Environmental tech startups: Powering a sustainable future

India’s funding jumped from $225 million in 2018 to $1.5 billion in 2023, marking a compounded annual growth rate of 140%
9 Jun 2024
0 mins read
Green startups: Powering a sustainable future (Image: Needpix)
Green startups: Powering a sustainable future (Image: Needpix)

The 21st century has witnessed an unprecedented rise in climate anomalies, with each year breaking new temperature records and experiencing more frequent extreme weather events. On this backdrop, environmental technology (environment tech) startups have emerged as crucial players in the global effort to combat climate change.

Tracxn's Environment Tech Report shared on the World Environment Day explores the dynamics of the environment tech sector, highlighting funding, key investment trends, innovations, and the pivotal role of startups in driving sustainability. Tracxn, is one of the world’s largest platforms for tracking startups and private companies.

The report also looks at the unicorns along with the comparison of the countries who are heavily investing into environment tech.

In 2018, the USA accounted for 60% of environmental tech funding, but this has dropped to under 40%. Meanwhile, contributions from Europe and India have significantly increased over the past five years. While the USA, Europe and India are investing heavily in environment tech, USA’s market share has gone down from 62% in 2018 to less than 40% in 2023.

In India, startups are emerging in solar energy technology, hydrogen production and storage, and electric vehicles (EVs). Carbon capture ($42M+) and offset and solar energy technology ($161M+) have attracted the most funding in the last 5 years.

There has been a lot of funding in Indian startups tackling drought resilience through wastewater management, with over $35 million going in this year till date; which is significantly more than its annual investment each year over the past five years. The total number of funding received in geo-green scorecards in India is $6.55B, with 2024 having received $372M till date.

The total number of unicorns and soonicorns till date in India stand at 1 and 26 respectively.

The evolution of environment tech startups

Benchmarking startup activity

Equity funding is a critical indicator of innovation within the startup ecosystem. Despite a general decline in overall funding for tech startups, environment tech has seen a proportional increase in investment. In 2024, nearly 10% of all equity funding has been directed towards environment tech startups, up from 7% in 2018. Venture capital (VC) funds play a dominant role, contributing about 60% of this funding. This trend reflects a broader global focus on climate-related action, even amidst a slowdown in venture capital activity overall.

Key funding rounds in 2024 have included significant investments in climate insurance, geographic information systems, and smart grid energy technology. For instance, ICEYE, a geographic information systems startup, raised $93 million in a Series D round led by Solidium, and GridBeyond, specialising in smart grid energy tech, secured $55 million from Alantra.

Geographic distribution of innovation

The United States and Europe have traditionally led the world in environment tech innovation. However, recent years have seen a shift, with European startups now raising funds at par with their American counterparts. Within Europe, the United Kingdom, Germany, and France are at the forefront of this trend. Meanwhile, India's environment tech sector has experienced a significant funding increase, jumping from $225 million in 2018 to $1.5 billion in 2023, marking a compounded annual growth rate of 140%.

Key sectors in environment tech

The majority of funding within environment tech is channelled into EVs and their auxiliary sectors, such as lithium-ion battery recycling and long-duration energy storage. Over the last five years, EV startups have raised over $60 billion, making it the most funded sector. Alongside EVs, solar energy technology and carbon capture & offset sectors have also gained traction, with combined funding exceeding $1 billion in 2024 alone.

Notable startups in these sectors include Verkor, which develops lithium-ion batteries for EVs, and One, an energy management systems provider for electric vehicles. Additionally, unicorns are emerging in solar energy technology and carbon capture & offset, each sector boasting seven unicorns.

Innovations addressing land restoration, desertification, and drought resilience

On World Environment Day 2024, the focus was on land restoration, desertification, and drought resilience. These areas have become increasingly critical due to global climatic changes leading to flash floods and extended droughts. Innovative startups in these sectors are playing a vital role in developing sustainable solutions.

The United States leads in investing in startups focused on land restoration and desertification, with nearly $100 million invested annually over the past five years. Notable startups include Yolanda, which offers AI-based forest management solutions, and H2O Allegiant, providing water recycling solutions for industries.

India has emerged as a significant player in drought resilience, with substantial investments in wastewater management startups. In 2024 alone, India invested over $35 million in this sector, significantly more than its annual investment in previous years. Key startups include Gradiant, which raised $225 million for water and wastewater management, and Solugen, securing $200 million for similar initiatives.

The role of venture capital in environment tech

Venture capital funds are instrumental in driving innovation within the environment tech sector. Over the last five years, Techstars has been the most active investor, leading over 100 funding rounds in the sector. Other significant investors include Breakthrough Energy, Lowercarbon Capital, and Clean Energy Ventures. These investors focus on various environment tech sectors, including electric vehicles, solar energy technology, carbon capture & offset, and drought resilience.

Summary and future outlook

The landscape of environment tech startups is rapidly evolving, with shifting funding patterns and emerging innovations across regions and sectors. Startups in this field are developing crucial technologies to address climate change and environmental sustainability. As global attention on climate-related challenges intensifies, the role of environment tech startups will become increasingly important in shaping a sustainable future.

Key trends indicate a robust growth trajectory for sectors like electric vehicles, solar energy technology, and carbon capture & offset. Moreover, the thematic focus on land restoration, desertification, and drought resilience will likely drive further innovations and investments in these areas. The collaborative efforts of startups, venture capitalists, and governments worldwide will be essential in overcoming the environmental challenges of the 21st century and beyond.

Detailed analysis of key sectors

  • The electric vehicle sector continues to dominate environment tech funding, reflecting the global shift towards sustainable transportation. Innovations in battery technology, charging infrastructure, and energy management systems are critical to the sector's growth. Startups like Verkor and One are at the forefront, developing cutting-edge technologies to enhance EV efficiency and adoption.
  • Solar energy technology has emerged as a promising sector, with startups focusing on advanced photovoltaic systems, solar energy storage, and grid integration. Innovations in this sector aim to increase the efficiency and affordability of solar power, making it a viable alternative to fossil fuels. The rise of solar energy unicorns indicates significant progress and investor confidence in this field.
  • Carbon capture & offset technologies are crucial in mitigating the effects of climate change by reducing greenhouse gas emissions. Startups in this sector are developing innovative solutions for capturing carbon dioxide from industrial processes and the atmosphere. The sector's growth is driven by increasing regulatory pressures and corporate commitments to achieve net-zero emissions.

The environment tech sector is at the heart of the global effort to combat climate change. Startups in this field are pioneering innovative solutions to some of the most pressing environmental challenges. With continued support from venture capitalists, governments, and international organisations, these startups have the potential to drive significant progress towards a sustainable future.

As we move forward, it is essential to foster an ecosystem that encourages innovation, collaboration, and investment in environment tech. By doing so, we can ensure that startups continue to play a pivotal role in shaping a resilient and sustainable world for future generations. The trends and insights highlighted here underscore the importance of sustained efforts and investments in environmental technology, paving the way for a greener, more sustainable future.

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