Climate tech investment took a hit in 2024, with venture investment declining 7% to $12.9 billion, according to a new report by PitchBook. While the total investment amount fell short of 2023's tally by $1 billion, the report reveals a more nuanced picture, with deal sizes and valuations increasing, indicating a maturing sector.

The decline in investment can be attributed to a shift in investor focus towards later-stage companies that have emerged from their seed round. For years, investors have favored early-stage companies, pouring significant sums into pre-seed and seed stage startups. However, as these startups have matured, they have started to capture larger, later-stage rounds with higher valuations.

The data shows that median deal size increased to $7 million, up $1 million from the previous year, while median pre-money valuations soared to $44.5 million from $31.5 million. Although deal count was down 27% to 568, the increase in deal size and valuation suggests that investors are becoming more discerning and willing to back companies with proven track records.

The climate tech sector's performance in 2024 also reflects broader market trends. Deal count was down across all sectors, with investors taking a more cautious approach following the exuberance of the pandemic era. However, deal value edged up closer to 2023 levels, largely driven by AI-related investments in companies like Anthropic, Databricks, OpenAI, xAI, and Waymo, which collectively garnered 43.2% of all deal value in Q4.

The current investment landscape is a far cry from the pandemic era, when venture dollars flowed freely into climate tech and other sectors, driving up deal sizes, counts, and valuations. Now, investors are taking a harder look at unit economics, and startups that are struggling to raise funds are finding it tougher to secure investment. On the other hand, companies that have demonstrated strong unit economics are being rewarded with bigger deals.

The shift in investor focus towards later-stage companies and the increased scrutiny of unit economics may be a sign of a maturing climate tech sector. As the sector continues to evolve, it will be interesting to see how investors adapt to the changing landscape and how startups respond to the new reality.

Despite the decline in investment, the climate tech sector remains a vital area of innovation, with startups tackling some of the world's most pressing environmental challenges. As the sector continues to mature, it will be crucial for investors, startups, and policymakers to work together to drive growth and impact.