining machine learning with diverse sources of geospatial data, such as satellite imagery and lidar mapping.

“At the moment, we are seeing huge progress in measuring carbon impact and facilitating efficient offsetting. As time goes on and we see more startups in the field like Sylvera, we predict that the data produced by these efforts will become more accurate and real time,” says Frederik Hagenauer of our SaaS & Infra team.

For many Climate Tech companies, positive environmental impact is at the core of their business models. Other companies may not set out to save the world, but still have a positive impact by using tech to reimagine and clean up their sectors. For example, did you know that cutting-edge AI and machine learning require enormous amounts of raw power?

Deep Tech Partner, Rick Hao, says, “In order to build very powerful AI models today, you normally have to train the models with billions of parameters and that consumes lots of energy. Our portfolio company, TurinTech, is making AI models that are more efficient and consume less electricity.”

There’s no time to wait for “safe bets” when it comes to our future

“Investing in Climate Tech is a must for us as a fund and the industry as a whole. Apart from the moral obligation we all share, there is obvious growth potential in the sector. The talent and entrepreneurial energy of an entire generation is now focused on building the technologies that will ensure our planet’s survival. Supporting these innovators is where we want and need to be.”

Our Co-Founder and Managing Partner, Oliver Holle, most likely wouldn’t have said that five or ten years ago. 

But startups are leading us into a decarbonized future. Their success requires our support. 

More investment, more support, more unicorns, more exits - success leads to success. We don’t have to pretend that profits don’t matter. We can make a profit and secure the future of our planet at the same time. The opportunity to do both is at our fingertips. 

We’re ready to do our part. 

If you are a founder with an innovative Climate Tech business, we want to hear from you! Find out more about us, our portfolio, and submit your pitch to our investors today.  

Speedinvest is a leading pan-European, early-stage venture capital firm. Our portfolio includes Wefox, Bitpanda, TIER Mobility, GoStudent, Wayflyer, CoachHub, Schüttflix, TourRadar, Adverity, and Twaice. Sign up for our newsletters to get our exclusive content delivered straight to your inbox.