Cleantech entered 2025 with every macro signal pointing in its favor. Global energy transition spending was on track to reach $2.2 trillion, according to the International Energy Agency—roughly twice the investment flowing into fossil fuels. Venture markets were recovering as well, with global VC deployment surpassing $300 billion across the first three quarters. AI continued to command an outsized share of capital, but its exploding energy requirements only reinforced the logic of new generation and storage capacity.
Yet early 2025 produced the weakest year of cleantech, EV, and sustainability startup fundraising in half a decade, with only about $24 billion raised. The sector slumped despite the underlying fundamentals strengthening, creating a striking mismatch between market need and venture behavior.
That disconnect is the starting point for investors. Understanding why capital pulled back when demand accelerated is essential to interpreting the 2025 trajectory—and identifying where value is consolidating as the sector enters its next cycle.
The annual totals obscure a more revealing intra-year pattern. Cleantech funding hit bottom in Q1 2025, when deal activity fell sharply and many investors stepped back from new commitments. But each subsequent quarter showed improvement, with steady quarter-over-quarter gains through year-end.
The timing aligned closely with the transition to the Trump administration and the rapid unwinding of several Biden-era incentives. Policy uncertainty, not technology sentiment, created the initial freeze. Investors paused to reassess everything from customer uptake assumptions to the durability of project economics without federal support.
That recalibration period was brief but consequential. Funds re-ran models, revisited the sensitivity of portfolio companies to changes in tax credits, and reconsidered which business models could operate independently of policy frameworks. The result was a deliberate slowdown in Q1—but not a collapse in conviction.
As policy parameters became clearer and companies adjusted their plans, dealmaking resumed. Investors returned to the table with a more focused thesis, concentrating capital on businesses where economics made sense under the new regime. The sequential recovery through Q2, Q3, and Q4 underscored that the early-year pause was a strategic correction rather than a structural retreat from climate and energy themes.
The most telling signal in 2025 was where the remaining capital flowed. Mega-rounds clustered around technologies seen as politically resilient, mission-critical to AI infrastructure, and mature enough to withstand policy swings.
Nuclear—both fusion and fission—commanded the largest raises of the year. Commonwealth Fusion closed an $863 million round. X-energy secured $700 million. TerraPower raised $650 million, notably with participation from Nvidia, highlighting the link between next-generation compute and next-generation energy supply.
Battery and storage infrastructure followed a similar pattern. Base Power raised a combined $1.2 billion across two rounds. Return, Group14 Technologies, and Redwood Materials all attracted sizable investments as demand for long-duration storage and materials processing intensified. These companies offered the characteristics investors prioritized in 2025: bipartisan support, long-term infrastructure relevance, and alignment with data center growth.
This concentrated capital allocation marked a sharp contrast with manufacturing-heavy segments. Battery manufacturing faced severe pressure—exemplified by Northvolt’s bankruptcy—as investors questioned the viability of scaling hardware production in the absence of generous incentives. Businesses heavily dependent on subsidies or steep capex curves struggled to raise, driving a widening gap between strategic infrastructure and riskier industrial plays.
Still, capital did not consolidate exclusively around energy generation and storage. Geothermal players raised meaningful rounds, benefiting from maturing drilling technologies and dependable regulatory treatment. Electric aircraft also saw continued interest, signaling investors’ willingness to support diversified bets within the politically durable category. These raises reinforced the same trend: the market favored technologies with clearer pathways to cost competitiveness and less exposure to policy reversals.
The late-year momentum suggests that cleantech’s nadir is behind it. Quarterly improvements point to strengthening conviction, even as the sector continues to absorb the consequences of its early-year correction. Investors have recalibrated their frameworks, emphasizing durability and unit economics rather than broad thematic enthusiasm.
That bifurcation will likely persist into 2026. Infrastructure and enabling technologies—nuclear, storage, grid modernization—should continue attracting capital, supported by both structural demand from AI and relatively stable political footing. Conversely, hardware manufacturing and subsidy-dependent business models may face a more protracted capital drought as investors weigh policy risk against long-term competitiveness.
For allocators, the strategic takeaway is clear. AI’s energy appetite remains a powerful tailwind, pushing capital toward the "picks and shovels" of the energy system rather than consumer-facing or end-user hardware segments. But several risks remain. Further policy erosion in 2026 could tighten financing conditions. Macroeconomic softness would raise the pressure on valuation discipline, even for resilient subsectors.
The overarching lesson from 2025 is that cleantech survived a stress test. Companies able to operate with fewer subsidies, stronger fundamentals, and clearer economic pathways emerged as the relative winners. These are the names likely to shape the next investment cycle—and the ones investors should watch most closely as 2026 unfolds.
