Software might be eating the world, but more investors are waking up to the fact that hardware is also going to need backing if we want to solve climate change. 

Hardware is a trickier bet for VCs. It’s capital intensive and the return timelines are longer. There are different risks to building physical tech — like gigafactories, energy infrastructure and electric vehicles — than there are with cloud-based tools.  

Climate software, on the other hand — things like carbon accounting platforms and offset marketplaces — sits in the comfortable intersection between climate and well-trodden SaaS and fintech business models. There are success models to follow, and there’s less cost. 

“Software is a bit of a drug… As an industry, VC has gained so much by investing in software — the easy stuff — that we’re sort of addicted to it,” Yoann Berno, founder of VC firm Climentum, tells Sifted.

So who are the VCs out there willing to back hardware climate solutions? Sifted analysed the twenty largest hardware rounds in Europe this year. 

2022’s largest hardware deals

In the mix is funding from investment banks and asset managers like Baillie Gifford, Goldman Sachs and Azimut Group; real estate funds like Byggmästaren Anders J Ahlström; investment groups Olympia and Investindustrial; corporates like Porsche, Saudi Aramco and Mitsubishi; pension funds like Sweden’s AMF and CPP Investments; angel investors like Daniel Ek and Cristina Stenbeck and venture capital firms.

The deals confirm what a lot of founders building climate hardware will already know — capital intensive deals require a combination of different capital streams. 

The largest hardware deal of 2022, a $1.1bn convertible note for Northvolt, came from 15 investors. 

IKEA and Porsche back climate tech

Analysing the largest 20 deals doesn’t give the complete picture, but it does give an indication of some of the funds willing to write the biggest cheques for hardware. 

There are few names that pop up more than once in the deals. AMF has backed three of the largest hardware deals in Europe this year: H2 Green Steel, Polarium and Northvolt — all Swedish companies. 

Several others have put cheques into two of this year’s largest hardware deals: 

• The IMAS Foundation, backed by IKEA — Northvolt and H2 Green Steel
• Porsche, car manufacturer — Rimac and 1Komma5°
• Swedbank Robur, an asset management firm — Northvolt and H2 Green Steel
• Goldman Sachs, investment bank — Northvolt and Rimac
• Investindustrial, investment group — two Rimac deals
• Btov Partners, US VC firm — 1Komma5° and Volocopter

What’s next for VCs and hardware?

Tove Larsson, general partner at Norrksen, says VCs are starting to look more at hardware deals, and there’s greater realisation about the potential returns it can offer.

“Hardware solutions typically come with lower demand risk — if you get the tech right and are able to bring the solution to the market, buyers will pull it out of your hands, you don’t have to take a “go to market-risk,” she told Sifted earlier in the year. 

“A great example is Northvolt, where the battery demand from planned EV production in Europe is more than 5x the volume of confirmed projects in Europe 2040. Also, hardware solutions typically come with higher barriers to entry.”

Examples like Northvolt should spur more investor confidence in European hardware across capital streams — from real estate investors, to asset managers, corporates and VC firms. 

Freya Pratty is a reporter at Sifted. She tweets from @FPratty and writes our climate tech newsletter — you can sign up here.