Climate change is one of the biggest challenges facing the world today. As such, global efforts are underway to reduce emissions and slow down its impact. This has opened up enormous opportunities for startups that are focusing on carbon capture technologies. However, like most startups, funding is critical to success. In recent years, venture capital (VC) firms have taken an interest in carbon capture startups, recognizing the potential of this growing market. Learn about how venture capital plays a crucial role in providing funding for carbon capture startups and understand more about investment criteria.
The venture capital (VC) scenario and its relation to carbon capture
Venture capital (VC) firms typically invest in startups with high potential to grow. Carbon capture startups are no different.
VC firms place emphasis on startups that have sound business models, clear pathways to profitability, and an experienced management team. In addition to these criteria, carbon capture startups must have a sustainable technology that can reduce emissions effectively.
For instance, some startups are investing in capturing carbon dioxide directly from the atmosphere or industrial plants using what is referred to as direct air capture technology. Others are working on carbon capture applications in the energy or industrial sectors.
It’s essential to demonstrate that the technology is scalable, cost-effective, and not overly dependent on public funding.
There have been notable deals in the carbon capture sector in recent years. One such deal is Carbon Engineering Ltd, a Canadian-based startup that is developing the Direct Air Capture technology, which takes CO2 directly from the atmosphere.
The company has already made deals with Chevron and Occidental Petroleum, and in early 2021, it raised an additional $68m from investors like Chevron and Bienville Capital. This new funding will go towards the commercialization of Carbon Engineering’s technology, with plans to build its first facility in Texas.
Other startups, such as Climeworks and Carbon Clean Solutions, have also secured sizable investments from VC firms. In the latter case, Carbon Clean Solutions has raised around $30mn in total funding.
This UK-based startup is developing technology to capture CO2 from industrial processes. In 2020, the company announced a $22.7m funding round led by GSP Energy, with participation from Equinor Ventures, ICOS Capital, WAVE Equity Partners, and Marubeni Ventures. The funding is expected to enable Carbon Clean Solutions to expand its operations globally, bringing its technology to new markets.
These examples show that the market potential is enormous, with the International Energy Agency estimating that carbon capture, utilization, and storage (CCUS) technologies could reach a value of up to $2 trillion by 2040.
This has undoubtedly captured the attention of VC firms and investors looking to make an impact and a profit. But what exactly are the perspectives for the future of VC funding on carbon capture initiatives?
The future of VC funding and the carbon capture sector
The future of VC funding in the carbon capture sector looks promising. The COVID-19 pandemic has brought to light the vulnerabilities of global supply chains and the need for more sustainable solutions.
As such, more investors are looking to invest in climate tech startups, especially those focusing on carbon capture technologies.
In recent times, there has been an increase in funding for climate tech startups globally, with deals topping $16 billion in 2019, up from $400 million in 2013. Moreover, governments worldwide have committed to funding climate action plans, and some have introduced incentives for carbon capture technologies.
This means that VC firms have a more significant opportunity to work with startups focused on sustainable solutions like carbon capture technologies.
Nevertheless, the sector still faces some challenges. One of the main challenges is the high cost of technology.
Carbon capture requires expensive infrastructure and a significant amount of energy, making it challenging for startups to build and operate carbon capture facilities. The lack of government incentives to support the development of carbon capture technologies is another significant challenge.
For this reason, it is important to continue developing more efficient and cost-effective carbon capture technologies, like ERW, for example. In this way, the sector can grow and offer more help in providing solutions to problems like climate changes.
Venture capital has a significant role in funding new carbon capture startups, which have potential to help mitigate urgent problems
In conclusion, venture capital is playing an increasingly significant role in funding carbon capture startups. VC firms are looking for businesses with sustainable, scalable technologies, experienced management teams, and clear pathways to profitability.
Carbon capture startups have strong potential, as evidenced by the notable deals and projected growth of the CCUS market.
With increased funding and government support, VC firms are expected to invest more in climate tech startups, providing critical funding to reduce emissions and slow down the impact of climate change. The future looks bright for carbon capture startups and their investors.
