• Climate technology investments are picking up in the US after a lull.
• Investors are more interested in early-stage startups.
• By 2030, over half of the US's electricity might come from clean energy sources.

A new report released by Silicon Valley Bank (SVB) notes that the US climate sector is reviving with vigour, with six consecutive months of investment growth.

The study shows that venture capital (VC) funds are increasingly flowing into businesses focused on clean energy, carbon technologies, and manufacturing.

Surprisingly, climate tech funds are performing much better than the broader VC market, delivering a 9% higher return rate for funds launched between 2020 and 2024.

Notwithstanding the progress, there are hurdles along the way that need to be addressed. More than half of US climate tech startups must raise capital by 2026, says the report. A large number of businesses are cutting expenses to manage the situation.

However, according to the report, it is positive to see investment growing over the past year, with new climate startups being launched, attracting investors, and raising capital — showing a promising pipeline for future growth.

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Early-stage companies have been more resilient than their later-stage counterparts over the last three years, suggesting that, although the overall funding environment is tight, innovative startups are still attracting investors' interest and support.

In the meantime, electrification in the US is accelerating at a much faster pace. By the end of this decade, more than half of the US's electricity is likely to come from renewable energy sources. This will open the door to many technologies that support the energy transition, including energy storage, demand response systems, and improved power transmission.

The report also highlights the monetary side, noting that profitability is increasing, although growth has plummeted for some. Climate tech hardware companies saw their growth rate drop from 58% in 2021 to 19% in 2023. On the flip side, software companies are performing well.

Policies like the Inflation Reduction Act and the CHIPS and Science Act have augmented investment in clean power in 2024. These regulations have made renewable energy more financially appealing. A total of 382 deals have been closed so far, reaching over $7 billion—15% more than last year and three times the pre-COVID levels.

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

ALSO READ: Climate Technology: The Path to Net Zero and Sustainability

To get a detailed view of the report, read 'The Future of Climate Tech 2025' here.

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Source: SVB