A new funding landscape for climate

Happy Sunday. Today we’re taking a look back at the state of Canadian climate tech funding over the past year.

We’ll unpack some of the trends we’re seeing in the Canadian data, how it stacks up to wider climate tech trends, and the big themes we’re watching in 2025.

TL:DR;

• Total funding for climate tech dropped in 2024 as the market continues to correct from the ‘21-’22 hype cycle

• This means smaller deal sizes, a higher bar to graduate to the next round of funding, and some hard conversations

• Despite this correction, capital is still moving and deals are still getting done

Let’s get into it.

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The state of climate funding in 2024

The pullback in VC funding for climate tech continued in 2024 after a rush of investment in 2021-2022. Canadian startups raised close to $1.3 billion across 66 rounds. That’s down about 15% from $1.5 billion and 71 rounds in 2023.

However, the decline is starting to taper off - deal activity dropped just 7% and stayed above 2022 levels. 

The same trend is happening for climate tech globally, where investment dropped 14% last year vs the 24% drop in 2023.

Settling into smaller rounds

One of the biggest changes we’re seeing is smaller deals. Median deal size is down 46% compared to 2022, hitting $6.8M in 2024, compared to $10.4M in 2023 and $12.7M the year before that.

There’s less FOMO-driven decisions, tourist investors are moving on, and investors are realizing the challenges in scaling hardtech. This is the new landscape for founders looking to raise.

Globally, the average deal size dropped by 14% last year, hitting an average of $23.6M. The Canadian average isn’t far off, at $22M. However, a small number of >$100M outliers boost the numbers.

High bar to graduate

Seed rounds are still active - up 20% in 2024 - but we’re seeing fewer graduations to Series A. We saw a 50% drop in Series A deals compared to 2022 and the ones getting done are about 30% smaller.

That shift is likely driven by higher investor expectations to progress to the next round of funding and difficulty hitting commercial milestones. 

Steady focus on energy, industrials

Sector trends didn’t shift too much, with Industrial, Energy and Food & Land being the most active sectors.Energy secured the most capital ($392.5M), followed by Transportation ($302.5M) and Industrial ($193.7M).

Energy and Transportation were driven by mega-rounds like ClearSky Global ($228M venture round) and FLO EV Charging ($136M Series E). 

Zooming in, there are some notable clusters of investment in Carbon Removal, like Svante’s $137M equity raise and Planetary’s $15.7M Series A, and multiple early stage investments in Alternative Proteins like Maia Farms, Opalia and New School Foods.

Exits

We saw few exits and zero IPOs in a year dominated by financial challenges at some high profile ventures like Nexii, Northvolt and Lion Electric. We tracked four acquisitions, including Trane’s purchase of BrainBox AI and Loop Energy’s acquisition by / merger with H2 Portable Power.

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What we’re watching in 2025

2025 brings some big challenges to climate tech: shifting political landscapes, increasing pressure for commercial viability, and economic headwinds. Here are some of the major themes we’ll be watching in the year ahead.

💵 Green Premium → Green Discount

Persisting inflation, potential trade wars, and shifting political support mean a renewed focus on delivering clear economic value beyond emissions reductions. Clean growth isn’t going anywhere, but clean technologies will need to compete directly with the fossil economy on cost and performance.

From the conversations we’ve had recently, startups are distinguishing themselves by focusing on optimized value chains, diversifying their capital stack beyond venture funding, and building strong funding coalitions and project partnerships.

🏛️ Gravity shift

The Inflation Reduction Act created a strong pull for companies to expand and set up production in the U.S. and for other countries to set up their own incentives to stay competitive. Companies will need to reevaluate their U.S. expansion plans because of missing or smaller incentives and an administration hostile to low-carbon tech.

Economic pressure and a trade war between the U.S. and Canada could push climate lower on the priority list for politicians. But it could also create a sense of urgency in government to build out domestic manufacturing and diversify our economy away from fossil fuels.

🧯 Adaptation

Climate threats are getting up close and personal for more people, and the wildfires in L.A. will leave a lasting impact on millions of people. That first hand experience - and the massive recovery and rebuilding effort - will likely drive more interest in adaptation efforts like fire suppression and water scarcity.

More focus on adaptation is a mixed bag in terms of how we respond to climate. There’s a risk that attention jumps straight to adapting to a changing climate and leapfrogging over decarbonization. Particularly on the policy side where it’s easier to deal with symptoms than root causes.

⚡️ + 🔋 Energy evolution

Record levels of renewable energy deployments require investments in energy storage to keep the lights on. Utilities can only put up with negative energy prices, brownouts, and the risk of grid disruption for so long.

AI data centres continue to boost geothermal and nuclear energy, both of which could be big unlocks for baseload power. Performance data and construction milestones from early nuclear and geothermal projects will be critical in determining whether these technologies can scale quickly enough to meet growing energy demands - and investor expectations.

Limited grid access, connection delays, and decreasing generation costs could drive data centres and industrial players to develop their own off-grid generation, accelerating the shift toward distributed energy.

Appendix

Our data is based on public fundraising announcements. There’s a high probability that some raises (e.g. extensions, bridge rounds, and pre-seed rounds) went unreported and won’t show up here.

It’s also a small data set, so the inclusion / exclusion of one data point can skew the results, particularly when we look at averages. I’ve called this out where possible and use median rather than average to offset the impact of outliers.

Verticals: Broadly, I consider climate tech to be companies creating technology that is intentionally reducing emissions, adapting to climate change, or helping monitor and quantify climate impact. I lean on Climate Tech VC’s classifications for Vertical and Industry.