Climate tech investments down 60% during first half of 2023
Annual report by Israel Innovation Authority, non-profit PLANETech, says drop is in line with investments for all Israeli tech; follows 320% growth rate from 2018 to 2021
Sue Surkes is The Times of Israel's environment reporter
Investments in Israel’s climate tech dropped by around 60 percent during the first half of this year compared with the same period in 2022, according to an annual report published Wednesday.
Israel’s State of Climate Tech 2023 found that the drop (to $551 million) was in line with investments for all tech in the country, and comes amid a downward global trend in the climate tech market.
According to a general state of climate tech report published in October by consultants PricewaterhouseCoopers, however, the drop worldwide was not as drastic.
“For investors in climate technology ventures, the past two years have been a test of resolve and adaptability,” the PricewaterhouseCoopers document said.
“A combination of geopolitical turmoil, sinking valuations, inflation, and rising interest rates has set back private markets of all kinds.”
Total venture and private equity investment, for example, was down 50.2% year-over-year, PwC said, totaling $638 billion in 2023.
Private market equity and grant funding in climate tech start-ups fell by 40.5% over the same time frame, but still took climate tech start-up funding “back to the level of five years ago.”
Wednesday’s report, issued jointly by the state’s Israel Innovation Authority and the not-for-profit climate tech organization PLANETech, mapped 784 climate tech startups this year (compared with 694 in 2021), the equivalent of 17.4% percent of all newly-established tech startups.
Investments in these companies in 2022 totaled $2.27 billion, down 12% on the year before, but this came after a 320% growth rate from 2018 to 2021, and was similar to global climate tech trends during the same period, the report went on.
Overall investments in early- and growth-stage climate tech startups dived 43.6% from $28.2 billion in 2021 to $15.9 billion in 2022.
But the sector proved relatively resilient. Investments in Israeli tech in general, when climate tech was taken out of the calculation, dived by 47%.
The five main challenges addressed by climate tech startups remained steady between 2022 and 2023 . These were climate-smart agriculture, clean energy systems, sustainable mobility and transport, alternative proteins, and eco-efficient water infrastructure, in that order.
A mapping exercise focusing just on startups established since 2018 (382 of them, or 49% of all startups) threw up some changes in the ranking of the different climate challenges.
Carbon management, risk, and finance, as well as carbon capture and utilization, had become more popular, while eco-efficient water infrastructure was less so, and low-carbon buildings had fallen out of the top 10 challenges.
The report suggested that startups addressing the latter two challenges were now primarily mature companies.
Most of the funded startups (44%) were still at the seed funding stage, and less than 8% had progressed beyond Round B.
This was consistent with the finding that most startups (67%) were still relatively young.
More than 14% of the companies were either publicly traded or had completed an exit through acquisition or merger.
More than half the funding came from Venture Capital Funds, and just over half of all investors (52%) were Israeli, with most of the rest from the US.
The Innovation Authority, an arm of the government, supported 273 climate tech ventures in 2022, with a total of $71.4 million — 16% of its annual budget.
Climate tech startups faced unique scaling challenges, the report explained. Most needed expensive physical equipment that were capital intensive, and had long-term visions for development, from the initial proof of concept stage until commercialization.
“Until this endpoint, startups need to establish pilot demonstrations and are challenged by the extended period needed to progress from a pilot plant to the sufficient scale and competitive costs required to reach commercial viability.”
“Solutions often address systemic challenges, requiring a collective effort and collaboration between various private and public stakeholders, as well as cross-disciplinary and intersectional thinking.
“Climate tech solutions can incur both market and technology risks, making the provision of scale-up capital from growth investors a double challenge.”
A survey conducted among 210 Israeli climate tech companies for the report revealed the main difficulties faced by Israeli companies at the development and growth stages. From the most challenging, the order was financing, ability to scale up, regulation, distance from the target market, pilot sites, and ongoing operational costs.
Asked to detail gaps in local connections and services, respondents repeatedly pointed to a lack of knowledge and experts in the startup’s domain (industry, scientific and research experts), as well as the limitations of a small market and the lack of pilot sites.
