| By Coco Liu and Matthew Griffin Climate Week NYC is many things to many people. For President Joe Biden, it's an occasion to take a climate victory lap. For Prince William, an opportunity to highlight groups and companies with unique environmental solutions. For bankers, a chance to grapple with net zero slipping out of reach. For those in clean tech, Climate Week has been a time to take stock of what's next for the industry as it enters a crucial period. Dropping interest rates, a coin-toss presidential election and a decline in funding for the next wave of carbon-cutting technologies are all weighing on the minds of startup founders and venture capitalists. With hundreds of events and the concurrent United Nations General Assembly, Bloomberg Green navigated the gridlock of New York to get the scoop on what climate tech veterans are gearing up for over the next year. We'll also be at startup hub Newlab's New Climate Futures conference later today, so be sure to find us if you want to share your thoughts. The funding environment is healthier — but caution remains Most venture capitalists Bloomberg Green spoke with say that they have observed a renewed investing interest in recent months compared to the first half of 2024, when overall climate tech equity funding across both private and public markets halved from the same period a year earlier, according to BloombergNEF. But few are ready to announce a comeback just yet. Sean O'Sullivan, founder of SOSV whose venture firm has bankrolled more than 250 climate tech startups, simply put it this way: "The patient has stopped bleeding, and we are in the period of recovery, but it's still uncertain." While the federal interest rate cut announced in September makes financing capital-intensive climate technologies more attractive, O'Sullivan says other macro challenges — such as the tight capital market and uncertainty ahead of the US election — will continue weighing on investors' confidence. "It's not a clear shot that anything has majorly turned around at this stage," he adds.  Jerome Powell, chairman of the US Federal Reserve, speaks in September after the Fed lowered its benchmark interest rate by a half percentage point. Photographer: Al Drago/Bloomberg It's also important to note that the recent uptick in climate tech deals isn't distributed evenly, says Sophie Bakalar, a partner at Collaborative Fund. There is a "healthy amount" of venture money for early-stage startups, and companies with a proven business model can access a "robust pool of capital" from banks through the traditional project financing mechanism, Bakalar say, but investors are reluctant to back companies fundraising a Series B or C round, many of which are in what's known in the VC world as the "Valley of Death." That's a crucial phase when startups are attempting to reach commercial scale but not generating sufficient revenue. The funding gap could mean more firms die rather than come out the other side. US election turmoil has investors playing it safe With barely a month until the US election, its implications for the climate tech sector are the talk of the town. Despite the threat made by former President Donald Trump to rescind all "unspent" funds in the Inflation Reduction Act, the consensus at Climate Week is that the Biden administration's climate legacy is likely to survive, no matter who will sit in the White House next year. 'There are a lot of Republicans too — in the House, in the Senate, the governors — who are for it from a just purely job-creation perspective in their regions," Chris Mangieri, a principal at climate-focused venture outfit Pulse Fund, says of Biden's climate bill. Tax credits in Biden's signature climate law have channeled investment into red and swing states, where land and labor are cheaper, says Dan Yates, chief executive officer of Dandelion Energy, an Arlington, Virginia-based company that installs geothermal heat pumps across the US. "This isn't a blue-red divide anymore," he adds.  US President Joe Biden speaks during an event in August 2023. Photographer: Christopher Dilts/Bloomberg Indeed, of the some $200 billion in climate tech spending announced since the IRA passed, more than $160 billion went to projects in Republican districts. The green jobs boom in red states led 18 House Republicans to urge Speaker Mike Johnson not to repeal clean tech incentives in Biden's climate law, warning of the potential economic damage. Nevertheless, an unclear policy outlook in the election year has delayed some VCs from making big bets. VCs are acting even more strategic The headwinds above haven't stopped investors from searching for specific deals. While answers vary wildly about the best sectors to back over the next 12 months, a few did come up multiple times: cleaner fuels, energy storage and food tech to curb climate change are among the areas venture capitalists see as key places to make bets. Investment risks have also been recalculated. Take O'Sullivan of SOSV. His firm has backed some high-flying consumer-facing startups, including milk-free dairy maker Perfect Day. But O'Sullivan told Bloomberg Green that for the next year or so, his firm will write checks to startups focused on enterprise-focused climate solutions rather than ones geared toward the public. Read the full story on Bloomberg.com | 
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