'European entrepreneurs have to see this as an opportunity': Why VCs are investing more in nature tech

The wildfires that have ravaged Europe and California this year have shown the devastating financial effect that climate change can have on the wider economy.

It’s one of the reasons why investors and large corporations are increasingly interested in nature tech – solutions that aim to protect and restore natural ecosystems and biodiversity.

A recent report from French VC firm Serena shows that global venture capital investments in nature tech topped $2b in 2024 for the first time.

That’s still only a small fraction of the money poured into climate tech in general. But to Xavier Lorphelin, managing partner at Serena, it shows that nature tech is no longer just an emerging trend but an investable asset class.

“It’s true that for now it’s a small market in a sense,” Lorphelin tells Impact Loop. “But climate tech was also at 2 billion euros (in VC funding) 15 years ago. I’m not saying nature tech is going to be as big as climate tech, but you can project what it can become.”

Willingness to pay for solutions

So why the recent surge, even at a time when ‘climate’ and ‘sustainability’ are almost becoming dirty words in the United States under the Trump administration?

Lorphelin says it’s increasingly obvious to big corporations and decision-makers that nature-related risks can have a big impact on their entire value chain.

“That means they are also more ready to pay for solutions,” Lorphelin says. “I think that’s what was lacking two or three years ago.”

The report from Serena also shows that Europe could be in a good position to take the lead on climate tech.

While the U.S. remains the largest market for VC deals within nature tech, with 43% of the total funding, there was actually a larger number of deals made in Europe in both 2023 and 2024.

The difference is that the European deals are mostly early-stage investments, while larger sums are being deployed in scale-ups in the U.S.

That’s partly because most European nature tech companies haven’t had time to grow yet. But they will soon need massive VC backing as they reach the Series B and C stage, Lorphelin says.

“We are moving phase by phase. Two years ago, we were mostly in the seed phase. Now we’re more in the Series A phase,” he says. “We’re expecting some Series B and C funding for these types of solutions soon when they reach some kind of commercial deployment. And I think it’s going to come in the next couple of years.”

Lorphelin says European startups are also increasingly becoming interested in nature tech as the EU introduces more and more regulations that force companies to take nature – and not just carbon emissions – into account.

“If you are an entrepreneur in Europe you have to see this as an opportunity,” he says. “Because in the States, there’s a constraint in that you’re not supposed to talk about this. And there aren’t that many investment areas where Europe is in front of the United States.”

Water tech becoming 'a very hot topic'

About 45% of the VC money invested in nature tech in 2024 went into food and agriculture. But Lorphelin expects several other sectors to grow massively in the coming years – especially water-related investments.

“Water is going to be a very hot topic in the future. Everything related to water – treatment, depollution, smart water management systems,” Lorphelin says. “When I did my first analysis, I was quite surprised by the fact that there were very few startups involved in water. Especially when you think about what water represents in terms of a must-have solution.”

Lorphelin compares the current water grid to the way European electricity markets worked 20-30 years ago.

“Water is very much centralized right now, with one or two water companies per country. I think it's going to change like electricity. But there is a massive lack of investment in the water grid. And in many countries, especially in Western Europe, water is seen as a free resource. We probably don’t pay as much as we should for water.”

Other hot trends include finding better solutions for MRV – monitoring, reporting and verification – that can help companies get a better overview of how nature affects their bottom line.

“We are still missing the right measurement solutions,” Lorphelin says. “I expect in the next couple of years we will see more platform solutions where MRV gets directly connected to a company’s ERP so they can really measure the impact all along the value chain. That’s not happening right now.”

But does it scale?

Still, some challenges remain when it comes to getting VCs excited about nature tech.

One is that it’s sometimes harder to see how a solution can be scaled globally if it’s geared toward a local ecosystem.

“When you talk to some people they always tell you that biodiversity is a local topic, and it’s hard to address on a global scale,” Lorphelin says. “But if you look at something like eDNA (environmental DNA), the technology can be applied on a global scale even though the specific algorithms you need to understand the data will be local.”

And there’s also money to be made from local solutions, especially as equipment like IoT sensors, drones and satellite images become more affordable.

“With biodiversity, you have to develop models to understand what is happening on the ground. And you need to extract local data from the ground,” Lorphelin says. “For that, you need sensors and you need some kind of machine learning. And the cost of that is now much more affordable, which means you can provide it at a reasonable cost to corporates and other customers.”

And with the help of AI, there is also renewed hope of being able to prevent some of those devastating wildfires.

“There are some interesting startups developing fire modelling solutions using satellite images and AI to be able to detect the very early stages of a possible fire,” Lorphelin says. “In order to do that, you need an AI model to really understand what is happening.”