Why space tech and climate tech are bucking VC trends

on October 18, 2023

Despite data showing that total venture capital investments slumped across the globe in Q3, a string of reports published this week indicate that investments in both Space Technology and Cleantech bucked overall industry trends.

VC funding for space startups was actually up 17 percent during the July-September period, topping $3 billion globally across 103 companies—the highest number of investments in more than a year. This comes after relatively flat investments in the previous quarter, according to data from VC firm Space Capital, which attribute the upward funding trend to unique market conditions that actually favor once-overlooked industries.

“It has long been the view that defense tech is a bad fit for venture dollars, but the challenging economic climate is proving that companies which can secure government contracts are best positioned to maintain growth,” the report from Space Capital reads. 

Along with the perceived security of investing in government-backed startups, the report also notes that advancements in artificial intelligence (AI)—which is driving momentum across sectors—are helping accelerate innovation in this sector at a rapid pace. 

So far this year, investments into space infrastructure—that is, operations that actually launch assets into space—have taken the bulk of funding within the sector, with $11.6 billion tallied as Q3 wraps. 

Globally, the United States still leads in total equity investments into space tech, with US-based companies receiving more than $42 billion since tracking by Space Capital began in 2017. It’s also worth noting that 24 percent of global space tech VC investments year-to-date have been for Series A, driving the point home that funding is easier for startups (regardless of industry) when they are able to hit early milestones.

Unique market, global conditions set stage for a new class of tech

Cleantech is another sector that’s poised to benefit from the unique market conditions that’s had investors eyeing startups in sectors that had previously been viewed as risky.

According to PwC’s Climate Tech Investment Index, for instance, the share of VC and private equity funding going into climate tech have continued to rise this year, accounting for more than 10 percent of private market start-up investments in 2023, up from only 7 percent in 2018.

Still, climate tech investments so far this year have fallen 40 percent, even as 8,000 startups in the sector and over 32,000 deals worth more than US $490 billion were tracked in the latest report. While that’s a downward trend for the industry, it’s actually a much better report than investment levels tracked in other sectors by PwC, which by and large saw VC and PE investment fall by more than 50 percent. 

“The good news is that the [climate tech] sector has performed well in relative terms, with investment falling less than in other areas. It is also encouraging to see a shift in the balance of investments towards technologies that can cut emissions the most. Now we need to see that shift continue, coupled with an increase in the absolute levels of investment in all technologies with the potential to cut emissions,” Emma Cox, Global Climate Leader, PwC UK was quoted as saying in the report. 

As VC and PE remain tight, non-dilutive funding more important than ever

While there are myriad factors at play in dictating investment behavior—including geopolitical uncertainty on a wide scale, and continued economic turbulence across geographies as a result—these same factors go on to emphasize just how important it is to continue driving innovation and fueling new solutions to the many challenges facing society today.

Equity funding is one way that businesses can fuel their product roadmap, but companies in emerging fields that put research and development at the heart of their mission also have access to a wealth of non-dilutive funding that could extend their runway significantly.

While venture capital remains tight, and market conditions continue to be in flux heading into fall, founders should explore as many non-dilutive funding opportunities as they can to extend their runway and continue driving innovation. 

At Boast AI, we partner with thousands of startups—from seed to growth and beyond—across North America to both tap into tax credits while optimizing their R&D operations from the ground up. 

Talk to an expert from Boast AI today to learn more about how we combine cutting edge technology with years of expertise—and a founder’s POV—to optimize your R&D and fund your innovation.

About: Why space tech and climate tech are bucking VC trends

At both the federal and provincial level, Canada provides a wealth of innovation funding in the form of tax credits and grants that offer founders non-dilutive capital to fuel their runway. We break down the most popular government-backed funding programs and how you can start tapping into them to grow your business.

Boast

Boast Logo