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Green construction tech firms enjoy VC investment boom

New report says venture capital investment in low-carbon building startups hit a record $2.2 billion in 2022.

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Firms providing green building technologies and services received record levels of venture capital investment in 2022, with investment reaching $2.2 billion so far this year.

That is according to a new report from building venture capital firm A/O PropTech, which found that overall investment in green construction tech over the past five years reached $4.5 billion across more than 450 deals.

Venture capital raised by companies involved in green building design, building materials procurement and lower carbon construction methods has been steadily increasing over the five-year period, the research showed.

"Low carbon legislation and technological innovation are driving rapid change, bringing greener building practices into the mainstream and seeing plus-200 startups raise capital from investors since 2017," the report said.

Low carbon legislation and technological innovation are driving rapid change.

Gregory Dewerpe, founder and chief investment officer of A/O Proptech, said innovation was urgently required across the building industry in order to meet global climate goals.

"New technologies that can lower emissions during the construction process are vital from design software, to more sustainable building materials to technologies that speed up and accelerate construction," he said. "All of these new technologies can play a part in reducing the overall impact of the built environment. Rapid urbanization and housing shortages globally are exacerbating the climate impact of our cities and urban areas so we must build better, greener and faster to address the problem head-on, before it gets any worse."

The report found that as total investment reached a new record in 2022, there had been shift to slightly later stages of investment with more deals being done for Series A and B funding rounds, than at pre-seed to stage, suggesting that parts of the low carbon construction sector are maturing. 

Close to 40 percent of deals in 2022 were estimated to be pre-seed and seed, compared to over 80 percent in 2017, the report said. The proportion of Series A and B deals has increased to nearly 50 percent in 2022, up from 10 percent in 2017.

The proportion of Series A and B deals has increased to nearly 50% in 2022, up from 10% in 2017.

Between 2017 and 2022, over 80 percent of investment was concentrated in North American start-ups but over half of the deals done occurred in Europe, while London was the pre-eminent city for deals and more than half of the cities in the top 10 are in Europe.

The report also highlighted a number of encouraging technology trends that could help slash emissions across the built environment. For example, it said a new wave of low-carbon and bio-building materials could turn global cities into carbon sinks almost as large as the Amazon, if developers and owners adopt bio-based materials and circular economy principles in building structures.

In addition, it stressed how legislation was driving adoption of greener building practices. For example, legal limits on the amount of carbon per square meter for new construction, Environmental Product Declaration (EDPs) databases, and certified Life Cycle Analysis (LCA) methodologies are all driving adoption of green building technologies.

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