Chicago startups have faced a steep fundraising decline in 2022, but there are some sectors — such as clean tech and energy — in which deal counts are close to or above the full-year numbers of 2020.
In fact, some think Chicago is poised to become a leader in the clean energy and sustainability space heading into 2023.
While the energy sector hasn't been immune to the broader downturn in private equity exit activity in 2022 — healthcare, IT and financial services all saw exit activity slow dramatically from Q2 to Q3 — energy dipped only slightly, according to PitchBook data.
The carbon and emissions tech vertical in particular experienced a strong third quarter — its third-strongest on record — raising a total of $4.8 billion, according to PitchBook. Total deal value has increased each quarter over the past 12 months, and carbon and emissions tech venture capital activity is on pace to match 2021 figures, the private market database found.
Energize Ventures — a Chicago-based venture firm that focuses on sustainability and energy transition, and scaling sustainable innovation through climate software — is on track to deploy around $240 million in 2022, around twice what the fund deployed in 2021. The firm invested in 10 companies in 2022 and, even amid peak market uncertainty in September, added three new portfolio companies to its roster.
Managing Partner John Tough said the available tech talent and nearby universities make Chicago a great place for sustainability startups and predicts the next 12 months will be full of success stories from the space locally.
“The anomaly that you have to be in California to start a generational business does not sync with sustainability,” he told Chicago Inno. “There definitely was a long time where if you wanted to do sustainability and innovation, you had to be on the West Coast or [in] Boston. But what has happened in the last decade is that all the underlying technologies — solar, wind, battery technologies — have become like 90% to 99% cheaper than they were a decade ago.”
Tough sees the next stage for the market as being less about technological investment and more finding ways to manage and scale potential solutions. And Chicago remains a top market at delivering industrial scale.
“If you’re testing technologies or material science, the universities here and the government funding have made Illinois a great place to be, and the next layer up, if you’re an OEM [original equipment manufacturer], the state of Illinois has given great incentives to build factories here,” he said.
Recent investments from Energize include Twaice, a Chicago-based predictive analytics software startup for batteries, as the Chicago-based venture fund has invested more than a billion dollars into nearly 25 companies in the past six years.
“The corporates around North America have committed to decarbonizing and making themselves more sustainable … and we have companies that are still growing 300% or 400% this year when most of the market is retrenching,” he said.
