The Next Industrial Revolution is Green, and Venture Capital Firms want in Early
- Prasith Chilla
- 9 hours ago
- 8 min read
A few years ago, most investors saw climate tech as a moral choice; today, venture capitalists see it as the next trillion-dollar opportunity. It started off as a niche for idealists, with the building of solar panels in garages, has now evolved into something the biggest names in Silicon Valley and Wallstreet like Andreessen Horowitz and Sequoia Capital, have put their money behind.In recent years, climate tech investment has been growing around the world, with billions flowing into renewable energy, carbon capture, sustainable fuels, and battery innovation across North America, Europe, Asia, and the Middle East. The wave isn’t being fueled by just good intentions, it’s the realization that the biggest money in the next decade could come from once dismissed science projects. With increasing governmental involvement in the form of net-zero targets, climate tech is an industry for the future. Battery startups once begged for funding and now are overwhelmed, fielding calls from Fortune 500s. Venture capital firms are feeling this gold rush with a green tint, and pouring in funding early and loudly. Now you might be asking what specifically are Venture Capital firms seeing in the industry and what specific technologies are they betting on. Well, there's a ton to unpack about the growth of the industry and how the global economy is being rewritten.
Climate tech’s biggest allure isn’t its ability to make money; it finally hits the sweet spot investors have been dreaming about with its social impact. In a world where venture capitalists are expected to deliver profit and purpose it's a happy marriage for both sides. Firms can now walk into meetings saying “look what we’ve done for the community and look at the balance sheet.” Struggling to balance Limited Partner expectations, Environmental, Social, and Governmental mandates, and financial performance, climate tech isn’t just a good opportunity, it's rare. This actually provides a pretty drastic turn from the days of “green energy investing”, where it felt like investing in these companies was a charity case. They often came with long schedules and intense capital needs without promising the same level of profit as less risky startups. Investors still describe being scared from those days, recalling cleantech firms that had promising technology but not the adaptability, like early solar startups that scaled manufacturing too quickly and collapsed when subsidies were cut.Today however, climate tech is a whole different beast. Timelines have shortened and climate change is at the forefront of political issues. The push now more than ever is on the widespread rollout of climate technologies and saving the environment. PwC and McKinsey both report that these technologies are actually more profitable than traditional fossil fuel systems. Climate tech isn’t the sacrifice now, it's the competitive edge. The growth potential here makes venture capitalists' eyes pop, the market is growing faster than anyone can model and regulations push for adoption rather than slow it. While doing all this, it gives moral credibility to the VC firms which are labeled as “tone-deaf” and “money hungry”. Now they have legit investment they can point to when anyone brings up these arguments. Employees love to work for a company with a mission behind it, and founders flock to VCs who feel like they are at the cutting edge. Climate technology becomes more than a sector and more of a story that VCs can tell to all kinds of different audiences.
Within the U.S and globally the political winds have shifted towards the direction of climate technology. Governments around the world are doubling down on net-zero emission targets, clean energy incentives, resulting in regulatory pressures forcing companies to adopt this
decarbonization mindset. The policy-driven growth isn’t based on vague goals either, it’s seriously backed up which investors are gobbling up. When regulators are making the push away from fossil fuels, VC firms see less downside than ever and the upside of investing in green energy. The shift has shown up with the International Energy Agency (IEA) reporting that clean-energy investment has surpassed fossil-fuel investment.
In 2023, roughly $1.7 trillion went into clean energy technologies and infrastructure compared to $1 trillion for its fossil fuel counterpart. The investment is mainly focused on the creation of storage grids for this energy, along with replacing fossil-fuel powered sources with electricity generated from clean energy sources, known as electrification. This almost 2 to 1 ratio of money invested in clean energy compared to fossil fuels is the signal of the structural shift of how we get our energy. At the same time, broader climate related capital is also swelling with the Climate Policy Initiative(CPI) reporting global climate investment has grown to around $1.5 trillion annually, coming from governments, banks, and other corporations. While startups in climate technology and electrification were once rangers navigating a hostile market, they are now backed by a whole ecosystem of buyers, regulators and financiers aligned with global decarbonization. That sense of market certainty makes VCs more willing to write larger checks, earlier. The reduced risk and clearer horizon also help when selling the deal to limited partners who often demand both strong returns and defensible ESG credentials. Backed by governmental policies, climate technology is no longer on the fringe, it’s got a real backbone and has real staying power within the market. The one thing that gets investors' hearts racing isn’t returns, it’s scalability. Decarbonization technologies are the equivalent of a country discovering Texas sized oil fields, it’s truly hitting a gold mine.
From the increased roll out of Electrified transport to widespread investment in Renewable energy, climate tech is piling up as one of the largest, most promising markets on Earth, hitting $2 trillion in total investment in 2024. According to a recent market forecast, the global decarbonization market is poised to hit $4.06 trillion by 2030, nearly doubling from today’s levels. There are infinitely many submarkets within the space with room to grow and develop. Take for example, carbon capture technologies, systems that remove CO₂ from industrial emissions or the air before it reaches the atmosphere, process and material innovations within space can lift it from a $66 billion industry now to an expected $99 billion by 2030. Even conservative estimates suggest that demand for CO₂-storage, clean-fuel alternatives, and retrofits in heavy industries will continue to grow as long as emissions targets aren’t fantasy. We also have the hype of green hydrogen,which is splitting water into hydrogen and oxygen using electrolysis powered by renewable energy, widely considered the superstar of the clean energy space. Backed by growing calls for decarbonization in chemical and transportation industries, the forecast has it projected to rise from $145.6 billion currently to a whopping $322 billion by 2035 at a 7-8% growth rate. With supportive policies, rising electrolyzer costs, and demand for emission free fuel, green hydrogen is the big ticket that can ripple across the supply chain. VCs are drawn to the transformative leverage these technologies bring. Carbon capture extends beyond power plants to decarbonize steel and cement globally, while green hydrogen goes beyond clean transport to reshape industrial processes and global energy systems. When you back a startup in these fields, you’re not just backing a product, you’re backing a potential backbone of global infrastructure. The VC firms love to capitalize on this upside. They don’t just bet on a few companies doing well, they bet on shifting economic trends, where they can see the economy getting greener. The long runway for growth is something you can only find once every decade if at all. We have seen Breakthrough Energy Ventures, the climate tech fund backed by Bill Gates and other investors, has backed companies like CarbonCure Technologies, whose carbon‑utilization solutions are already used by nearly 300 concrete producers to reduce embodied CO₂ in construction and expand low‑carbon building materials globally. The upside if you are willing to bet on it, could be truly limitless.
Life in the world of climate technologies isn’t all sunshine and rainbows. It’s worth considering that the way the industry is viewed as a whole is defined by the sources who talk about it. Sources like PwC and McKinsey tend to present these type of revolutionary ideas in a very optimistic light,probably overly optimistic. For example, PwC’s Global CEO Survey found that while optimism about global growth has doubled, four in ten CEOs “report that they have accepted lower returns for climate‑friendly investments,” suggesting the rosy narrative may gloss over tougher financial realities for climate tech.Their reports are geared towards investors and clients, who want to see opportunities not roadblocks to growth. With this potential technology issues, regulatory turbulence, and bottlenecks are brushed under the rug. These firms specialize in projecting confidence in new markets, and their analyses, while data-driven, inevitably lean toward narratives of growth. Talking about continued climate tech investment takes the risk of assuming that growth in the field will also continue to be exponential, when reality tells us it’s anything but that. Anything from election outcomes to geopolitical disruptions can slow the momentum that the sector is off to. Venture Capital by design is also fast moving and often impatient. Climate technologies bring a long growth horizon, meaning to see real profits you must stick with it for a significant time period. Critics argue that a strategy of pivoting to the newest technology doesn’t suit well for startups that will take a decade to see real profits. If VC firms panic, or get impatient and leave climate technology positions the field will suffer. Their investment is crucial to powering emerging startups and without it, the field will slow down drastically. This is where the story gets interesting. Despite the stereotype VC firms hold of short-term opportunists, the trends suggest climate technology is actually nudging the venture model. The size of the market along with government backing, and sheer scale of the transition is forcing VC firms to hold their positions for longer. We have seen with Climeworks, a direct air capture startup, that investors have stayed committed for over a decade as the technology moves slowly from prototype to commercial scale and requires sustained capital before exits materializeMany climate tech opportunities are tied to multi-decade shifts not quick fads, thus VC firms have to stay in for the whole cycle to maximize their yields.
Climate technologies have developed from the fringe to becoming the energy sources and investments of the future. The real change for VC firms is a shifting philosophy. The firms who stick through the growing cycle, and partners across sectors will reap the benefits. This isn’t just a temporary boom, it's a sign of the shifting economy that business leaders need to get ahead to capitalize on. The biggest takeaway is that climate technology isn’t an investment category, it's the economic arena of the future, the VC firms who stick with it won’t be funding the future, they will be owning it.
References:
BloombergNEF. (2024). Energy Transition Investment Trends 2024 Tracking global investment in the low-carbon transition Abridged version.
Building confidence in a growing market. (n.d.).
CB Insights. (2025, February 6). State of Climate Tech 2024 Report. CB Insights Research; CB Insights.
Policy Initiative. (2023). Global Landscape of Climate Finance 2023. CPI. https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-fina nce-2023/
Granskog, A., Patel, M., Gupta, R., & Helmcke, S. (2025, April). How incumbents can succeed in climate-driven growth investments. McKinsey & Company. https://www.mckinsey.com/capabilities/sustainability/our-insights/how-incumbents -can-succeed-in-climate-driven-growth-investments
mkaczmarski. (2024, August 19). US Is Top Climate-Tech Financier in 2024. China Led Last Year | BloombergNEF. BloombergNEF.
PwC. (2024). State of Climate Tech 2024 | PwC. PwC.
The State of the Transition Report 2023. (2023). Breakthrough