US climate tech investment ‘healthy’ despite headwinds

With US$20 billion of venture capital invested in climate tech in the US last year, the sector is considered to be on a “healthy” growth path despite less than supportive policy from the Trump administration.

This is according to Silicon Valley Bank’s latest Future of Climate Tech report, which also found that climate tech funds are outperforming overall venture capital (VC), reaching a 9% higher internal rate of return (IRR) in the 2020-2024 fund vintage.

The climate tech ecosystem saw fewer VC deals last year than in 2023, but the amount invested overall increased slightly. Silicon Valley Bank (SVB) notes that sectors like intermittent renewables struggled to gain investor attention due to stronger competition. On the other hand, startups in carbon technology, dispatchable renewables and clean fuels saw great interest from investors.

In addition, the pre-money Series B valuation of climate tech startups seeking funding is on the rise: from US$35 million in 2023 to US$41 million in 2024.

“With continued investor interest, the Climate tech sector is showing reasons for optimism this year,” said Dan Baldi, National Head of SVB’s Climate Technology and Sustainability practice. “Clean fuels, dispatchable renewables and carbon tech are taking the spotlight, sparked by a shift toward electrification and ongoing goals to reduce emissions.”

Trump-era policies and tariffs top climate startup concerns

But despite these positive signals, it’s clear that founders of climate tech startups are concerned about the path Trump-era policymaking is on. 

SVB conducted a poll of VC-backed companies as part of its report, and found that government regulation was the top concern among climate tech CFOs, followed by tariffs and supply chains. These responses are different from the overall ecosystem (which named AI adoption and inflation as top concerns) – and suggest climate tech companies are particularly vulnerable to policy changes.

Climate tech VC deals have historically happened in blue (Democratic) and red (Republican) states alike, with fossil fuel state Texas as the leader in renewable energy. The ecosystem received a boost from the Biden-era Inflation Reduction Act (IRA), but SVB warns that two-thirds of IRA funding is now “in limbo”, as money was pledged to announced projects but has not yet been spent. “Across the US, there is over US$500B in outstanding investments, with more than 72% of that in red states,” the report adds.

Encouraging outlook for US climate tech

The coming year might prove more difficult for fundraising, with 57% of US VC-backed climate tech companies needing to raise funding in the next twelve months – in a now established anti-ESG policy landscape.

But SVB sees encouraging signs of growth, with trailing 12-month venture investment increasing, company formation still strong, and early-stage activity still vibrant. Overall, early-stage investment has been more resilient than later-stage activity over the last three years, signalling a healthy pipeline of companies to fuel the industry’s future growth.