The landscape of climate tech investment has shifted gears from an era of abundant funding for innovation to a more grounded focus on practical, large-scale projects. This shift is evident in the recent decline in venture and growth investments, which are vital for paving the way for widespread deployment. Despite the challenges such as higher interest rates and a cautious investment climate in 2023, the climate tech sector is poised for a promising 2024. Factors such as anticipated reductions in interest rates, emerging supportive policies, and increased global competition are expected to drive growth. In 2023, climate tech investments totaled $32 billion, a 30% decrease from 2022, reflecting broader market trends. Notable trends include a decrease in growth investments and Series C deals, along with shifts in sectoral investment patterns, with transportation and energy maintaining dominance. Nonetheless, since 2020, climate tech companies have collectively raised over $142 billion in venture funding across more than 4,000 deals, indicating underlying resilience and the potential for further growth in the sector.
As a VC investor, we embrace the challenges inherent in being a new player in the market. Despite facing the hurdles typical of emerging managers, we remain steadfast in our commitment. Venture Climate investing is too important, and we recognize the scarcity of players adopting a comprehensive “whole systems" approach in their strategies; a commitment we wholeheartedly champion. This approach extends beyond mere investments; it permeates our ethos, influencing both our choice of partners and the broader ecosystem impacts we seek to see through our funds. While our primary focus is on identifying the most impactful and scalable climate tech companies, we equally prioritize cultivating a diverse pool of founders and innovators who bring complementary wisdom to the community we build around our initiatives. This has been the approach of SecondMuse for over a decade through its innovation programs, and as we add investments, we are convinced this is a powerful approach to building an economy that is both good for our planet and socially just.
Why do we place such emphasis on start-ups, founder diversity and broader ecosystem? Simply put:
We love innovation and the passion of entrepreneurial founders!
Startups are often founded by visionary entrepreneurs who embody a profound sense of purpose and dedication to effecting positive impact change in the world. Through our programs, we have supported over 1000 entrepreneurs in the last 3 years, witnessing first hand their perseverance, creativity, and resilience as we help them refine their ideas and forge connections with key market players to scale. Our goal is to invest in transformational technologies and to take them to scale in ways that positively impact all people and the planet. In doing so, we intentionally work to identify entrepreneurs from all backgrounds and experiences. Inclusion is central to our programs and our investment work. We believe this is not only a moral imperative but that diversity leads to better collective thinking and makes individuals and companies stronger and smarter. Diversity is an essential requirement to understand and then to address the many dimensions of complex issues we face, such as working to build a true climate economy.
We are convinced that by investing in startups we are investing in economies of the future.
As they grow their companies, entrepreneurs of today evolve into the bedrock of tomorrow’s economies. Investing at this stage is not only a matter of economic opportunity, which can offer very high financial returns; it also affords us a unique chance to influence the broader culture and social fabric of these emerging economies. This is because we apply the art and science of collaboration we have been polishing over the past 14 years, intentionally engaging all actors in an entrepreneurial ecosystem - mentors, companies, founders, investors of different kinds, policymakers, NGOs, community at large - in everything we do. Our goal is to increase relational wealth, which we believe is pivotal to the development of climate solutions.
Moreover, we recognize the role of early-stage support in guiding founders to consider the broader implications of their ventures. By instilling a conscientious mindset from the outset, we empower entrepreneurs to lay the groundwork for solid social, environmental, and governance foundations. For instance, a climate tech company with an incredibly disruptive technology to address carbon emissions benefits from a program that helps them scale their product and also sets the foundation to become a good corporate citizen in the future. This relates to both its internal policies and procedures and its external societal impacts.
We also believe that investing in the broader ecosystem helps create more value.
Startups are not born and do not grow in a vacuum. Their success is influenced by various factors, including the entrepreneurs’ leadership, the quality and strength of the innovation, and the market fit of their products and services among others. While all these factors are critical, it’s important to recognize that their success, and therefore the success of our investments, is intrinsically linked to the health and vibrancy of the ecosystem in which they operate.
We therefore feel a responsibility to continuously nourish that ecosystem, invest in it, and redistribute some of the gains we make as a company to ensure its sustained health over time. Our investment models are designed with this principle in mind, integrating incentives into our funds to advance this imperative. A healthier ecosystem not only benefits individual companies, but also sets the stage for generations of startups to launch and flourish. It’s a mutual beneficial scenario for founders, investors, intermediaries, and broader communities alike.
Combining all of the above, we firmly believe that we can implement venture capital that is less extractive and in ways that not only create value to investors in more sustainable ways but also nourish entire ecosystems and create more justice and community impact at large. If you are also aligned with these principles, reach out to SecondMuse Capital as we would love to collaborate. Collaboration is at the heart of our company.
To learn more about exceptional founders we supported in 2023 visit: For ClimateTech, The Incubation Network, Pulse Inc.