How Europe's Cleantech Crunch Is Separating Real Innovation from Hype
While European cleantech funding dropped 24% in 2024, a select group of energy startups raised massive rounds. The VC landscape is shifting—from spray-and-pray to surgical precision. Here's who's winning and why.
The Numbers Don't Lie: It's Tough Out There
European cleantech venture investment fell to €8.8 billion in 2024—down 24% from €11.6 billion in 2023. It marked the first decline in a decade. Q3 2025 saw investments drop even further below historical averages, with both deal volume and equity investment declining sharply.
The culprits? High interest rates, economic uncertainty, and high-profile failures like Northvolt's bankruptcy rattled investor confidence. Climate tech is inherently capital-intensive and risky, requiring long development timelines before reaching commercialization.
"Climate tech is viewed as risky. The sector needs patient capital, but the market wants quick returns."
— Industry analysis based on European Investment Bank and PitchBook climate tech reports, 2024-2025
Yet despite the downturn, Q2 2025 rebounded to €2.5 billion—the best quarter since Q1 2024—with average deal sizes doubling to €24 million. The message is clear: VCs are getting selective, but they're still writing big checks for the right companies.
The Startups Defying Gravity
While the overall market contracted, certain startups secured staggering rounds. Here are the standouts:
Proxima Fusion (Germany) — €145M Series A
Valued at $715 million, Proxima Fusion is designing optimized stellarator reactors for clean fusion power. Their €130 million Series A (plus a €15 million extension) signals massive investor appetite for next-generation energy. Fusion remains decades away from commercialization, but the potential upside has VCs betting big.
INERATEC (Germany) — $129M Series B
INERATEC produces synthetic e-kerosene and fuels from renewable sources. With a valuation between $519M and $779M, they're building Europe's first large-scale plant in Frankfurt. Sustainable aviation fuel (SAF) is a massive opportunity as airlines face mounting pressure to decarbonize.
Marvel Fusion (Germany) — €113M Series B
Another fusion bet. Marvel Fusion uses laser-based technology and raised €113 million at a valuation between $497M and $746M. Germany is emerging as Europe's fusion hub, attracting significant capital despite the technology's long runway.
1KOMMA5° (Germany) — €150M Pre-IPO
This climate tech scale-up provides integrated home energy solutions: solar panels, heat pumps, and batteries with intelligent software. They're planning to invest over €100 million between 2025 and 2027 to expand their software division. Residential energy management is booming as homeowners seek energy independence.
CuspAI (UK) — $100M Series A
Valued at $520 million, CuspAI uses generative AI to design new materials for clean energy applications. This intersection of AI and climate tech is attracting significant attention as investors bet on AI's ability to accelerate materials discovery.
What Separates Winners from the Rest?
In a tightening market, VCs are prioritizing three factors:
1. Clear Path to Commercialization
Fusion startups might seem like moonshots, but Proxima and Marvel have concrete technical milestones and partnerships with industrial players. INERATEC already has a working plant under construction.
2. Strong Technical Differentiation
Whether it's stellarator design (Proxima), laser fusion (Marvel), or AI-driven materials (CuspAI), these companies aren't iterating—they're innovating. VCs want breakthroughs, not incremental improvements.
3. Experienced Founding Teams
These founders come from deep technical backgrounds—PhDs, research institutions, and prior successful ventures. In uncertain times, VCs bet on people as much as ideas.
Europe vs. North America: The Funding Gap
While Europe raised $11.1 billion for cleantech in 2024, North America led with $16 billion. The gap reflects deeper structural issues: North America has more mature venture ecosystems, larger funds, and a higher tolerance for risk.
However, Europe's distribution is more balanced. Unlike the US, where a few megadeals dominate, European investment is spread across sectors and companies. This diversification could be an advantage long-term, reducing systemic risk.
What's Next for European Energy VC?
The trend is clear: VCs are consolidating capital into fewer, higher-quality bets. Early-stage deal activity remains resilient, but late-stage funding (Series B and Growth Equity) dropped 43% in Q1 2025. Investors want proof of concept before committing larger checks.
Germany has emerged as Europe's energy innovation hub, particularly in fusion and synthetic fuels. The UK remains strong in AI-driven climate tech. France is leading in bioenergy with companies like Waga Energy converting landfill gas into biomethane.
"The question isn't whether cleantech will bounce back—it's who will survive long enough to see it."
— Adapted from European climate tech venture capital analysis, Q3 2025
For founders, the message is sobering: capital is available, but only for the exceptional. Incremental improvements won't cut it. VCs want technical breakthroughs, defensible IP, and founders who can execute through market volatility.
The European energy VC winter is real—but for the best startups, it's still summer.