@August 4, 2024
Years ago—actually, not so long ago, but it feels like ages—before becoming parents, we used to work all summer, pushing through hot July and steaming August, just to take a long vacation in September or October. This is the perfect time to travel in Europe and around the Mediterranean: the heat is over, and most tourists have returned home, to their jobs and schools. You’re free to enjoy the locals at their natural pace and unwind with them. Three weeks of this goodness would cost the same as one week during the peak season.
This memory came to mind twice in the past week. Once while trying to plan another week at “Camp Aba”—the low-cost, high-perspiration program I’m running for my kids this summer—and another time when I read a report by CTVC discussing the decrease in climate tech investments in the first half of 2024. Let me dive a bit deeper into it.
The beginning of the climate tech wave was astonishing. VC investments doubled yearly, much of it going into early-stage startups. Investors were very excited about climate tech: everyone wanted to be part of this trend or at least explore opportunities. Some had a clear thesis, but most—the “tourists”—didn’t. I can testify personally: out of about 200 investors I spoke to in 2023, it would be generous to assume that 10% knew how the economics of climate tech worked. By “economics” I mean the entire system that turns something into value/money: resources, commodities, pricing, demand and supply, regulation, markets, capital, policy. Nothing in this new and confusing economy fit any template or playbook they knew, so they either made half-blind bets or decided mostly based on teams and traction. Fair enough, I respect that, despite the horrible waste of time some investors caused entrepreneurs (there are wild stories, including folks who rotated between cocktails, receptions, and panel discussions, identified as climate tech investors, and never deployed a single dollar). It wouldn’t be fair to call out investors solely; there were also “tourist entrepreneurs” who transitioned to climate tech but couldn’t explain how they would make money, let alone weigh the risks and opportunities.
Only a few ventures lived up to the promise. Some had to shut down, others are struggling to cross one of the many technological, regulatory, or financial valleys of death reserved for climate tech only—and then discover that reality in 2024 isn’t what analysts thought it would be by now. I don’t think it’s necessary to list all the failures and disappointments, but just to name the two root causes: the failure to internalize the cost of climate change and the attempt to place climate in the miscellany bucket called ESG. In other words, if carbon had a real price (by tax or regulation), and if it wasn’t linked to other topics that can’t be priced and are politically disputable, I’m sure it would be in a better place.
And so, I see investors and entrepreneurs stepping away from climate tech. They gave up on figuring out how to operate in this field, can’t justify the investment of time, intellect, and money, and there are other things to invest in. AI is everywhere, defense tech is making a comeback, cybersecurity is in a pivotal period—and they all offer a clear pathway to money. Funds are repurposing, some telling flaky stories about staying committed to climate and sustainability while they invest in, say, consumer fintech or AI agents.
Back at the end of the season, after the tourists have left, the tavernas are half empty and the owners don’t bother turning on the A/C. Some might think it’s gloomy, but I find it magical. I feel similar vibes and frequencies now in climate tech, which makes me very positive and optimistic about it.
Firstly, the professional level of discussion and analysis has risen as everyone has had more time to learn, experience, fail, and specialize. There’s less hand-waving and more sophistication. Secondly, both investors and entrepreneurs are more keen to explore policy, regulation, and even B2G. I think the progress made by the CSRD and CBAM in the EU has made many feel this is real and important.
Next, there’s smarter money. Realizing that climate tech wouldn’t work for all VCs, new forms of finance are emerging, including green banks, working capital for climate tech projects, bonds, tax breaks, and even insurance. Although we’re just scratching the surface of it now, it’s promising.
Darwinistically speaking, this is another stage of a long evolution. Those who adapt, change, and stay motivated to grow and reproduce will survive and thrive.