🔮 The 10 sectors that top ClimateTech VC’s are excited by in 2023

2022 saw an upsurge in climate change impact, investment and innovation.

More than 25% of all vc funding going to ClimateTech last year alone.

With an increased focus on technologies that have the most potential to cut emissions.

So the benchmark for the next 12 months has been set.

And long-term emissions and net zero targets are front of mind.

So, which technologies have caught the attention of leading ClimateTech investors?

And which startups could move the needle?

Ready? Let’s dive in:

#1 A bundle of (clean) energy ⚡️

Clean and renewable energy faced unprecedented demand in 2022.

Following market turmoil, largely due to Russia’s invasion of Ukraine, countries around the world prioritised the production of sustainable, affordable energy. And demand shows no sign of slowing down.

Sandra Malmberg @ EQT Ventures reveals that one of their key areas is on renewable energy procurement and energy demand flexibility driven by energy price fluctuation, sustainability pledges and electrification of industries.

Jessica Burley @ Planet A adds that she is “betting that startups in energy independence will be more able to buck the upcoming economic downturn.“

“We are seeing an all-time high pipeline in energy. The global political climate has put energy on the top of the agenda and we see the space attracting more and more world class founders who recognise the huge market opportunity,“ observes Tove Larsson @ Norrsken VC

And Myke Naef @ Übermorgen Ventures notes: “The European energy crisis will continue to drive demand for resource and energy efficiency, making it a priority for investors.“

But as Dannielle Strachman @ 1517 Fund points out: “Solar panels, installation, home solar etc are a commodity space now. Panels are cheap. Installation keeps getting cheaper. And the hardware keeps getting more reliable. Unless you're building robots or tools for improving site productivity by 10x, it's really unlikely that you'll be able to create the next great startup here. Yet, this changes if you're building something that leapfrogs the current generation, or opens new applications.“

Startups to watch: Celtic Renewables, Proton Technologies, Siqens GmbH, Lun.energy

#2 Catalysing carbon capture 💨

Capture it. Store it. Use it. Entrepreneurs are harnessing technologies to sequester carbon, crucial to achieving carbon neutrality by 2030.

And so we can expect to see many more entrepreneurs entering the market, predicts Tomás Álvarez Belón @ Collaborative Fund: “We'll see a 10x increase in carbon removal startups, leveraging solutions from soils to buildings to algae.“

Similarly, Sandra Malmberg @ EQT Ventures foresees climate fintech funding on the rise this year “from managing and mitigating climate risk, to mobilising capital to catalyse decarbonisation.“

Marieke Gehres @ Earlybird VC adds that “carbon credits are definitely not the end game, we will definitely see more innovation in this space in the coming year, especially on the supply side, i.e. carbon project developers since they are still facing several inefficiencies in financing their projects or in the measurement, reporting and verification process.“

Alison Imbert @ Partech Partners concludes: “We really don’t know where carbon removal will end up today, yet the next decade will be crucial to help the best solutions to emerge in order to reach net zero emission. And if historically, VC had shied away from hardtech, I think we will see more capital flowing to support those carbon removal projects, maybe with some innovative financing mechanism as the horizon for development is quite long.”

Startups to watch: RepAir, Novocarbo, CarbonSpace, PYREG, Carbominer, Barton Blakeley Technologies, Paebbl, SecondCircle, 44.01, Dioxycle

#3 Rewards and reforms are on the rise 📈

As pressure mounts on governments and authorities to increase (or at least introduce) incentives; subsidies and support will give rise to a wave of innovation and adoption.

Beatrix von Schroeder @ AENU says that the US IRA credits will motivate hard-tech climate startups to start operations in the US early on. “Everything from green hydrogen, to alternative fuels, to carbon capture or batteries and heat pumps, benefit from this significant cost reduction.“

She notes that “the EU reforms on plastic and packaging support reuse and recycling solutions.“ Time will tell how this affects startups in the reuse, recycling and biodegradability space.

And Erika Hombert @ HackCapital points out that with the EU requiring both Operational emissions and Product emissions reporting, there’s a need for tools and services that automate this process, as well as products that replace some products with intrinsically difficult supply chains, e.g chocolate and palm oil.

Startups to watch: Source Green Packaging, NotPla, Bio-Lutions, Traceless, NoPalm Ingredients, WNWN Food Labs, Planet A Foods

#4 Construction x climate change 🛠

Eliminating waste and pollution, circulating products and materials and regenerating nature are all part of moving to a circular economy. And we need sustainable biomaterials to build smart cities of the future, today.

“We are excited about the potential for the bioeconomy to provide exciting biomaterials to build our cities more sustainably, says Max Blanshard @ 2150. “The team is on the lookout for great companies leveraging these technologies in construction.“

Sandra Malmberg @ EQT Ventures sees the decarbonisation of the chemical industry as a key focus for 2023, to touch “90%+ percent of all manufactured goods and emitting more than two gigatons of greenhouse gases per year globally“.

“We anticipate an increase in investments in the construction and industrial sectors, as well as a greater focus on circular models across industries. We are hopeful that these circular models will be successful in promoting both economic and environmental sustainability,“ adds Myke Naef @ Übermorgen Ventures

Startups to watch: Ecovative, Paebble, Biomason, Brimstone, Carbon Re

#5 Future of our agrifood system 🌾

Our food systems are responsible for a third of human-caused GHG emissions. And yes, alternative proteins can significantly reduce our carbon footprint, but other areas will see increasing attention and investment this year:

“The foodtech environmental discussion will move beyond greenhouse gas emissions to an increased spotlight on biodiversity, water scarcity and other planetary boundaries“ says Erik Byrenius @ Trellis Road.

Erik adds that there will be an increased spotlight on “staple foods (e.g. corn, rice, wheat, potatoes, cassava, legumes) and how to improve them in terms of climate resilience, nutritional value, environmental footprint etc.“

And agritech will attract massive funding for non-GMO crops to high-tech technologies (smart sensor, satellites) to efficiently manage crops and harvest.

“We see more and more investors focusing specifically in FoodTech. This is great because we need to address two big challenges - environmental footprint as food production is still one of the top contributors to CO2 emissions, but also the need to address the long term risk of food crisis,“ adds Tove Larsson @ Norrsken VC 

And “with ever-rising energy costs, more thought will be put into co-locating alongside renewable energy facilities, or sourcing more clean energy sources for every type of food production system - from vertical farming to cultivated meat, and gas fermentation“ explains impact investor, Maya Benami.

Startups to watch: Agriconomie, Robigo, Gardin

#6 Scaling sustainable protein 🧫

2023 will give rise to the next generation of alternative proteins. New and hybrid technologies will evolve alongside an expected easing of regulatory approvals for novel food and ingredients, following the FDA’s greenlight for Upside Foods’ cultivated meat.

Alison Imbert @ Partech Partners points out that the Netherlands, Switzerland and Singapore are just a few of the countries proactively unlocking subsidiaries to support those companies to build the future of food.

“A new generation of ingredients powered by novel technologies like precision fermentation or synthetic biology will help tackle the parity challenge of health, taste and affordability and drive consumer adoption towards alternative proteins,“ adds Beatrix von Schroeder @ AENU

Startups to watch: Arkeon, Mush Foods, Cultivated Biosciences, Hyfe Foods, Project Eaden, Matrix Food Tech, Mooji Meats

#7 Overcoming the bottlenecks 🔬

If 2023 is going to be a year of scaleup and growth for the most promising technologies, we’ll need to see a rise in pick-and-shovel startups. They can help founders overcome many hurdles associated with scaleup.

As Max Blanshard @ 2150 explains “We have been looking at hardware plays (physically building more capacity) and software plays (using data / AI to use capacity more efficiently). We believe in backing picks-and-shovel plays in the bioeconomy space, especially in addressing bioreactor capacity constraints.“

Startups to watch: Synonym, The Cultivated B, BioRaptor, Ark Biotech, Liberation Labs, Extracellular

#8 More specialist funds = more diversity 💵

Q4 in 2022 saw companies such as Propeller launch a $100M fund to back startups in ocean carbon removal, algae packaging, offshore wind, desalination and shipping decarbonisation.

And Convective Capital raised $35M to support early-stage founders creating tech to detect and contain wildfires.

We will see more emerge this year: “Climate VCs will continue to specialise, with new sector-specific funds launching“ notes Tomás Álvarez Belón @ Collaborative Fund

#9 Closing the loop on the circular economy ♻️

Without battery recycling and greener rare material extraction, we won’t have enough resources to produce electric vehicles and match EU constraints.

And eliminating (or significantly reducing) waste by reusing, recycling, and recovering materials, in particular plastics will be key to a more circular, greener economy.

“All our supply chains have to reinvent and it’s a massive challenge not only to limit resource consumption but as well to limit our dependency on non-EU countries,” shares Alison Imbert @ Partech Partners

#10 Being a startup founder won’t get any easier 🚀

Speak to any ClimateTech founder and they’ll likely tell you 2022 was a rollercoaster ride of unexpected twists and turns.

It is not for the faint hearted.

But Erik Byrenius @ Trellis Road points out the upside:

“Limited access to funding gives outstanding early-stage entrepreneurs a chance to shine and do magic, growing stronger through rough times.“

And scalable, transformative solutions will receive funding.

“Top ClimateTech founders will continue to raise rounds at above-market valuations“ adds Tomás Álvarez Belón @ Collaborative Fund

With funding ready to be deployed for these top innovators: “Despite potential economic challenges, Climate Tech investments are expected to remain strong, as many funds have been able to secure funding in recent years,“ shares Myke Naef @ Übermorgen Ventures

One thing is certain.

In 2023, more founders and investors will pour into the Climate sector, fueling the way to a new generation of impact driven businesses

Along the way, we’ll be reporting about and investing in to some of the top companies we’re seeing.

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❓Which areas of ClimateTech are you excited about this year? And are there any other startups to watch in 2023?

We’d love to hear your thoughts - get in touch: team (at) foodhack (dot) global