State of the market - Trends in VC funding in clean technology

The start of 2023 presented a unique and challenging environment for startups, with macroeconomic shifts influencing everything from investment strategies to company operations. These trends continued in 2024 - so taking a look back at what happened in 2023, we can paint a more comprehensive picture of the funding landscape and the opportunities that emerged amidst the challenges.

The Macroeconomic Reality: A Shift in the Venture Market

The "frothy" valuations of the previous years were gone, and the overall VC market was contracting as described by Cervin in their report for 2023. This was a "déjà vu all over again" moment, with echoes of the 2008 financial crisis. The report noted a significant decline in pre-seed and seed deal value, as well as a drop in the number of active venture firms. In this environment,  "disciplined entrepreneurship," looks even more important and the advice for startups is to focus on building sustainable, scalable businesses.

In 2023 and early 2024, we saw the following:

  • Valuations were stabilizing and starting to descend, especially at the later stages, as public technology companies' stocks reverted to the mean.

  • M&A activity was expected to increase, as a growing supply of assets faced a limited number of acquirers, leading to consolidations and forced liquidations.

  • Enterprises were becoming more discerning buyers, prioritizing solutions that either save them money or accelerate revenue growth. "Nice-to-have" software applications were shrinking dramatically in a cost-conscious environment.

  • The rise of AI/ML tools was a key theme, as their value proposition often fell into the cost-cutting category, leading to rapid adoption.

  • The talent landscape was changing, with tech layoffs and hiring freezes pushing talented professionals to take more risks and join early-stage startups, which was a huge benefit for the seed-stage ecosystem.

  • The term "unicorn" was being put to the test, with many companies that received high valuations facing down rounds or failure, though Cervin also predicted that "out of the ashes... more than a few behemoth companies will emerge."

Against this backdrop of market volatility, organizations like Elemental Excelerator were more crucial than ever for the clean tech space. 

The typical funding model from accelerators in the space looked like this:

  • Commercial Projects: Investments of $3M to $10M for Series A to mature companies looking to deploy clean technology projects in the U.S.

  • Projects: $1M to $3M investments for Series A to C companies to implement projects in any global market.

  • Strategy: $350,000 investments for pre-seed to Series A companies to develop and execute their growth strategies.

  • Strategic Follow-on Investments: Up to $3M in funding to help existing portfolio companies scale.

Beyond capital, startups were looking for VCs and funders who also provide a suite of non-financial support, including tailored coaching, project deployment support, connections to a network of partners, and guidance on impact measurement. This "wrap-around" support is particularly valuable in a tighter funding environment, where de-risking innovation is paramount.

The Takeaway for Startups in 2024

The key takeaways for startups are:

  • Focus on real value: In a cost-conscious environment, a compelling value proposition that saves money or drives revenue is essential.

  • Embrace the challenge: The talent pool is ripe for new ventures, and the shakeout of "unicorns" creates opportunities for resilient, disciplined companies to emerge as the next leaders.

  • Seek strategic partners: Organizations like Elemental Excelerator offer more than just capital. Their expertise, network, and commitment to social impact can be a game-changer, especially for climate tech companies looking to bridge the "scale gap."

  • Don't lose sight of the mission: While financial prudence is critical, the companies that will thrive in the long term are those that are solving real-world problems with a clear, equitable mission.

In 2024, the funding landscape may have become more selective, but for startups that were lean, disciplined, and focused on making a real difference, the opportunity to secure the right kind of funding and support was still very much alive.

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