Bloomberg Línea — In a time of record-breaking heat that extends beyond the North or South of the Equator, climate-focused technology venture capital funds are steadily accumulating capital, according to data from market research company CTVC (Climate Tech Venture Capital). There is an additional $33 billion in dry powder from climate-specific funds raised in the past three years.
Dry powder in VC (Venture Capital) is a term used to refer to uninvested or unallocated capital that a venture capital fund has available for investments in companies. It represents cash on hand or funds ready to be invested in startups.
“One particularly encouraging trend is the increase in specialized funds, especially those falling in the category of funds smaller than $50 million,” said Positive Ventures, an early-stage venture capital fund based in São Paulo focused on social and environmental issues in Latin America.
According to Positive Ventures, this indicates that more specialized and novice General Partners (GPs), who manage venture capital funds, are joining the climate demand with enthusiasm.
Positive Ventures, which completed its fundraising in 2023, was a Brazilian fund mentioned in the CTVC publication. Brazilian mining company Vale (VALE3), which closed a fundraising of R$200 million for its fund with KTPL in 2022, was also mentioned.
In total, since January 2021, there are $121 billion in climate-focused private assets under management (AuM), distributed across 207 new VC, CVC (Corporate Venture Capital), growth, Infra, and Private Equity funds.
“Following some standard deployment assumptions, we expect that $30 billion of these VC, growth, and Private Equity funds have already been invested in climate-focused companies,” said CTVC.
After excluding infrastructure funds ($34 billion) and management fees ($24 billion), this means there is $33 billion of dry powder ready to be invested in companies with a climate problem-solving thesis.
CTVC estimates that there is $13 billion of venture capital dry powder and $20 billion for growth or Private Equity in closed-end climate-focused funds this year. These funds have invested a total of $30 billion since the beginning of 2021, along with previous vintage funds and general investors, for a total of nearly $100 billion invested in climate technology during this period.
VC funds make capital calls to investors when they identify suitable opportunities, but mobilizing Limited Partners (LPs), such as pension funds, endowments, family offices, to raise a new fund is not a “overnight” process. This means that fund announcements are a lagging indicator of market interest.
According to CTVC, the 2023 dry powder numbers illustrate a cooling compared to the peak of investments in recent years in the past low-interest rate environment.
Even though climate investments dropped by about 40% in the first half of this year worldwide, following the overall market slowdown, there is still a lot of new money for climate investments, and climate-focused funds are steadily accumulating capital.
The company has tracked more than 200 new climate technology investment funds since January 2021, which are creating new pools of capital to invest in growing companies and projects.
The count excludes investment vehicles announced before 2021 and generalist funds that support companies in this space - a trend that has been increasing. In recent conversations with Bloomberg Línea, funds without specific theses reported that they are increasingly looking into climate tech, as is the case with Kaszek.
Fewer funds than in 2021
According to CTVC, the number of new climate-focused funds is slightly lower in 2023 (62 new funds in 2023 up to the third quarter) compared to the entire 2021, and the fund sizes are marginally smaller, with announced assets under management 69% lower than in 2022 and 10% lower than in 2021.
Most of the capital is concentrated in mega-funds, which manage more than $500 million.
These mega-funds represent only 19% of the 2023 total in terms of numbers but make up about 70% of the total assets under management.
These mega-funds tend to focus on investments in clean energy and infrastructure, such as the final closing of the $700 million NGP Energy Transition Fund, the first closing of $6.1 billion for the Copenhagen Infrastructure Partners’ renewable energy fund, and the final closing of $1.5 billion for Just Climate’s growth-stage-focused fund with heavy assets.