Startups focused on the built environment — which includes sustainable building materials and low-carbon heating and cooling, for example — were among the few bright spots. The sector saw a 7% increase in funding compared to the first half of 2022. Seed funding for climate tech overall also rose 23% compared to this time last year.
A large part of that rise can be attributed to deals with startups like Kensa Group, HeatTransformers and Gradient working in the heat pump space, which Zou said ballooned from $6 million to almost $200 million. Higher gas prices in Europe as well as new gas bans and Inflation Reduction Act tax credits in the US are driving a ramp-up in heat pump adoption globally.
Climate tech companies raised $12.6 billion in the first quarter of 2023, according to BloombergNEF, the lowest quarterly funding tracked by BNEF since the second quarter of 2021. That figure includes private equity deals as well as state-owned enterprise funding.
BNEF data shows that, outside of high investments in mainland China, other markets like Europe and the US saw a more than 50% drop in first quarter funding compared with averages over the last four quarters.
Zou said “time will tell” whether this is a true slowdown or just a needed correction to an overheated market. Historically, the sector sees most funding deals in the latter half of the year, so if the slowdown continues through then, Zou said, “then maybe that’s a different story.”
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