Analysis

March 6, 2025

How many climate VCs will manage to raise a second fund?

“There were definitely too many funds that raised capital super easily"


Freya Pratty

4 min read

The SET Ventures team

Back in the heady days of 2021 and 2022 —  when capital was cheap and the tech ecosystem was abuzz —  new climate VCs were popping up on what felt like an almost weekly basis. 

Three years later, those VCs find themselves in a very different environment. Capital is far less free-flowing and the climate tech sector faces significant headwinds, from reduced political will for the transition, to the collapse of Europe’s highest-valued climate tech. 

It all begs the question: how many of the cohort of climate VCs will manage to raise a second fund?

“There were definitely too many funds that raised capital super easily,” says Bas van Beijeren, investment director at Carbon Equity, a climate-focused LP. “We’ve gone from LPs fighting to get into funds, to VCs having to fight for every euro out there,” he says.

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Lack of institutional capital

Berlin-based Extantia, which was founded in 2020, is one of the climate firms which has managed to secure its second fund. It closed its second fund at €240m in November last year. 

Sebastian Heitmann, partner at Extantia, says one of the issues facing climate-focused VCs in particular is their relative lack of institutional capital.

“When institutional investors, like pension funds or insurance companies, buy into fund one, they buy into fund two,” Heitmann says. In comparison, family offices — which are more prevalent investors in climate tech funds — are less guaranteed to commit to subsequent funds, he says.

Van Beijeren agrees that family offices have started to recoil. 

“There are a bunch of family offices that have been around for a decade or more, and are investing proceeds they receive from prior investments,” he says. “A lot of them are not super cash rich, and have their existing portfolio, so they have become a bit more careful.”

No more green premium

So what do the LPs with cash to deploy want to see from climate funds this time around? 

SET Ventures, a Dutch firm focused on climate tech, set up shop in 2007, making it one of the oldest sustainability-focused VCs. SET closed its fourth fund in September last year, and managing partner Anton Arts says LPs are increasingly focused on business fundamentals.

“LPs are shifting from being convinced simply by a compelling climate thesis, to a more rigid process where investors placed strong emphasis on financial metrics,” says Arts. 

Carbon Equity’s van Beijeren says LPs will also assess whether VCs’ existing portfolio companies have access to follow-on capital. If a VC invests at an early stage, LPs will want to make sure their portfolio companies have growth capital on their cap tables too, ensuring their continuing access to funds. 

Extantia’s Heitmann says LPs will also look at the sub-sectors VCs have previously invested in. 

“If you’re very exposed to certain parts of the ecosystem, such as carbon markets or carbon accounting, that’s probably most challenging,” he says. Startups relating to the carbon markets are predicted to take a particular hit from changes to regulation in the US. 

The EIF: VCs’ saving grace?

Opinions are mixed on quite how many climate funds will manage to secure their second fund. 

“Will less climate funds raise a second fund than generalist tech funds? I don't see a particularly strong indication that this will be the case,” says Heitmann.

Van Beijeren is less optimistic, but says a lot of European funds can count on entities like the European Investment Fund (EIF) to provide a proportion of the cash. 

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“The EIF will keep a lot of them alive, but that doesn't mean they will raise enough capital to execute their strategy well,” he says. 

It’s not a dynamic van Beijeren is particularly enthusiastic about, saying government money could keep funds alive that would have “tapped out in a more efficient market.” 

“If you're a super high growth, successful startup, do you want to go with a fund that has been out on the road for almost two years and can issue half a term sheet? Or you want to go for a fund that is fully funded?”

Freya Pratty

Freya Pratty is a senior reporter at Sifted. She covers climate tech, writes our weekly Climate Tech newsletter and works on investigations. Follow her on X , LinkedIn and Bluesky