Climate change is at the forefront of everyone's minds as undeniable weather changes, fires, and floods continue to occur. We are beginning to understand that this is a multi-generational problem and, according to many scientists, now is the last chance to take action. The conflict in Ukraine has also highlighted to the world the need to think about long-term energy security and that transitioning away from fossil fuels is the only way.
The VC funds are also taking note of this trend and looking for opportunities to invest in cleantech solutions. Despite recent downturns in the VC industry, cleantech, energy and sustainability still look relatively promising compared to other sectors. According to MarketsandMarkets, it is estimated that by 2027 this sector will reach a 60.7 billion USD market share, compared to its current 17.8 billion. The main reason for this trend is the attempt to find solutions to the acute problems caused by climate change.
In order to discuss the topic of the future of the cleantech sector, we have reached out to experts from top VC funds specializing in greentech or impact investments a.o.
- Marcin Laczynski, Partner at Next Road Ventures;
- Richard Illes, Investment Director at OXO Ventures;
- Jan Hauser, Business Creation Manager at EIT Urban Mobility;
- Claudia Czigony, Investment Manager at Impact Ventures;
- Michał Gawęda, Investment Director at Montis Capital;
- and Jasmina Popovska, Senior Business Creation Manager at EIT Manufacturing,
to share their perspective and predictions for 2023.
It is very difficult to predict something for the upcoming year. Inflations are higher than we have seen in the past decade, and fears of a recession are on the brink, so winter is coming. Which is a very good opportunity for energy and Greentech-focused companies. Europe is producing more than two-thirds of its energy supply from burning fossil fuels. It needs to be changed in the very short term. Greentech and energy-focused tech startups can give the solution, but it has to be financed. Everyone is working on that burning issue, so I am sure that despite the world's first problems, the upcoming year will be great for good startups.
~ Richard Illes, Investment Director at OXO Ventures
Agritech & Foodtech
Looking at the recent developments in the food industry, one thing is clear - foodtech and agritech is on the rise. The industry is booming as entrepreneurs and scientists come together to disrupt all cycles of food production, patterns of consumption and distribution circuits. Startups in this field leverage technology to create efficiency and sustainability in designing, producing, choosing, delivering and enjoying food. Leading-edge solutions are also being implemented in the sector of agriculture, and investors are keenly observing what is happening in these markets.
Agritech and Foodtech have been on Impact Ventures' radar since the beginning, however, I think these sectors might even have a bigger interest in 2023 due to the current economic circumstances. There are two giant trends shaping this industry and also investor thinking:
(1) On one hand climate change is our greatest challenge. Demand for sustainability is both consumer and regulatory driven, which calls for sustainable agricultural and food solutions (e.g. sustainable farming, precision agriculture solutions or alternative proteins).
(2) On the other hand there is an increasing demand for food, while we are living in times of food shortages. Affordability, and ensuring the stability of the food supply chain will be key priorities of the year.
These two megatrends will impact investors' mindsets, especially because innovations in these areas generate not only environmental, but also significant social impact.
~ Claudia Czigony, Investment Manager at Impact Ventures
Energy
Green technology is also on the radar for investors and innovators alike. The rising prices of fuels, climate pressures, and the exponential developments in the field, make it an investment opportunity that is not only profitable but also essential for our planet. Eco-friendly solutions are being implemented worldwide, and we are on the brink of a global transition towards more ecological sources of energy - it is widely predicted that 2023 will bring a lot of developments for clean energy.
The Russian invasion of Ukraine made us all aware of how much Europe is dependent on imported fuels and the inefficiencies of existing energy systems.
Heating is a significant portion of overall energy consumption in Europe, particularly in Northern and Central & Eastern Europe. Buildings are the most significant energy end-use sector in Europe, representing about 40% of final energy consumption, and heating and cooling represent the largest share of building energy use.
On average, it is estimated that heat loss in buildings in Europe can be as high as 15-35% depending on the age of a building. These figures indicate a very significant room for improvement and a notable market opportunity reinforced by the public sector through regulations and programs such as EIT or REPowerEU Plan to name a few. Therefore taking into account that in the EU alone, the non-residential building stock is estimated at the level of 19M, the potential around various innovations enabling energy efficiency and energy conservation is significant, and that’s where we think many startups will put their efforts.
~ Marcin Laczynski, Partner at Next Road Ventures
Sustainable Urban Mobility
Over 70% of EU citizens live in cities that generate 23% of all transport greenhouse gas emissions. The Smart Urban Mobility framework aims to address this issue and support projects making mobility more sustainable, smart, and healthy. In 2023, EIT Urban Mobility will lead the way in this sector.
I believe we will see further rise of startups and impact investments in startups in sustainable urban mobility. As cities become more crowded and congested, there is a growing demand for innovative solutions to improve transportation and ensure that it is inclusive for everyone. This includes transition to electric and hydrogen power, rise of autonomous vehicles, as well as new forms of public transit and shared mobility services. Start-ups in this field are attracting significant investment from both traditional venture capital firms and new impact investors, who see the potential for both financial returns and positive social and environmental impact. These investments are helping to drive the development and deployment of cleaner, more efficient mobility solutions in cities around the world.
~ Jan Hauser, Business Creation Manager at EIT Urban Mobility
Will there be more climate-focused VCs in the future?
We anticipate the launch of several funds in the CEE region specializing exclusively in climate technologies. The main investment trends for these venture capital funds will be energy transition with the usage of hydrogen, sustainable consumption and also carbon capture. Due to the dynamic development of the ClimateTech ecosystem, the number of investments in hardware will also increase.
~ Michał Gawęda, Investment Director at Montis Capital
Climate crisis in the manufacturing sectors
Manufacturing sector has also been affected by the changing conditions, both in the startup market and the environmental ones. EIT Manufacturing is taking note of them, adjusting their activities, and stressing the need for more sustainability-oriented actions.
“(In 2023) we plan to continue and ramp up our investment activities in the coming three years, as the manufacturing sector needs new solutions and partners to address pressing challenges caused by the global crises and to become more resilient and sustainable. Industrial start-ups have their own specifics when it comes to the size of investments, scalability, and sales cycles, especially if the solutions consist of hardware elements. On the other side, there are not many players in the investor community that understand or are willing to take the higher risks related to industrial start-ups. However, Covid-19 and the changing geopolitical situations worldwide demand investing in the competitiveness of Europe’s industrial sectors as a pressing priority. If I could change anything in the current VC/PE market, I would really like to see more investors, especially corporate VCs investing in and supporting industry start-ups and scale-ups, and larger investment rounds that could ensure their scaling into global champions, as this can only benefit the European community and make sure that global manufacturing innovation is led by Europe. (..) We live in very important and dynamic times, and we have to make decisions that will have a fundamental influence on the lives of future generations. Therefore, we dedicate our time and resources to helping manufacturing companies become greener and more sustainable, and we aim to be among the most active organisations supporting the implementation of the “Green Deal” and the achievement of the climate targets, set by the Paris Agreement.”
~ Jasmina Popovska, EIT Manufacturing
To discover more VC funds, check out our VC list - a complex database of the best early-stage venture capital funds investing in innovative startups across different verticals. Read More.
Related Posts:
VC Trends Shaping CEE Startup Ecosystem In 2023 (by Olga Chechłacz, Editor, Vestbee)
New VC Funds Investing in Europe - 4Q 2022 (by Ilya Mikhalchyk-Kananenka, Community Builder, Vestbee)
Outlook Of The CEE Startup and VC Ecosystem In 2023 (by Katarzyna Groszkowska, Editor, Vestbee)
