Climate Tech VC Fundraising Hits Decade Low as AI Narrows Bets

A decade low for climate-specialist funds

Climate-focused venture capital is having its worst fundraising stretch in ten years. PitchBook projects that capital raised by climate-specialist VC funds will come in below $1 billion this year. That would be the first time since 2015, and a steep drop from five years ago, when such funds raised more than $10 billion. 1 The slide did not start this year. Fortune reported that PitchBook data showed 2025 fundraising for climate-specialist VCs was already down nearly 40% from 2024. 2

PitchBook points to several causes that have built on each other. Global venture fundraising contracted after 2022. The climate slump then deepened under President Trump's second administration, as cuts to programme funding and changes to tax incentives weakened the appeal of areas like clean hydrogen. 1 A slow exit market for climate companies has added pressure, because limited partners are less willing to commit new money when earlier bets have not returned cash. 1 Visible.vc describes the same shift from the startup side. US federal support has pulled back since 2025, removing non-dilutive capital that hardware-heavy companies often depended on. 3

Europe fills part of the gap

The decline is not even across regions. The two largest climate tech vehicles to close this year both came from Europe: Denmark's Kompas II and the UK's 2150 Urban Tech Sustainability Fund II. Together they accounted for about 79% of the capital raised. 1 That figure shows Europe's relative strength. It also shows how thin the overall pool has become, since two funds can make up nearly four-fifths of a year's total.

The AI tailwind, and who it reaches

The main counterweight to this decline is AI's demand for electricity. PitchBook senior research analyst John MacDonagh told Fortune that AI is "more a tailwind than a headwind" for climate tech. 2 He explained that data center developers are looking for power. Renewables can be deployed quickly and cheaply but are intermittent, which creates room for energy storage. Firm power sources may suit data centers better, but they are less mature and need substantial funding to commercialize. 2 Large checks still appear. Fortune cited former Meta CTO Mike Schroepfer's $250 million climate-focused fund, announced in June, and noted that energy startups in particular are attracting large sums. 2

Visible.vc gives the same story a more critical framing. Capital is still coming in, but it goes to fewer companies at later stages, and investors are asking harder questions about commercial traction. 3 Utilities, hyperscalers and industrial buyers are placing larger orders for clean energy, storage and grid infrastructure because of AI-driven demand. 3 A report from Pakistan's The News put it more bluntly: climate money has moved toward whatever feeds AI data centers, and founders whose technology does not are likely to wait longer for funding. 4

The missing middle gets wider

The most serious structural problem is what Visible.vc calls the "missing middle." This is the gap between a working technology at Series A and the first commercial-scale deployment that would justify a Series B or project finance. 3 According to Visible.vc, Series B deals fell 29% and deal sizes shrank 28%. 3 Hardware and materials companies are hit hardest. Most cannot earn revenue without building a plant or a fleet, and equity investors rarely fund that alone. 34 Software companies scale faster and have an easier time. 4

Small philanthropic efforts are trying to cover part of that gap. In Washington state, the nonprofit VertueLab ran the Opalene Climate Challenge, a one-time program that chose six winners from nearly 40 applicants and backed them with recoverable grants drawn from donor funds. 4 Three startups received $100,000 each. They were Airbuild, which uses microalgae to turn wastewater treatment plants into fertilizer producers and also won a $5,000 Audience Choice Award; Ocean, which makes low-carbon bamboo panels for roofing and construction; and ZILA BioWorks, which produces bio-resins and bio-epoxies to replace carbon-intensive versions. 4 These amounts are small compared with the billions climate funds raised a few years ago, which illustrates how the funding base has changed.

Reading the numbers

The sources agree on the basic picture and mainly differ in emphasis. PitchBook's analysts and Fortune focus on AI as a source of opportunity. Visible.vc and The News focus on who is being left out. Both views can be true together. The AI tailwind is real, but it is narrow. It favors storage, grid infrastructure and firm power that can be sold to data centers, and it does little for a bamboo panel maker or a bio-resin chemist.

The likely result is a smaller and more concentrated climate venture market. Fewer generalist climate funds will exist, more capital will flow to energy-for-compute plays, and Europe and philanthropy will partly fill gaps left by US policy. Whether that concentration is a sensible correction or a damaging narrowing depends on whether the hardware and materials companies outside AI's reach can find another route to commercial scale. For now, the data suggest that many of them will not.