The largest funding rounds for startups are becoming increasingly rare. But for startups working on the future of energy, the market is surprisingly strong.
The slowdown in ventures and their late-stage ice age hasn't stopped companies hoping to reinvent energy from raising huge sums of money. Given the situation we are seeing around the world, this is a welcome fact, even if it feels like more than a decade too late.
Powering up
Nine-figure bullets are often referred to as “mega rounds” because of their weight. In the first two months of last year and the first few days of March, approximately 12 deals met our “Energy” criteria, tracking companies working in electricity generation and distribution using Crunchbase data Did. This includes projects such as solar power, batteries, and EV charging. However, his OEM companies that manufacture electric vehicles, such as Lucid and Fisker, are not included in the analysis.
From the beginning of 2023 to March 4, 2023, 11 transactions met our criteria. Seven of the group were based in China. During the same period in Q1 2024, there were 12 transactions that met our criteria. However, this time there was only one Chinese company.
A reinvented global venture capital market
As the global venture capital market adjusts to continued high interest rates, capital flows into technology startups are slowing. The slowdown in private market investment in private high-tech companies is particularly evident in the later stages of startup formation, as exit environments are limited and public market valuations for many software companies are less enthusiastic.
Late-stage startup deals have changed so much in recent quarters that it's easy to forget just how bullish private market investors have been in recent years. From Q1 2019 to Q4 2022, he generated more than 100 of his nine-figure deals, or startup rounds worth more than $100 million, per quarter, according to a report by CB Insights. did. In contrast, the fourth quarter of 2023 saw just 78 cases, the worst result since at least the end of 2018.
More recent data highlights a continuing trend. A TechCrunch analysis of Crunchbase data found that from January 1 to March 4, 2023, approximately 115 rounds met the criteria for a nine-figure private market deal (private equity, post-IPO transactions, excluding certain debt rounds, etc.). During the same period this year, that number dropped to 75 cases.
Why highlight this metric if the number of energy-focused mega-rounds has remained roughly flat year-over-year? This has increased from just under 10% in 2023, the year we track, to 16% in the same period in 2024. This is an increase of over 60%. Relative shares can make a huge difference in a single sector in just one year.
That's why the 12 venture capital rounds we saw in the energy space stood out like a lighthouse to us. There's not a whole lot to look at, which makes the density in one area that's less well-known to be advantageous (like AI) even more pronounced. And with massive geographic changes underway at the same time, something is clearly heating up in Energyland.
internal energy power surge
In 2023, China dominated the energy mega-round, with most of the money going to manufacturers of solar panels and battery materials. Both are areas where China has lavished incentives and state funds, and as a result, China dominates both markets. According to the International Energy Agency, in 2021, 75% of the world's solar modules and a whopping 85% of all cells were manufactured in China. The new funding was therefore aimed at winning the competition rather than investing in a promising market.
The same can be said for battery materials. According to Benchmark Minerals Intelligence, Chinese companies own 75% of the graphite supply chain, which includes everything from mining to finished anodes. Still, in the first quarter of 2023, he attracted a combined investment of $380 million in two Chinese companies.
Fast forward to this year, and the landscape of energy mega-rounds looks dramatically different. Diversity is the name of the game. Only one Chinese company made it to the top, with the rest being roughly equal in the US and EU. This is due to credit industrial policy. The U.S. Inflation Control Act and the EU's Green Deal provided hundreds of billions of dollars in incentives for manufacturers and suppliers to set up operations onshore. In return, companies invested hundreds of billions more. These mega-rounds are a response to market trends and suggest that the reshoring of key parts of the climate tech economy will continue for years to come.
Geographical diversity is only part of the picture. While solar power and battery materials accounted for the majority of megadeals in 2023, similar-sized rounds are spread across a variety of technologies this year. Geothermal energy, industrial heat, electronic fuels, battery recycling, EV charging, lithium mining and geological hydrogen will all be considered. Even heat pumps, a decades-old technology, received an investment of 145 million euros. That speaks to the promise of this market.
This year's wide range of industry participation suggests that many previously early-stage companies have overcome scientific or technological risks and are on the path to commercialization. Investors seem confident that they too can succeed and are happy to take on a smaller, but more lucrative, part of the startup's journey. His IPO time is probably still years away for these companies, but the size of the check suggests investors it could happen in the near future.
With record sea temperatures, severe sea ice news, and severe droughts occurring across the world, it's a good time to reflect on what we're doing to our little planet. While the above investment trends are welcome, we are still like throwing a glass of water on a house fire as carbon emissions continue to set records. Please do it faster.