Clean Tech Innovation

Compared to 2021, 2022 saw a cooler climate for Venture Capital (VC) investment in California’s Clean Tech companies. Yet this change of environment was neither specific to California nor Clean Tech companies. The level of VC funding fell nationally in 2022, and across all VC categories. A tougher macroeconomic backdrop slowed Clean Tech investment, rather than a re-evaluation of the growth potential of Clean Tech companies. While there was a pronounced slowdown in VC investment in companies in Transportation and Mobility sector, in most other clean tech segments in the state, particularly Energy Transition, there was still positive investment momentum in 2022. Furthermore, while there was a significant drop in large Clean Tech deals in California in 2022, there was a big jump in the amount of money devoted to smaller Clean Tech deals in the state.

The current chapter tracks venture capital investments made in California-based Clean Tech companies, relying on data provided by Pitchbook. Pitchbook data tracks disclosed investment activity in private equity markets. In the current chapter, Venture Capital includes all Seed, Series A-E+, and Growth Equity investments. Clean teach VC investment is divided into six major segments: Built Environment, Carbon Tech, Energy Transition, Food Systems, Industry and Materials, Land Use, and Transportation and Mobility. In addition to private investment, on August 16, 2022, President Biden signed the landmark legislation, the Inflation Reduction Act (IRA), into law. The wide-ranging bill includes approximately $370 billion in spending and tax breaks to stimulate investment in clean energy and other actions that target climate change. The chapter will also include an update on how money from the act is filtering through to the state.

Clean Technology Investment in California
  • In 2021, VC funding in the U.S. (across all segments) was 33 percent higher than in any other year on record. Coming off of these heights, total VC investment in the US fell 42 percent in 2022. Likewise, there was a big drop in total VC funding in California, where the amount of investment fell by 31 percent during in 2022.

  • During 2022, venture capital (VC) Investment in California’s clean tech companies fell by 56 percent compared to the prior year, while the number of VC deals completed in the state fell by 24 percent.

  • Clean tech investment in 2022 was hurt by a tough macroeconomic backdrop, and by comparison to a historically-inflated year in 2021, rather than a re-evaluation of the growth potential of clean technologies.

  • Until August of this year, VC investment in the US stood at 58 percent of the 2022 level, while VC investment in California amounted to 47 percent of the 2022 figure.

California Clean Technology Investment by Segment
  • In the Transportation and Mobility segment, VC investment dropped by 83 percent in 2022. This segment accounted for 53 percent of the total drop in clean tech VC investment in California during the year.

  • There was positive momentum in other clean tech segments. For the Built Environment and Industry and Materials segments, 2022 saw the highest level of VC investment on record, while the level of VC investment in Energy Transition was only three percent off of the peak set in 2021.

  • In 2022, the Energy Transition segment replaced Transportation and Mobility as the largest recipient of Clean Tech VC investment in the state. Energy Transition companies accounted for seven of the ten largest VC clean tech deals in the state during the year.

  • In 2022, there were notable decreases in the amount of VC investment in Carbon Tech, Food Systems and Land Use. However, in each of these segments, the amount of investment was either the second-highest level over the past 10 years (Land Use), the third-highest level (Carbon Tech) or the fourth-highest level (Food Systems).

California Clean Technology Investment by Deal Size
  • In 2022, there was a drop in the number of large VC investments in clean tech companies (deals of greater than $500 million). The largest deal in 2022 would have ranked as the sixth-largest deal in the state in 2021.

  • There was a jump in the number of smaller clean tech VC deals in the state. For deals of less than $500 million, there was an 18 percent jump in total VC investment in 2022, compared to 2021. Absent larger deals coming to the market, and reduced investor appetite for larger deals, there were more resources to invest in smaller deals in 2022.

Other Investments in California Clean Technology
  • In addition to VC funding, the Inflation Reduction Act of 2022 is starting to engender investment in the state’s clean energy companies. Over the 12 months since it passed in August 2022 to August 2023, the landmark legislation has enabled $1.6 billion in clean energy investment in California. This figure includes a $1.5 billion investment made by Bosch, an auto industry supplier, to expand its semiconductor manufacturing capacity in Roseville, California, as well as a $100 million investment by Stellantis, to manufacture lithium batteries at Controlled Thermal Resources’ Lithium and Power project called “Hell’s Kitchen” in the Salton Sea Geothermal Field located in Imperial County.