The European climate tech ecosystem is now worth over $100bn, doubling in value since 2020
Today, Talis Capital and Dealroom announce the publication of “The Rise of European Climate Tech”, a report investigating the rise of European climate tech, reviewing the evolving investment landscape and the most prominent emerging subsectors.
The report shows that since 2017, climate tech has become the fastest growing vertical in Europe, seeing 10x growth in four years: in 2017, the sector saw $1.1bn invested, versus $11bn in 2021. Climate tech was the second largest vertical for investment in this period, second only to fintech, which saw 5.6x growth in the same time frame. Furthermore, in 2021, 13% of all European venture funding went to climate tech startups: a jump from 5.9% in 2017. Startups in this space raised a record $11bn in 2021: a 2.2x increase on 2020.
As of the end of 2021, the European climate tech ecosystem is estimated to be worth $104bn, more than doubling in value since 2020. The majority of funding comes from European investors, demonstrating a sizeable opportunity for international investment. Venture capital funds are providing more capital than any other type of investor, contributing 41% of all funding, followed by corporate investment (29%) and private equity (18%). 2021 also saw a significant rise in capital raised by dedicated European climate tech funds, who raised $2.6bn in 2021: more than twice what dedicated funds had raised in 2020, demonstrating an increased sense of urgency and responsibility from the venture capital community.
At the end of 2021, there were 16 European climate tech unicorns: 11 of which were created in 2021 alone, including Infarm, Voi, Wallbox, Enpal and Freyr. This evolution of the ecosystem is evident at all stages: climate tech is maturing, with early-stage investment increasing 2.5x since 2017. Series A rounds increased the most, with $201m invested in total at this stage in 2017, vs. $390m in 2021.
The report dives into several key subsegments within climate tech. In Europe, carbon removal – defined as companies that are engineering the removal of CO2 from the atmosphere and waste streams, like direct air capture (DAC) technology – is a promising yet nascent sector. The analysis noted 30 companies working in this space in Europe in 2021, a year that also saw a significant rise in funding: 2021 saw $29.5m invested in carbon removal startups, compared to $2.4m in 2017.
The report also outlines that climate “deep tech” companies require more scale-up capital than non-deep tech companies in this space. The data suggests that climate tech startups are more hardware based (61%) compared to the European benchmark (27%), so as a result, they likely require more capital to develop their Minimum Viable Product (MVP).
Finally, alternative proteins proved to be a more advanced subsegment in European climate tech. Companies utliising insects dominated the investment landscape in this space, raising $608m between 2017 and 2021 (largely raised by later-stage companies in this space like Ynsect) compared to companies innovating plant-based solutions ($450m) and lab grown alternatives ($216m).
The report also showed that climate tech startups are creating meaningful employment opportunities across the continent. In 2021, there were over 50,000 people employed by the sector, the largest employers being Arrival and Northvolt.
Matus Maar, co-founder and managing partner at Talis Capital, said: “We’re in the midst of a perfect storm of opportunity for innovators in the climate space to succeed. Technological innovation is enabling superior unit economics; more supportive policies and regulation are enabling commercialisation; corporate and consumer demand is at an all-time high; and, in turn, investors are waking up to the opportunity now more than ever. In 2021, venture capitalists, corporates, and angels worldwide acknowledged the role that they need to play in the battle against climate change. This increased sense of responsibility is paired with confidence that this sector could bear returns similar to traditional venture investments. While there are many companies in the US that are advancing on the net-zero mission, the climate tech scene in Europe is increasingly competitive. In 2021, European companies working towards a net-zero future gained more traction than ever.”
Yoram Wijngaarde, founder & CEO at Dealroom.co, said: “In the last five years, climate tech has become the second largest startup segment in Europe for investment after fintech, and the fastest growing. As our dependence on fossil fuels comes into even more acute focus, the technologies being built and backed today will define our route to net zero, energy security, and our planet’s future.”
For the purposes of this research, climate tech companies are defined as startups working on decarbonising the global economy and creating new profitable business models while also mitigating climate impacts. In this report we examined 3,100 European climate tech startups founded since 2010. We split this into two categories: the first being mitigation like renewables, alternative proteins, clean industry, and engineered-carbon capture & natural based carbon removal. The second category is adaptation like crop protection, water recycling, climate insurance, and nature conservation.