Climate tech is entering its toughest funding environment in years.
Here are three trends that will make it harder for climate startups to get fresh capital. Plus, there are opportunities, too.
The climate tech funding landscape is shifting—if you're a founder or investor, you need to pay attention!
Running (or supporting) climate organizations is getting much harder, especially in the US: The new US administration is cutting funds for climate projects, with climate policy framed as "climate change religion" by the new head of the EPA (sic). Even already agreed-on grants are being frozen by EPA and DOE. In this context it is concerning that even Bill Gates's Breakthrough Energy is giving up on climate. The organization has stopped policy making efforts for climate topics like carbon removal - not only in the US. For example Breakthrough Energy has been a financial supporter for Negative Emissions Platforms (where our CEO Dirk Paessler serves on the board) since our inception and they told us that no grants will be coming any more.
Money from VCs is increasingly flowing into AI companies: Azeem Azhar writes in his newsletter: “Venture capital is flooding into AI companies at a scale never seen before. In the fourth quarter of last year, more than half of all venture capital went into AI firms.” This means a lack of funds for climate startups, even though the sector is critical for long-term sustainability and economic resilience.
Climate startup valuations will stall or might even go down: What the US government does actually matters on a global scale. Due to fading US government support and less VC capital influx, climate company valuations are unlikely to rise. Europe and the rest of the world can not simply balance out a lack of American engagement.
What this means for climate founders, investors and for policy:
Founders: If you run a climate startup you should plan on being much less dependent on US VCs (or US government money). Instead be much more open and positioned to strategic investors from EU / MENA / Asia. Europe and the rest of the world will likely increase their investing with a more strategic mindset and less short term VC incentivized thinking (they will see an opportunity!). Still, expect longer fundraising cycles and pressure on valuations. Now frugality and resilience matter and we may need to build/make stuff even faster that will actually generate revenue soon. This is a special challenge for CDR companies, but if done successfully will keep companies in business.
Investors should recognize that every Euro (or dollar) into climate has outsized impact now. In 2025, climate capital is more valuable than ever, and there are huge opportunities in Europe, Africa, and beyond.
Governments & policymakers should see/seize the opportunity and step up with alternative funding mechanisms to keep momentum in climate innovation. Now is the time to make CDR a strategic part of national policy (Germany’s new just-forming government, are you listening?).
Let’s ensure climate innovation doesn’t get left behind. There are huge opportunities for Europe, Africa and the rest of the world now! Let’s go to work!
PS: Related links
https://www.nytimes.com/2025/03/12/climate/bill-gates-breakthrough-energy-cuts.html
https://www.exponentialview.co/p/when-ai-met-venture-capital