Want to understand where climate tech investing is headed? Don’t look to Washington, where Congress is debating repeal of the Inflation Reduction Act. Look to London.
London Climate Week — historically overshadowed by New York’s version — has become a new epicenter for investors who are scouting alternatives to an increasingly uncertain U.S. market.
“This year, it feels completely different,” said Kim Zou, the CEO of Sightline Climate, speaking from the event, which is currently ongoing. “We’re seeing investors from the U.S., Middle East, Asia, Canada, all over the world coming to Climate Week and trying to see what’s going on in Europe for the first time.”
The reason, she said, is “definitely pullback in the U.S.”
Zou joined us on Open Circuit this week to talk about how climate tech investors are navigating policy and economic uncertainty. The conversation touched on a rapid reversal underway: European companies that once flocked to the U.S. market are staying home, while American investors are scouting European opportunities for the first time.
This shift reflects deeper anxieties that investors face, highlighted in Sightline’s latest investor sentiment survey. The firm polled venture, private equity, and growth investors and found a sector grappling with “a trickier, more tactical market.”
Here are some takeaways from our Open Circuit conversation on the state of investing in 2025.
Policy uncertainty has become a primary risk factor
Unsurprisingly, policy whiplash ranked as the top investor concern. But it’s tariffs — not IRA repeal — that worry investors most. According to Zou, 54% of climate tech companies tracked by Sightline have hardware components dependent on global supply chains.
“Tariffs, out of all the different policy pieces that are uncertain right now, were causing the most fear,” Zou said.
Preparing for the worst, many investors are now searching for “policy-proof” business models. But that may be impossible in an industry where government support has been foundational.
“There’s no such thing as policy-proof because in clean energy, there’s a policy in everything,” Zou explained. “How can you ensure your business isn’t reliant on policy? So maybe it’s like, rather than policy-proof, it’s policy-independent.”
Beyond tariffs, the reconciliation bill currently moving through Congress could dramatically reshape the entire landscape through what investors see as a “domino” impact on private-public partnerships for infrastructure.
The House passed a version of the bill last month, which slashed Inflation Reduction Act provisions, including clean energy tax credits. As the Senate considers its own version, the finance committee released a markup with somewhat less aggressive timelines. Open Circuit co-host Katherine Hamilton, who advises funds on policy navigation, said that version “gave more of a runway for all of the renewables.”
But the Senate version is still not final — and the clean energy industry is wasting no time in trying to convince lawmakers to save more of the IRA. Congress has self-imposed a deadline of July 4 for finalizing the bill.
“Part of this is just about getting them to land somewhere,” Hamilton said. “It is more about uncertainty than it is about where this actually ends up.”
A widening gap for companies ready to scale
Beyond policy concerns, there’s a structural problem that’s getting worse. Zou identified “the missing middle within the missing middle” — a $45 million to $100 million funding gap that is stranding companies just as they’re ready to commercialize.
This is a longtime problem for the industry. These businesses need infrastructure-scale capital to build their first commercial facilities, but they still carry venture-level risk.
“You’re still dealing with venture-level risk, but infrastructure-style returns,” Zou explained. “It’s high risk, low returns, and most private investors aren’t really willing to accept that type of risk-reward ratio.”
The timing and competition for funding are tough. Companies that raised in the 2019 to 2023 time period are hitting this inflection point simultaneously. Zou called it “a massive wave of companies that are all around that same missing middle stage.”
Listen to Kim Zou’s whole interview on Open Circuit:
Making matters worse, a critical partner for navigating this gap is pulling back: the U.S. government. “That’s where DOE was so crucial,” said Hamilton. “With those programs being closed or shut down, some of those contracts being walked away from, that’s what you’re going to get,” she added, referring to the growing commercial chasm.
As a result, companies and investors are getting creative with financing solutions. Instead of traditional equity rounds, new structures are emerging. Zou pointed to Fervo’s recent $206 million raise for its Cape Station project, which combined a $60 million loan from Mercuria, $46.5 million in bridge debt financing, and $100 million in project preferred equity — none of it dilutive at the corporate level.
Open Circuit co-host and former DOE Loan Programs Office director Jigar Shah said recapitalizations are also becoming more common, where growth equity firms buy out early investors entirely rather than participating in traditional Series B rounds: “Instead of raising a B round, you’ve got people like NGP or EQT or Warburg Pincus who are actually just taking everybody out and saying, ‘We’re going to basically buy the whole company and put $150 million of fresh capital in.'”
These structures mean that companies can plan for infrastructure-style returns, rather than venture-style — typically 16% to 18% rather than the 10x multiples that early-stage investors target, said Shah.
Exit strategies are changing
According to fresh data from Sightline, climate tech investment dropped 19% in the first half of 2025. But acquisitions doubled, with most at undisclosed valuations.
“There were a lot of these bargain-hunting acquisition plays where corporates and strategics are buying up companies at more opportunistic costs,” Zou said. That creates a lot of opportunities for smart investors, while also forcing companies to rethink how they’ll exit.
“I think what you’re finding in this marketplace right now is that people just never bothered to check to see what their exit was,” Shah said.
This lack of exit planning creates practical problems. Companies that keep raising at higher valuations can price themselves out of an acquisition. “Some of those people there to buy you can’t pay a lot,” Shah said. “They can only pay, let’s say, $100 million. If you just raised another $40 million round of capital, well, then you now have to sell for $200 million. You’ve now priced yourself out of your best acquirer.”
The issue, according to Shah, is that companies got comfortable assuming “as long as I’m executing and I’m doing a lot of good in the world and people are buying my products, the exit will take care of itself.” But that’s not how it works anymore. “You need to spend a lot more time thinking about it,” he added.
Some sectors are thriving despite the headwinds
Not everything is struggling. According to Zou, grid-enhancing technologies had their best quarter ever, driven by AI power demands. Energy efficiency is also attracting more attention as more American households fall behind on their energy bills.
As Shah put it, “There are so many sectors that save people money.” In a moment of economic uncertainty, investors are backing companies that save customers money rather than asking them to pay more for sustainability benefits — reflecting a more pragmatic market, and a shift in what investors will fund. Meanwhile, companies that have historically relied on customers paying green premiums are struggling the most.
“The sectors where they have historically been reliant on a green premium have definitely been challenged,” Zou said, pointing to industrial decarbonization and carbon removal as examples. “I think carbon removal in particular, it’s almost like at a 100% green premium because you don’t have to buy it, and it’s always been a market that’s voluntary.”
The voluntary market for green premiums is “definitely drying up,” according to Zou, except in places where regulation creates the demand. She pointed to Stegra (formerly H2 Green Steel) in Sweden as a rare exception, where customers will pay a 25% to 50% premium for green steel because EU carbon pricing makes it a hedge against future costs rather than just an environmental choice.
When asked how this year will be remembered, Zou said it’s not just about the funding numbers declining: “It’s about what solutions are scaling”
She pointed to technologies like GETs and distributed energy resources that are hitting the “exponential part of the curve” — scaling without needing venture funding to prop them up.
Shah takes a longer view. “I generally look at these things in 10-year cycles,” he said, noting that investment has grown dramatically since 2017, despite the recent decline. “I feel like people are benchmarking us to the unsustainable $60 billion number from 2022, but we’re actually doing a lot right now.”
Zou agreed. “It might not look good when you look at overall funding numbers, but when you’re actually going deal by deal and seeing deployment and good companies scale, that’s the measure of success.”
