Steel For Fuel N° 023 of 56 2 Oct 2024
The end of the beginning for “climate tech”
by Andy Lubershane, Partner and Head of Research, Energy Impact Partners
In this note
The question
Is the funding downturn in climate tech the beginning of the end for the sector?
The answer
No. Lubershane reads it as the end of the beginning: an inflection point at which the most attractive opportunities change shape rather than disappear. The post diagnoses the turn and deliberately does not prescribe, leaving how mindsets should adjust to the two posts that follow it in the series.
03The argument
Climate tech grew up almost entirely inside the era of near-zero interest rates, which made big, risky bets attractive across all of technology, so the end of that era hit it along with everything else. But he argues the venture market’s problem runs deeper than rates. He quotes the economist Noah Smith saying the internet is now a mature industry, and adds in his own voice that its territory is mapped and its playbooks run, which is why capital spent the years after 2015 hunting for a next big thing and found first crypto and then generative artificial intelligence. Climate tech has no equivalent rescue available.
The damage also falls unevenly, and that is the part he treats as serious: seed money is still flowing while later rounds have collapsed, which matters because each successive stage needs several times more capital than the last, so a sector that funds only beginnings is not funding anything. His own firm lost a fast-growing portfolio company to exactly that gap. He grants that all of this could be no more than a hangover from an anomalous macroeconomic period, then says he senses something larger. That is where the Churchill line he opens with does its work: not the beginning of the end that longtime doubters are whispering about, but the end of the beginning, meaning the contours of the best opportunities have fundamentally changed and investors, founders and operators all need to adjust.
04What you need to know first
- Zero interest rate policy
- The decade of near-zero central bank rates the post says the sector grew up inside; he does not date its end. His argument is that cheap money, more than enthusiasm for the technology, explains the sector’s early funding.
- Stage capital
- Venture money arrives in rounds. Later rounds are much larger, so a company that raises seed money but cannot reach growth capital runs out.
05Details worth keeping
- He dates the label to early 2020, when his former colleague Kim Zou and Sophie Purdom launched a climate tech venture newsletter and almost nobody recognised the phrase as a category.
- The occasion is climate tech’s first Wall Street Journal headline, in July 2024, which he introduces apologetically. It appears only as an image, so this note cannot say what it said.
- The funding collapse is a Sightline Climate chart. The prose gives the shape, seed intact and later rounds in carnage, but not the numbers.
- He is openly a generative artificial intelligence skeptic, and footnotes his line about it arriving to rescue the technology industry as sarcasm.
06Claims worth citing
All figures as stated on 2024-10-02, in a fast-moving funding market, and the sector-wide numbers are quoted from others rather than his own.
- There are over 160 funds with an exclusive or strong focus on climate tech startups and another 80 seeking exposure. Jim Kapsis and Michael Sachse in Latitude Media, quoted by Lubershane
- Venture capital assets under management grew from $300 billion in 2008 to $3.5 trillion in 2022. Kapsis and Sachse, quoted by Lubershane
- The capital a company needs at each successive stage tends to increase by at least threefold. Lubershane
- Moxion Power, which built portable battery generators and had one of the fastest revenue growth trajectories in climate tech’s history, went bankrupt after failing to secure growth capital. Lubershane, on a company his firm invested in early
07Where it’s contested
No second voice, and the quoted passages are people he agrees with rather than opponents.
- The central judgment is explicitly a feeling. He offers the turning point as something he senses, immediately after conceding that the episode might be nothing more than a macroeconomic hangover, and he does not return to test that alternative.
- The answer is deferred. The post asserts that the shape of the opportunity has changed and says nothing here about how.
- What he has at stake. He invests in the sector he is diagnosing, and his firm lost a portfolio company to the retreat he describes. That loss is reported against his own interest.