The rise of Climate Tech – Europe’s fastest-growing startup segment

Climate tech companies are transforming the world’s largest markets with innovative sustainable alternatives. As political capital becomes more focused on policy change surrounding global warming, and consumers demanding climate responsibility from brands, sustainable products are seeing higher growth rates than their non-sustainable alternatives. Meeting the challenges brought on by climate change with tech innovation, climate tech companies are creating ideal conditions for climate entrepreneurship.

In our report, made together in partnership with Talis Capital, we explore what brought startup investment in the climate space at an all-time high, and how European companies working towards a net-zero future gained more traction than ever.

"What we find fascinating about climate tech companies is that – as opposed to the great venture stories of the last decade like Uber and Airbnb – they aren't creating new markets. Instead, they're approaching some of the largest existing markets and reinventing them with sustainable alternatives."

Matus Maar, Co-Founder & Managing Partner, Talis Capital

Report - The rise of European climate tech

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What is climate tech?

Climate tech companies are startups working on decarbonizing the global economy and creating new profitable business models while also mitigating climate impacts. Some startups that fall under mitigation production include companies developing renewables, alternative protein, clean industry, and engineered-carbon capture and natural based carbon removal. While companies focusing on adaptation tackle crop protection, water recycling, climate insurance, or nature conservation.

Climate tech investment

Climate tech has become the fastest growing vertical in Europe, seeing 10x growth in four years. Compared to 2017, the sector saw $1.1B invested, versus $11B in 2021.

Climate tech was the second largest vertical for investment during this period, second only to fintech, which saw 5.6x in growth. Within the last year, 13% of all European venture funding went to climate tech startups, a jump from 5.9% in 2017. On top of that, startups in the climate sector raised a record $11B in 2021, which is a 2.2x increase compared to 2020. As of the end of 2021, the European climate tech ecosystem is estimated to be worth $104B, more than doubling in value since 2020.

Domestic vs. international investment

The majority of funding for climate tech comes from European investors, showing a sizeable opportunity for international investment. Venture capital funds are providing more capital than any other type of investor, contributing 41% of all funding, followed by corporate investment (29%) and private equity (18%).

2021 also saw a significant rise in capital raised by dedicated European climate tech funds, who raised $2.6B in 2021: more than twice what dedicated funds had raised in 2020, demonstrating an increased sense of urgency and responsibility from the venture capital community.

Climate unicorns on the rise

At the end of 2021, there were 16 European climate tech unicorns, 11 of which were created in 2021 alone including: Infarm, Voi, Wallbox, Enpal and Freyr. Climate tech’s evolving ecosystem is evident at all stages as the sector is maturing, with early-stage investment increasing 2.5x since 2017. Series A rounds increased the most, with $201M invested in total at this stage in 2017, vs. $390M in 2021.

Carbon removal and deep tech

In Europe, carbon removal – defined as companies that are engineering the removal of CO2 from the atmosphere and waste streams, like direct air capture (DAC) technology – is a promising yet nascent sector. Our analysis noted 30 companies working in this space in Europe in 2021, a year that also saw a significant rise in funding: 2021 saw $29.5M invested in carbon removal startups, compared to $2.4M in 2017.

While climate deep tech companies require more scale-up capital than non-deep tech companies in this space, our data suggests that climate tech startups are more hardware based (61%) compared to the European benchmark (27%). As a result, they likely require more capital to develop their Minimum Viable Product (MVP).

Climate employment and talent

Climate tech startups are creating meaningful employment opportunities across Europe. In 2021, there were over 50,000 people employed by the sector, the largest employers being Arrival and Northvolt.

Learn more about how climate tech startups can be the future of VC investment by checking out our full report:

Report - The rise of European climate tech

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