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.

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).

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.

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.