In the last few years, climate tech has gotten more money than ever before. In 2021, venture capitalists put a record $31.4 billion into sustainable startups. In the last six months alone, the sector has brought in another $82 billion globally. But behind these numbers that get a lot of attention is a growing worry: the lack of successful exits.
Exits validate investor bets, recycle capital, and fuel future rounds. Without them, the momentum driving climate innovation could falter.
A Growing Sector, But Not Yet Paying Off
To be clear, exits in ClimateTech are increasing.
In 2024, the number of exits in the sector rose by 136%, reaching 104 deals (quadrupling over the last 4 years). The majority of these exits were due to mergers and acquisitions (M&A). The IPO window, once promising, has narrowed sharply.
This trend toward M&A shows that a lot of startups are exiting earlier, often before they are fully commercialized. This can be a good way to grow technologies on bigger corporate platforms, but it also limits the returns that venture capitalists usually look for. It becomes harder to defend the financial logic of putting more money into early-stage ClimateTech if there aren’t any large exits.
Why a Handful of Startups Matter More Than Ever
For ClimateTech to stay investable, a few leading companies need to show that climate innovation can not only make a difference, but also make money. A few ClimateTech companies that come to mind are:
- Form Energy is the first company to use iron-air batteries for ultra-low-cost, long-lasting energy storage. They are very appealing to big energy companies and industrial buyers because they allow for multi-day energy storage at a fraction of the cost of lithium-ion.
- Redwood Materials is making a closed-loop supply chain for lithium-ion batteries by recycling important parts. Redwood is also a great company for a large industrial or automotive company to buy because it is in a unique position in the battery supply chain and has strong ties to major automakers and battery makers.
- Commonwealth Fusion Systems is aiming to make commercial fusion energy a reality. If this works, it would be a huge step forward for ClimateTech and for energy markets around the world. Because the company has raised a lot of money and has a lot of well-known investors, it is possible that it will go public one day. However, this is not likely to happen in the next few years because the development process is long and there are still technical milestones to reach.
- Noya’s modular, low-cost, and scalable technology makes it a strong candidate for acquisition by larger energy, industrial, or technology companies that want to improve their carbon removal capabilities. It is also well-positioned for a future exit as the carbon removal market matures and as their momentum continues to grow.
If these companies are successful, it will do more than prove that their business models work. It would make investors more confident, bring in new money, and show that climate tech is becoming a strong, profitable asset class.
The Capital Stack Is Maturing, But Needs Proof Points
The capital stack is also evolving. More and more people are talking about growth, late-stage and infrastructure financing to help scale solutions. But without clear examples of success, later-stage capital won’t come in large amounts. Institutional investors, corporations, and infrastructure funds need to know that ClimateTech isn’t just a story of moonshots, but also of real results.
Looking Forward
ClimateTech is at a turning point. A lot of money coming in has led to a lot of new ideas, but if there aren’t any substantial exits, the model could become unsustainable. Form Energy, Redwood Materials, Commonwealth Fusion Systems, and Noya are all startups that have more than just their own futures. They show that the whole industry can work.
The difference between a boom that fades and one that pays for the next generation of climate solutions could be their ability to grow and make money.
