Second CommerzVentures Report on Climate FinTech
The race to net-zero is on. By 2050, our civilization cannot emit more greenhouse gases than are removed from the atmosphere — our very survival is at risk.
For a realistic chance of reaching net-zero in time, a key milestone must be realised by 2030: to halve net emissions from today’s level. That leaves us eight years to deliver major progress in decarbonizing our energy, transport and industrial infrastructures.
It will also require massive investments in carbon removal technologies and the protection of natural ecosystems.
The financial sector will need to play a key role in mobilising and channelling these investments. It also has an opportunity to use its reach to support customers in their transition toward climate-neutrality.
Enter Climate FinTech.
Over the last few years, a fast-growing number of FinTech startups have been founded, using technology to help the financial sector rise up to its climate challenges.
At CommerzVentures we initially developed an investment thesis around these startups two years ago, coining the term Climate FinTech for the first time. We also began the conversation regarding the opportunities for this space, which were still nascent back in 2020.
Today, we are releasing our second report on Climate FinTech. Given the tremendous progress in the space, we sought to provide a quantitative overview by analysing funding dynamics across geographies, sub-sectors and company stages.
Through bottom-up research in databases, relevant publications, and based on information we received from founders, we identified 292 Climate FinTechs across Europe and North America with scalable business models (ie. “VC cases”).
In the following, I am summarising our findings:
#1 Total VC funding:
3x higher in 2021 than all previous years combined
Climate FinTech startups raised $1.2 billion in 2021. This number is 3x higher than all previous years combined. Before 2021, all 292 identified startups raised a total of $400 million.
#2 Geographic distribution of VC funding
Europe ahead of the US in # of companies and total funding volumes. But the US has higher average funding per company.
European Climate FinTech startups raised more VC funding in 2021 than their US counterparts, with $624 million vs. $576 million. Funding volumes for European Climate FinTechs increased by 3.4x. US Climate FinTech funding grew slower with a factor of 2.6x.
Europe counts almost 4x more Climate FinTech startups than the US (228 identified companies in Europe vs 60 in the US).
Within Europe, UK-based Climate FinTechs attracted the most funding in 2021 with $194 million, followed by France with $143 million, and Germany with $96 million. Sweden and Finland punched above their weight, rounding out the top five with $50 million and $59 million respectively.
US deep dive:
Despite the US attracting slightly less funding than Europe, the two largest Climate FinTech funding rounds of 2021 were announced by US startups.
At Series B and later, US companies raised more ($403 million vs $239 million). The two largest Climate FinTech funding rounds of 2021 were announced by US-based startups: Xpansiv (a marketplace for carbon credits) raised $140 million, and Persefoni (a carbon accounting platform) raised $115 million. Both companies completed two financing rounds within 2021
Europe deep dive:
In 2021, a total of $233 million was raised by European Climate FinTechs at Series A. Large Series A rounds were raised by Doconomy attracting $19 million (led by CommerzVentures) and Sweep raising $22 million (led by Balderton Capital).
Pre-Seed and Seed companies raised more than $150 million and Series B+ companies $239 million.
#3 Funding by stage:
Mostly at Seed and Pre-Seed stage
Given Climate FinTech is an emerging space, 68% of all companies that have announced funding rounds are at Pre-Seed or Seed stage. And as Pre-Seed rounds are often not reported, their share is even likely higher. 23% of Climate FinTech companies have raised a Series A, and 9% a Series B or later.
#4 Funding by sub-sectors:
Carbon Accounting and Climate Risk Management in the lead
The largest sub-sectors within Climate FinTech are Carbon Offsetting with 101 identified startups, and Carbon Accounting with 68 startups. Other notable sub-sectors identified are Impact Investing (29), ESG Reporting (27), and Climate Risk Management (21).
The most attractive space for VCs in Climate Fintech so far has been Carbon Accounting with $410 million in raised funds. Given the high number of Carbon Offsetting startups, the sector has received relatively little funding with $163 million. Curiously, Climate Risk Management is punching above its weight with $304 million raised in total.
#5 Funding by business model:
B2B clearly ahead of B2C and B2B2C
B2B startups raised almost 6x more funding in 2021 than B2C startups ($1bn vs $179m). Funding for startups with a B2B model was also growing faster than for B2C startups at 3.4x vs 2x. On average, B2B startups received more funding than B2C startups with $7.3 million vs $2.7 million respectively. Companies with a B2B2C model attracted the least funding overall with $25 million.
#6 Emerging themes within Climate FinTech to watch out for:
DeFi for Climate
At the bleeding edge of Climate FinTech, companies are already building infrastructures for the tokenization of carbon.
Companies such as Toucan are working to bring carbon on-chain, allowing anybody to tokenize their carbon credits and make them available in the emerging world of DeFi.
Another example is Single.Earth, a platform on which users can trade natural resources as tokenized virtual goods, such as carbon credits or biodiversity offsets. A Merit Token is issued for every 100 kg of CO2 captured in biodiverse nature.
