Clean technology experienced a boom and bust in the late 2000s that left investors disappointed. But today, venture capitalists are seizing on a new phase of climate investing that looks far more promising, known as climate tech.

Climate tech is a broad label referring to forms of green technology that address the climate crisis, particularly projects geared toward mitigation and adaptation. Many of these technologies are in the same vein as cleantech, but climate tech encompasses a broader, more diverse range of projects—and for good reason.

“In order to mitigate the worst impacts of the climate crisis, we have to decarbonize every single dollar in our economy,” said Terra.do course instructor Susan Su, who’s also a climate change investor and partner at Toba Capital. “This touches everything from food to energy to our built environment to our clothing to our pets and even our medicine. ‘Climate’ is not a vertical so much as an ethos or approach to all other aspects of daily life and the technologies that enable it.”

Within that broad spectrum, venture capitalists can find tons of opportunities—and they’re more excited about them than ever. In 2020, climate tech startups received a record influx of $17 billion of capital globally. And this time around, venture capitalists are much more confident that their investments can not only curb climate change but also turn a profit.

Beyond Clean Technology: What’s Driving the Strong Growth in Climate Tech Investing?

So what makes climate tech different from the ill-fated clean technology movement? In part, many investors are motivated by the undeniable urgency of the climate crisis, which becomes more evident with the growing number of extreme storms and weather events happening each year.

At the same time, investors are also compelled by global efforts to reach net-zero emissions by 2050, and they want to get in on the sweeping changes emerging across industries because those changes, like other major technological advancements, represent massive financial opportunity.

These factors have generated greater demand for climate solutions and cost-effective technology such as electric vehicles, which cost less to operate and far outlast their gas-guzzling counterparts.

Carbon capture or carbon sequestration is another major example of climate tech that’s recently garnered a lot of buzz. Carbon capture refers to removing carbon dioxide emissions from the air and storing them, or in the case of carbon capture utilization, transforming them into a reusable material.

Zach Stein, co-founder of the climate-friendly investment platform Carbon Collective, said social shifts are also at play. Consumers and shareholders want to see companies do better, and that’s motivating many companies to invest in climate action.

“There’s this bottom-up pressure on companies to get ahead on climate,” Stein said. “Major corporations, especially publicly traded ones, invest a lot in protecting their brand image. So, for them to be able to do things like buy 100 percent renewable energy, or switch over to a fully electrified fleet, it can allow them to be on the right side of that.”

With their eye to the future, many venture capitalists view climate tech as a chance to stay ahead of the curve. Venture capital investment in climate tech grew five times faster than other sectors on average in the years between 2013 and 2019, capturing $60 billion, according to PwC’s report, The State of Climate Tech 2020.

Continuing the trend, climate tech startups are on track to break last year’s record-high $17 billion in fundraising. By July 2021, venture capital had already poured more than $14.2 billion into climate tech companies around the world, according to Pitchbook.

The PwC report predicts a similarly bright future: “The bottom line is that demand for climate tech is only going to accelerate…With global corporations, investors and governments pledging to transition to net zero value chains, portfolios and jurisdictions, they are all betting on climate technology breakthroughs to be found, scaled and to transform industries and society.”

For savvy venture capitalists, it’s an exciting time to help shape an evolving world and make a difference—and profit.

“There’s a lot of talent coming into this space, and VCs bring their money to chase that talent,” Su said. “When you consider something as enormous as a total rewrite of the modern economy to shift away from extraction and towards sustainability or even regeneration, then you realize that that is a lot of work that’s going to get done. That amount of work creates enormous value. Investors’ job is to enable, and then capture a share of, that value, in service to their core business model of deploying capital to generate returns.”

How to Transition Into Climate Tech Investing

If you already work in venture capital, you’re well positioned to move into the climate tech space. Su said the skills and strategies that serve venture investing are also relevant in this arena, especially, “relationship-building, discernment, ability to learn deeply about new topics very quickly, decisiveness, an understanding of and experience with a variety of business models and how they scale, and a good working knowledge of the private equity industry.”

It’s also important to spend some time learning about the climate crisis and deepening your knowledge of climate tech solutions before diving in. The more you know, the better equipped you’ll be to evaluate opportunities, calculate risk and make smart decisions.

“It is an increasingly competitive space with an extraordinary amount of hype driving valuations and activity, so it pays to be informed,” Su said.

To build your knowledge base, begin by checking out these climate-focused resources:

• Climate Tech VC newsletter: This weekly newsletter helps you keep up with the broad climate tech landscape, introducing you to top investors, detailing recent deals and covering relevant news.
• Project Drawdown: This nonprofit is dedicated to providing information, education and analysis on climate solutions, so you can get up to speed on what technologies are needed to help the world reach “drawdown”—also known as the point at which greenhouse gas levels begin to drop.

After you’ve waded into the climate tech space, dive deeper with an educational course or fellowship program. Here are some resources to check out:

• Terra.do offers a variety of classes designed to help you understand climate change and the action needed to make a difference. Together with Techstars, Su teaches Terra.do’s Climate Change for VCs course, which teaches investors the climate science they’ll need to assess opportunities.
• On Deck Climate Tech is a fellowship program and community where founders, builders and investors working in climate tech can share knowledge, find support and collaborate.

And if you’re looking to meet climate entrepreneurs and get to know others who are active in this space, try connecting on these platforms:

• AirMiners: Meet entrepreneurs, researchers and investors working on carbon removal in this community with an accompanying Slack channel.
• My Climate Journey: This Slack community brings together people from tech, academia, finance and other backgrounds, all of whom are interested in working to address climate change.

“At the end of the day, early-stage VC investing is way more art than science,” Stein said. By taking time to educate yourself and grow your network in climate tech, the transition to this space doesn’t have to be much different than building expertise in any other specialty. That means a venture capitalist’s keen instincts will serve them well.