The Future of Energy: A Growing Market for Upstart Companies
The world of startup funding is constantly evolving. And while the trend of securing large funding rounds seems to be fading, there is one industry that continues to thrive – energy.
The global venture capital market may be slowing down, but it’s a different story for energy companies.
Nine-figure rounds, commonly referred to as “megarounds,” are becoming increasingly common in the energy sector. In the first two months of last year, 12 deals met the criteria for energy companies working in power generation and distribution, according to Crunchbase data. This includes projects like solar power, batteries, and electric vehicle (EV) charging. However, original equipment manufacturers (OEMs) like Lucid and Fisker were excluded from the data analysis.
In the same period of 2024, only 11 deals met the energy criteria, with seven of those being based in China. But in 2023, there were 12 deals that met the standards, and only one was a Chinese company.
This shift in venture capital investment shows that the market for energy companies looking to reinvent the industry is gaining momentum. And given the current state of the world, it’s a welcome development, even if it may be a bit late.
A Changing Market for Venture Capital
The deceleration of private-market investing in technology startups can be attributed to higher interest rates and a limited exit environment. Public-market valuations for software companies have also been less promising, leading to a decrease in later-stage startup deal making.
But just a few years ago, investors were much more bullish. In fact, CB Insights reported that every quarter from Q1 2019 through Q4 2022 saw over 100 nine-figure deals. However, in Q4 2023, that number dropped to just 78, the lowest result since 2018.
Recent data from Crunchbase shows a continued trend of decreased nine-figure private-market deals. In the first quarter of 2023, approximately 115 deals met the criteria, compared to only 75 in the same period of 2024.
Despite the overall decline in nine-figure deals, the energy sector has seen a significant increase in investment, making up a larger share of the market.
The Rise of Energy Megarounds
In 2023, China dominated the megaround market, with most of the funding going towards solar panels and battery materials. These sectors received heavy funding from the Chinese government, resulting in the country dominating the market. In fact, 75% of the world’s solar modules and 85% of all cells were produced in China in 2021, according to the International Energy Agency.
In the first quarter of 2023, two Chinese companies alone attracted a combined $380 million in investment for battery materials. But in 2024, the landscape shifted dramatically.
Diversity emerged as a key factor.
Only one Chinese company made it into the top ranks, with the remaining companies being evenly split between the U.S. and European Union (EU). This is largely due to their credit and industrial policies, such as the Inflation Reduction Act in the U.S. and the Green Deal in the EU, which offer incentives for manufacturers and suppliers to set up operations onshore. As a result, companies have invested hundreds of billions more into these regions. This shift in funding patterns indicates that this reshoring trend in the climate tech economy will likely continue for years to come.
But geographic diversity is only one part of the story. In the past, most megarounds went towards solar and battery materials, but now there is a wider range of technologies receiving funding. Geothermal energy, industrial heat, e-fuels, battery recycling, EV charging, lithium mining, and geologic hydrogen are among the industries represented in recent megarounds. Even heat pumps, a technology that has been around for decades, saw a €145 million influx of funding, showing the potential of this market.
This diverse range of industries receiving megaround funding indicates that many early-stage companies have successfully managed their technical and scientific risks and are moving towards commercialization, which investors are confident will lead to returns in the future.
Although these companies are likely a few years away from an IPO, the significant funding suggests that investors are anticipating their success.
Our Planet’s Urgent Need for Action
The record temperatures of our oceans, declines in sea ice, and devastating droughts are all reflections of the urgent need for action when it comes to protecting our planet. While the increase in megaround funding is promising, we need to do more and do it quickly. Carbon emissions are still reaching record highs, and we must address this issue now.
The increase in energy megarounds is a step in the right direction, but it’s just a fraction of what is needed to combat the ongoing climate crisis. We must continue to push for change and innovation in the energy industry.
