Climate Tech 2024: Balancing innovation and profit

Written by Egor Savin

As the world grapples with adapting to the harsh realities of climate change, including natural disasters and unprecedented heatwaves, the climate technology sector plays a paramount role.

Overall venture funding plummeted 35% in 2022 compared to 2021, according to data from Crunchbase. However, this is not the case for cleantech, with venture funding still increasing by nearly 30% over the past two years.

Given this, how can we, as venture capitalists, respond in 2024?

Part 1: Build partnerships with governments and CVCs

Companies are now adopting climate change technology strategies that go beyond environmental, social, and governance. That’s why green technology startups often attract corporate venture capital in the early stages of development. This not only provides funding, but also access to extensive R&D infrastructure that would otherwise be very costly to develop, helping climate technology startups accelerate product development and scalability. Allow it to accelerate.

Public support through programs such as the US Inflation Control Act ($369 billion) and the European Union’s Green Deal industrial program (€300 billion through Repower EU) also plays an important role. Having government support means the success of climate change technology startups is critical to the country’s overall goals.

Part 2: Profitability outpaces growth

Technologies such as solar panels and wind turbines have become more affordable, and green energy has started to rival fossil fuels in terms of profitability.

To explain further, between 2012 and 2022, the cost of solar power and batteries decreased by 80%, and the cost of wind power also decreased by 73% onshore (57%) and offshore. Experts predict that these capital investments could further decline by up to 50% by 2050.

Another example is fuel cell trucks that run on hydrogen. There are significant advantages over battery electric trucks, especially in the heavy-duty truck industry. Fuel cell trucks can be charged in 20 minutes, which provides 500 kWh of usable energy, while battery electric trucks take 90 to 120 minutes.

Part 3: Take a portfolio approach and diversify

Climate change technology encompasses many things. Transportation (focus on batteries and charging infrastructure), Energy (focus on renewable energy sources, energy storage, hydrogen and nuclear energy), Agritech (alternative proteins, closed-loop farming techniques, yield enhancement), Disposal There is material processing technology. (recycling, waste management, etc.), CCU (carbon dioxide capture and utilization), etc.

All of these ideas are groundbreaking.

This means that as a venture capitalist, you can diversify in the field of climate technology. Unlike many other sectors where this is not the case, this approach protects investors from the non-diversifiable risks of the industry.

Part 4: Choose products with long-term potential

This is the best risk mitigation strategy for me and why I’m so bullish on the long-term potential of climate change technologies.

If climate change technology ventures succeed, the world will change. These will change how we generate energy, how we move from one place to another, what we eat, how we travel, what we wear, and more.

There’s a lot going on in the industry because of the pressing need to protect the planet. This means that compared to other industries, there is no need to aggressively market climate change technology products.

They sell themselves because the problem they are trying to solve is so urgent. Therefore, once the technology is proven and patented, it is likely to yield high returns. As investors, we must do our best to help our climate technology portfolio companies achieve their goals.

Egor Savvin is a partner at Alfin Ventures and an experienced investment professional with over 10 years of experience in private equity and venture capital. He has considerable expertise in a wide range of industries including fintech, AI, Web3 and climate technology.

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Illustration: Dom Guzman