Crypto News: The climate capital drain

Today's newsletter looks at the stark downward trend in climate tech funding as generalist VCs are moving away right as the industry needs more capital to get off the ground. You can read and share a full version of this story on Bloomberg.com. For unlimited access to climate and energy news, please subscribe.

By Michelle Ma

Generalist investors' rush into buzzier artificial intelligence has added to funding woes for climate-tech startups at just about the worst time for an industry racing to combat the effects of climate change.

Globally, climate-tech companies raised roughly $10.3 billion in equity across public and private markets in the third quarter, putting full-year funding on track to fall about 50% this year, data from BloombergNEF show. Meanwhile, capital for AI has climbed, with startups in that space raising more than $21 billion in the quarter, Pitchbook estimates.

"AI has sucked all the oxygen out of the room," said Matt Eggers, a managing director at Prelude Ventures, which invests in climate startups. "It's not like anything we've seen since perhaps mobile in 2010."

It's not just competition from AI that's impacting climate-tech funding, which began inching lower even before the generative AI frenzy in 2023. Still, it's a contributing factor, and a slowdown in funding for climate tech at such a critical time for the nascent sector could have irreversible consequences.

The opportunity for limiting the catastrophic impacts of climate change was already shrinking, underscoring the need to speed up spending on novel climate technology. Now, with AI threatening to keep fossil fuels online for longer, there's even less room for error.

Part of the reason some investors are stepping back is the fact that a lot of climate-tech startups are either already in or approaching the most capital-intensive, hardware-focused stages of development. Commercializing never-before-deployed technologies is expensive and risky, unless favorable policy support can help bring down costs and drive demand.

Scaling AI requires infrastructure buildout and capital investment, too, but it doesn't necessarily require the same appetite for technological risk.

"We know how to build a data center," said tech billionaire and OpenAI backer Vinod Khosla. The same cannot be said for some early-stage climate technologies like nuclear fusion, which remains years away from the market, and green hydrogen, still in the early stages of deployment — though both could see more interest as investors seek opportunities to meet the intense energy demands for AI.

Read the full story to find out what some of the remaining bright spots are for climate tech. Subscribe for even more energy transition and investing news.

The number of years until startups and government research labs figure out nuclear fusion, a costly but potentially game-changing technology. That's according to venture capitalist Vinod Khosla.

"The evolution from science project to commercial outfit can be one of the hardest to pull off, especially in an economy where our capital stack was built for digital innovation rather than hardware advances."

Chuka Umunna

JPMorgan Chase & Co.'s head of ESG and green economy investment banking for Europe and the Middle East

The so-called "Valley of Death" is a major risk for climate tech startups that require substantial capital to reach commercial-scale operations.

With venture capital investments so low, some startups have found creative ways to get the money they need. Earlier this year, Zero chatted with Claire Curry, global head of technology, industry & innovation at BloombergNEF, who has been following the journeys of some of young companies trying to get through the Valley of Death. Listen now, and subscribe on Apple, Spotify, or Google to get new episodes of Zero every Thursday.

Plastics are ubiquitous in natural systems, and tiny pieces of the material have been found everywhere from the Arctic to the Mariana Trench. To test a theory that satellites could help detect the waste on beaches, Jenna Guffogg hauled discarded scraps from a clam-shell child's pool, bubble wrap, single-use PET bottles and a blue polyester tarp to her local seashore in Australia.

The data scientist laid out weathered fragments in fourteen rectangles each covering about 2.25 square meters (24 square feet). Within a couple of hours, Maxar Technologies Inc.'s WorldView-3 satellite flew nearly 620 kilometers (385 miles) overhead and snapped a picture. Within a week, she got data and a few months later, she had an answer: the trash can be spotted from space.

A satellite image of Guffogg's plastic target.

Guffog's findings, published in a study in Marine Pollution Bulletin, show how the use of satellites to locate plastic waste on beaches could aid efforts to curb the estimated 19 to 23 million metric tons of the material that enters marine and coastal ecosystems each year. That total is currently projected to about double by 2030.

Read the full story.

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