Is Cleantech Dead (Again)? Far from It.

By Paweł Bochniarz, General Partner at Radix Ventures

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Some experts claim that cleantech (or climatetech) is losing favor with venture capital (VC) investors, raising concerns about whether we are witnessing another cleantech bubble bursting. However, a closer examination of investment trends, technological advancements, and policy support suggests that cleantech remains a growing and evolving sector. Below, we delve into the key trends shaping the industry.

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Cleantech Investment Trends

While investments in climate-tech startups have faced recent downturns, the overall trajectory of cleantech investment remains strong. Global cleantech investments are projected to surpass fossil fuel spending by 2025, reaching an estimated $670 billion. Solar PV alone is expected to account for half of these investments and two-thirds of installed renewable capacity.

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Short-Term Declines in VC Funding

While the long-term outlook remains positive, climate-tech startups have experienced a cooling in VC investment. After peaking at nearly $30 billion in the U.S. by 2021, investments declined by 40% in the first half of 2023 compared to the same period in 2022. This drop reflects broader market trends, including higher interest rates and economic uncertainty, rather than a fundamental shift away from cleantech.

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Key Drivers of the Cleantech Shift

Plummeting technology costs and supportive industrial policies continue to drive cleantech adoption. The cost of lithium-ion batteries, a crucial component for energy storage and electric vehicles (EVs), has dropped significantly, improving project economics. Governments worldwide are also enacting policies to accelerate clean energy deployment, from tax incentives to direct subsidies.

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AI and Energy Storage Innovations

Artificial intelligence (AI) and breakthroughs in energy storage are playing an increasingly pivotal role in cleantech. AI is improving energy efficiency, optimizing grid management, and enabling better predictive maintenance for renewable energy infrastructure. Meanwhile, advancements in battery storage solutions are addressing intermittency challenges, making renewables more reliable as baseload energy sources.

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Corporate and Government Commitments

Private-sector engagement and government backing are at all-time highs. Companies are signing long-term agreements for carbon dioxide removal, and governments are significantly increasing investments in carbon capture, utilization, and storage (CCUS) technologies. These commitments signal sustained momentum for the sector.

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Challenges and Market Considerations

Despite increasing investments, the funding levels still fall short of what is needed to meet global climate targets. Experts estimate that renewable energy capacity must triple by 2030 to align with decarbonization goals. At this point it seems increasingly unlikely that these stated goals will be achieved. At the same time for climate-tech startups, market viability remains a key hurdle. Companies need well-defined market strategies to ensure long-term survival, as many early-stage ventures struggle to scale.

Cleantech investments, like all industries, are subject to macroeconomic pressures. Rising inflation and higher interest rates can make financing more expensive, slowing down project rollouts and expansions. Cleantech also remains heavily dependent on government policies and incentives. Shifts in regulatory frameworks, subsidy reductions, or changing political landscapes could create instability for investors and startups alike.

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Cleantech’s Innovation Tipping Points

As policy incentives gradually decrease, cleantech companies must compete based on market economics. Companies that can deliver cost-effective solutions will emerge as industry leaders. The growing demand for electricity, driven by EV adoption, AI data centers, and electrification efforts, is creating a strong pull for cleantech solutions. Renewable energy sources and advanced grid technologies are becoming crucial in meeting this demand.

Despite cyclical downturns in VC funding, cleantech remains an essential and growing sector. Investments in clean energy, supply chains, and breakthrough technologies continue to expand, reinforcing cleantech’s role in the global energy transition. As long as economic forces, policy backing, and technological advancements align, cleantech is far from dead—it is evolving and strengthening for the future.

Venture capital investors are increasingly favoring cleantech startups that offer breakthrough technological advancements with clear economic value. AI-driven energy management solutions, next-generation battery technologies, and green hydrogen innovations are among the most attractive sectors. Investments in long-duration energy storage, carbon capture technology, and sustainable industrial processes are gaining traction, as they offer scalable solutions to long-term energy challenges. Companies with strong intellectual property, defensible market positions, and cost-competitive offerings tend to secure the most funding.

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Radix Ventures’ Approach

At Radix Ventures, we recognize the transformative potential of cleantech and remain committed to supporting innovative solutions that drive the global energy transition.

Our investment strategy focuses on:

• Scalability and Market Readiness: We prioritize startups that demonstrate strong market potential and the ability to scale, ensuring long-term viability beyond policy incentives.
• Deep Tech and Advanced Materials: Investing in breakthrough technologies, such as next-generation batteries, hydrogen solutions, and AI-driven energy management, to accelerate innovation.
• Economic Value to Clients: We prioritize projects that offer undisputed economic value to clients over those with primarily intangible benefits, ensuring sustainable adoption and market competitiveness.
• Avoiding Regulatory-Driven Projects: We steer clear of projects driven solely by regulatory compliance, as we anticipate that some net-zero adoption mandates may become more flexible in the future.

Radix Ventures' investments in Naco Technologies and Fresh Inset exemplify our approach. Naco Technologies is revolutionizing sustainable coatings and surface treatments with nanomaterials, significantly reducing waste and increasing efficiency in industrial applications. Fresh Inset, on the other hand, provides natural solutions for food preservation, extending shelf life and reducing food waste, which delivers both economic savings and environmental benefits. These investments highlight our commitment to backing companies that balance profitability with substantial positive environmental impact.

By leveraging these focus areas, Radix Ventures aims to drive sustainable growth in cleantech and create lasting value for investors and the broader ecosystem.

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