Startups Magazine explores the State of Built World Climate Tech report
The climate crisis remains a pressing global challenge, with 2023 serving as a stark reminder of the urgent need for environmental action.
Amidst the growing concerns, the built world — the largest contributor to global carbon emissions — stands at a crucial juncture, presenting significant opportunities for startups and entrepreneurs in the climate technology sector.
The rise of climate tech in the venture capital landscape
In 2023, climate themes have significantly risen, representing 70% of built world venture capital (VC) dollars, a substantial increase from less than a fifth just five years ago. This shift underscores the intensifying need to decarbonise and the growing investor interest in solutions addressing this imperative. Despite this surge, the sector remains underinvested, with only 3% of total VC dollars allocated to technologies critical for retrofitting, green construction, and climate risk management.
Startups at the forefront of built world innovation
Startups specialising in retrofit installations have emerged as prominent players, attracting the highest amount of dollars and witnessing the fastest early-stage deal growth. This trend is driven by growing government incentives, regulations, and corporate net zero targets. In addition, areas like earth observation, grid storage, infrastructure monitoring, and renewable energy procurement have gained rapid commercial traction, demonstrating the vibrant landscape for startups in this domain.
A new wave of startups is emerging, focusing on energy efficiency upgrades, energy generation and storage, and energy management. These startups are crucial in addressing the challenges posed by energy price volatility and the transition to a low carbon society.
Europe takes the lead in climate tech
Europe has emerged as a leader in built world climate tech, with early-stage investments matching those in North America for the first time. Major European markets like Germany and the UK have experienced significant growth, positioning European cities as top innovation centres globally.
The resilience of built world climate tech
Despite a global downturn in venture capital investment, the built world climate tech sector has shown remarkable resilience. While the broader market saw a -36% drop in funding, the built world climate tech experienced only a -17% reduction year on year, with long-term tech investment growing much faster in the built world (+34% dollar 10-year CAGR) than in the wider venture ecosystem (3% dollar 10-year CAGR).
The European energy crisis and global government incentives have catalysed investments in energy themes, especially in building efficiency, electrification, and grid solutions. However, climate risk management solutions saw a significant decline, indicating a shift in investor focus within the climate tech sphere.
Sustained energy price volatility has prompted European homeowners and businesses to actively seek solutions for energy consumption management. The increasing component of renewables in the grid mix, coupled with the intermittency of solar and wind energy, highlights the importance of long-term flexibility resources such as long-duration storage and an electrified building stock.
Predictions for 2024: focus on retrofit solutions and grid storage
Looking ahead to 2024, the focus is predicted to be on new retrofit solutions and grid storage software. Retrofit installers are expected to continue seeing the highest capital and fastest early-stage deal growth, reflecting the vital role startups will play in transforming the built world for a sustainable future.
The State of Built World Climate Tech Report 2023, by A/O, highlights a dynamic and evolving sector where startups and entrepreneurs play a crucial role. The convergence of investment trends, technological advancements, and a heightened focus on sustainability positions startups at the forefront of this transformative journey. As the world grapples with the climate crisis, the contributions and innovations from these emerging companies will be pivotal in shaping a more resilient, efficient, and sustainable built world.