Climate startups face ‘valley of death’. This VC just raised $325 million to help
Death Valley National Park on July 15, 2023, near Furnace Creek, California.
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Venture capital firm World Fund said Friday it’s closed a 300 million euro ($325 million) fund to back startups tackling climate change.
World Fund, a European climate technology investor incubated by the environment-conscious search engine Ecosia, said it had raised the cash despite a challenging environment for technology investing — and, in particular, climate technology investing.
Investors have reeled from riskier tech-related bets after a jump in inflation and interest rates, which has surged dramatically since the Russia-Ukraine war in 2022. Central banks have hiked rates to stem inflation, which has in turn soured investor sentiment toward tech.
Danijel Višević, World Fund’s founding partner, said that the firm faced a lot of pushback from some institutional investors as it tried to seek commitments for its fund, particularly as the Ukraine war — coupled with the collapse of Silicon Valley Bank in 2023 — complicated matters.
“They’ve been like, sorry this is too much, you can’t raise 300 million plus,” Višević told CNBC.
Višević said that events like the collapse of SVB and tougher macroeconomic conditions more generally led to a reallocation in investment toward more risk-free assets such as bonds and cash, while stocks and particularly tech stocks saw a retreat.
Private tech valuations dropped sharply as a result.
“The private asset market declined, and valuations in the startup ecosystem decreased significantly, so VC and private equity, those valuations we saw in 2021, we did not any more in 2022 and 2023,” he added.
However, Višević noted that World Fund’s portfolio remained resilient.
“We didn’t suffer this drop in valuations,” he said. “We actually had some up rounds.”
World Fund said it raised the funds from institutional investors including the European Investment Fund, U.K. Environment Agency Pension fund, BPI France, PwC Germany, German state-owned investment bank KfW, and Lithuanian energy firm Ignitis Grupe.
Tackling a ‘valley of death’ in climate tech
World Fund is seeking to solve what it calls a “valley of death” in the climate tech world — where firms raising cash at the Series B stage of financing face a funding gap that hinders them from scaling their operations. Series B relates to the second round of funding for firms that have met certain milestones.
“We knew we needed to raise a big fund,” Višević said. Even a 100 million euro fund, he said, “wouldn’t be enough to help climate tech companies in Europe.”
Series B companies “need to close this gap, they need to build factories,” he added. “They don’t have profits, and sometimes don’t even have revenue before reaching Series B. But they still have great tech, and are invested heavily in research and development — many billions through different programs.”
“But then, when those companies are built, they get seed funding no problem at all, but from Series A to B to C, there’s a problem.”
World Fund said it aims to solve this issue by investing initial sums into startups at the first phases of investment, and then reserving cash for follow-on rounds to ensure firms have greater amounts of cash with time to continue building new products and scaling.
