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For cleantech startups, the Valley of Death is getting harder to cross

It now takes an average of more than two years for a company to raise a Series B, according to a new Sightline Climate report.

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Photo credit: Shawn Thew / AFP via Getty Images

Photo credit: Shawn Thew / AFP via Getty Images

It’s a hard moment for startups.

As they try to move past the development stages to full-scale commercialization — the so-called Valley of Death — they’re struggling more this year than usual, according to a new report by market intelligence firm Sightline Climate. 

  • The top line: It now takes an average of more than two years for a company to raise a Series B: more than double the 11 months that the process averaged just three years ago. Meanwhile, overall Series B funding declined 24% in the first half of 2024, compared to the same period last year.
  • The market grounding: The Series B slump comes in the midst of a general contraction of the climate tech market. The industry “shakeout” comes after a funding frenzy in 2021 and 2022, when investments totaled almost $100 billion, according to Sightiline’s data.

So far in 2024, investments total $11.3 billion, down 41% compared to the second half of 2023 — which itself represented a downturn compared with 2022 totals. There were 553 deals recorded in the first half of 2024, nearly 200 fewer than during the same period in 2023.

And of those deals, only 10% are devoted to startups looking to raise a Series B and fund their move out of the lab and into the field. 

Image credit: Sightline Climate

“We’ve heard from investors and founders that a large cohort of climate tech companies are stuck at the pre-Series B stage, unable to raise their next round from later-stage investors as they face increasing expectations about their annual recurring revenue (often more than $10 million) and proof of commercialization,” the report noted. 

Late-stage and growth investments are facing a similar drop in deals, with a 33% decline in funding and a 13% decline in the number of deals compared to the first half of 2023, as investors hold onto what Sightline describes as “record levels of dry powder.” 

That said, it’s not as if early stage companies are easily securing cash. Investment at the seed and Series A stages also decreased by 12% and 10% respectively, while seed deals count declined by 30%. 

Image credit: Sightline Climate

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Flight to quality 

While fewer companies are crossing the Valley of Death, those who make it to the other side are being rewarded with larger deal sizes. 

And according to Sightline, that’s “a sign that growth capital continues to recognize performing companies who can make it past the Series A.” 

In January, for instance, the electric vehicle fast-charging company Electra raised $330 million (304 million euros) in equity for a Series B round, as it moves to build out its network of charging stations across Europe. In February, geologic hydrogen startup Koloma closed a Series B round of $245 million; and thermal energy storage developer Antora Energy, raised $150 million. Those three rounds are among the biggest climate deals of 2024 so far. 

Fewer, bigger deals might signal what the report described as “a flight to quality.” Essentially, investors are doing more due diligence before writing checks. 

Those promising few, in the meantime, are increasingly looking at sources other than venture capital for funding. Electra’s funding round, for example, was led by the Dutch pension fund PGGM.

Beyond equity, debts and grants are playing a growing role in funding cleantech solutions, with non-equity funding reaching 30% of the capital stack in 2023, according to market intelligence platform Net Zero Insights.

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