A decade after the bubble burst, 5 climate tech investors explain why they’re all in

Climate tech has been one of the biggest successes of the last few years. By 2025, investors are expected to sink $1.5 trillion to $2 trillion annually into a wide range of startups that promise to upend everything from travel and commuting to agriculture, construction and more. Oh, and they’ll either trim carbon emissions or remove carbon dioxide from the atmosphere in the process, all while turning a profit.

Many investors — and companies — have been here before. A decade ago, the clean tech boom went bust. The recession lingered longer than many expected, natural gas prices plummeted as fracking boosted supplies, and demand for many clean tech startups’ products didn’t materialize. Some companies folded; others were sold at a loss. Investors generally didn’t fare well.

But that didn’t dissuade everyone. The Paris Climate Agreement in 2015 showed that governments, which had driven much of the clean tech boom and then sped its decline by withdrawing support, hadn’t entirely turned their backs on the problem. Some investors stuck with it, too, knowing that some of the bets would pay off even in the absence of public incentives.

And some of those bets have paid off, indeed. Battery technology startups, many of which were founded from the ashes of previous failures, have become investor darlings, feeding an industry that’s worth $40 billion today and growing 18% per year. They’ve solved some of the big scientific and engineering challenges, and their path toward commercialization is clearer than ever before.


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Not every company is going to succeed at hitting its targets, though. The recent downturn will only make it harder for those on the brink to hold on. “There’s a belief that countries and companies only care about climate when things are good,” said Christian Garcia, partner at Breakthrough Energy Ventures.

Still, climate change isn’t slowing down, which might make things different this time around. “Like all things, climate is cyclical — but it’s on a geologic cycle. The climate doesn’t stop changing just because of a recession. That means the need for solutions will only grow,” said Andrew Beebe, managing director at Obvious Ventures.

“No sector in the startup world can be recession-proof,” said Rajesh Swaminathan, venture partner at Khosla Ventures. “That said, there is now a strong sense of urgency around climate risks.”

Pae Wu, general partner at SOSV and CTO at IndieBio, agrees: “With a downturn comes a more choosy market, so new entrants will have to meet a very high bar, but this will come precisely at a time when we need every solution we can get our hands on to address the scale of this problem.”

So do they lean more bullish or bearish regarding the next few years? What’s a climate tech founder to do when faced with narrowing climate timelines and potentially tight funding rounds? We asked some of the leading investors in the space to share their perspectives on the sector and what founders can do to make it through the lean times.

We spoke with:


Given the scope of the climate challenge and governments’ efforts to tackle the problem, is climate tech recession-proof, or is it as vulnerable to market forces as something like SaaS?

Pae Wu: U.S. political will on this front is limited, so it will be incumbent upon the private sector to keep momentum and development aloft as U.S. politics swings again. Corporate pressure to act may help exert influence on the government to continue its efforts as well, especially in R&D. It might just be called something different, like food security, energy independence or supply-chain resilience.

I suspect the EU’s commitments are more resilient and, coupled with their willingness to bring regulation to drive innovations, I expect to see continued developments in climate tech.

With a downturn comes a more choosy market, so new entrants will have to meet a very high bar, but this will come precisely at a time when we need every solution we can get our hands on to address the scale of this problem.

“Everyone needs to get out of the lab. It’s time to prove. It’s time to show your tech works.” Andrew Beebe, MD, Obvious Ventures

Amy Burr: The pandemic has been a really challenging time for all sectors, but climate tech investments did not slow down due to its importance both at the individual level and at the corporate responsibility level. Because of this, I would expect that the sector continues to stay immune during a more severe economic downturn.

Christian Garcia: I would say it’s just as vulnerable, if not more vulnerable to recession. There’s a belief that countries and companies only care about climate when things are good. Financial market headwinds certainly affect climate investing overall, and as tech is the bellwether for risk capital, headwinds definitely flow down to other sectors.

Rajesh Swaminathan: No sector in the startup world can be recession-proof, as the source of capital from LPs slows down if the public equity markets take a hit over a long time. We do need to be more mindful about how we deploy the right capital into climate tech in this environment. We should also use what we learned from clean tech 1.0.

That said, there is now a strong sense of urgency around climate risks. Climate tech is getting commitments from LPs, governments, family offices, asset management firms and corporates, with many new VC funds coming to the market over the last year.

The sector, except for solar and maybe lithium-ion batteries, is still early and is in a different league compared to SaaS, which had tremendous runs in valuations in both public and private markets over the past decade.

The solutions we need to deploy, the pace at which we need to move, the wide range of technologies we need to de-risk and the “instigators” we need to support all provide compelling tailwinds for climate investments despite the broader market challenges.

Andrew Beebe: Like all things, climate is cyclical — but it’s on a geologic cycle. The climate doesn’t stop changing just because of a recession. That means the need for solutions will only grow.

That said, we expect valuations to come down from 2021 highs, and we expect some of the more fantastical reaches of tech won’t make it through the trough. So while the demand will continue, there will of course be casualties.

Many investors are advising their companies to conserve cash, slow hiring and so on. What are you telling your climate tech portfolio companies at this time?

Pae Wu: Focus on being a sustainable business — get to fundamentals. you can’t buy your way to scale right now. Capex efficiency is increasingly on our minds and green premiums simply aren’t on the table.

Amy Burr: Most of our sustainable portfolio companies have recently raised significant rounds and are in great shape or are raising now. That said, everybody is conscious of the potential for an economic downturn and what that might mean for their individual businesses. All startups are smart to make sure they are making wise choices with their money.

Christian Garcia: It’s important for companies to be able to survive this downturn, and so preserving cash will be important. As such, we have guided companies to extend runway as much as possible without sacrificing major milestones. That said, in “hard tech,” you can’t easily make cuts without sacrificing technical progress and milestones. It is important to prove commercial viability and be able to finance your road map.

Rajesh Swaminathan: One size doesn’t fit all — climate tech companies are different from most other VC investments in some ways. We focus on multiple key areas with our founders.

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