As mega-rounds become rarer, energy startups are powering up

Large funding rounds raised by startups are becoming less frequent, yet energy companies that operate on the cutting-edge remain strong market competitors.

Venture deceleration, late stage glaciation and other market forces are not stopping companies looking to reinvent energy from raising massive rounds. Given what we’re witnessing around the globe, this development should be welcomed even though it seems decade or more too late.

Powering Up

Nine-figure rounds, often referred to as mega-rounds, can be massive. Over the first two months and first days of March of 2017 alone, some 12 deals met our criteria for “energy,” tracking companies working in power generation and distribution using Crunchbase data – this included projects like solar PV generation, batteries for storage purposes and EV charging services like Lucid or Fisker vehicles in our analysis.

From January 1, 2023 until March 4, 2023, 11 deals met our criteria; seven were located in China. Comparatively, during Q1 2024 there were 12 deals that met these standards – with only one being Chinese company related.

Reform of the Global Venture Capital Market

As the global venture capital market adapts to rising interest rates, investment into technology startups has decreased. Private-market investments into later stage startup formation has experienced particularly sharp deceleration due to limited exit environments and lower public market valuations for many software companies.

Later-stage startup dealmaking has evolved so rapidly in recent quarters that it’s easy to forget how optimistic private-market investors were just several years ago. According to CB Insights’ estimates, each quarter from Q1 2019 through Q4 2022 saw at least 100 nine-figure deals, or rounds worth $100 million or more, CB Insights noted. Conversely, Q4 2023 experienced only 78 nine-figure deals since 2018’s end.

More recent data underscores this trend. A TechCrunch analysis of Crunchbase data revealed that from January 1 through March 4, 2023, approximately 115 rounds met our criteria for nine-figure private market deals (excluding private equity investments, all post-IPO transactions, certain debt rounds etc). However, during this same timeframe this year, only 75 rounds met those criteria compared with 115 last year.

Why highlight energy-focused mega-rounds when they were almost constant year over year? Because energy-focused mega-rounds made up an ever-increasing percentage of nine-figure deals TechCrunch examined, from just under 10% in 2023 period we are studying to 16% by the same portion in 2024 – that represents over 60% gain in relative share – an astounding change for any sector over one year alone.

So when we saw 12 venture capital rounds in the energy sector, they stood out like beacons; such a number is usually scarcely seen, making their concentration in an industry not usually seen as popular (like AI) all the more remarkable. Furthermore, along with massive geographical shifts occurring concurrently, something appears to be heating up significantly within energy land.

Energy’s surge is undeniable.

China was a dominant force in 2023 energy mega-rounds, channeling most of the funding into producers of solar panels and battery materials. China lavished these sectors with incentives and state funding, leading them to dominate both markets; according to the International Energy Agency in 2021, 75% of solar modules and 85% of cells produced worldwide were manufactured there, according to 75% produced in China alone; new funding poured in primarily as an attempt at outdoing competitors rather than investing in promising markets.

Benchmark Minerals Intelligence reports that Chinese companies control 75% of the graphite supply chain – from mining to finished anodes – yet two Chinese firms received over $380 million of investments during Q1 2023 alone.

Today’s energy mega-rounds reveal an entirely different picture. Diverse firms from both regions dominate, with only one Chinese firm breaking into the top tier and the rest almost evenly split between America and Europe. That shift can be traced back to industrial policy: both America’s Inflation Reduction Act and EU Green Deal provided incentives that encouraged manufacturers and suppliers to set up operations onshore; companies responded by investing billions more – suggesting reshoring of key parts of climate tech’s economy is likely here to stay for some time yet.

Geographic diversity was only one factor. Where solar and battery materials once dominated megadeals in 2023, similar round sizes this year have been spread more broadly across a variety of technologies such as geothermal energy, industrial heat, e-fuels, battery recycling, EV charging, lithium mining and geologic hydrogen extraction – even decades-old heat pump technologies were given an injection of EUR145 million dollars! Such is their promise.

This year’s diverse representation suggests that many previously early-stage companies have overcome any science or technical risks and embarked on their path toward commercialization, with investors apparently confident they’ll make it. They appear happy to underwrite smaller but more likely returns in an investment venture journey; though IPO window may still be several years off for these businesses, investors see its possibility on the horizon.

With ocean temperatures reaching record heights and news about sea ice looking dismal and droughts wreaking havoc all across the planet, now is an opportune moment to reflect upon what our actions are causing to this fragile Earth. Although investing trends are encouraging, our carbon emissions still set records – we need more action sooner!