The German startup scene is currently experiencing positive news. There are more startups being founded, young companies are receiving more funding, and investors are showing a „sense of optimism“, as noted in an analysis by KfW and the German Private Equity and Venture Capital Association (BVK). The business climate indicator in the venture capital sector improved in the second quarter, and additionally the sub-indicator for business expectations is in positive territory for the first time in two years, thanks to the ECB's interest rate cut in June.

After a prolonged cooling period in a market that had overheated significantly in 2021, such news naturally gives rise to optimism. Hope that the transforming labour market will quickly open up new opportunities, and that the urgently needed transition to a climate-neutral economy will gain momentum.

However, a closer look at sector-specific investments reveals something else. The vast proportion of funding in the first half of the year did not flow into climate protection technologies, but once again into the software sector. Across Europe and the United States, venture capitalists have primarily bet on software and AI themes in the first six months of the year. This is despite climate protection technologies being the most popular investment vertical in Europe in 2023.

This shift is not surprising. Unlike expensive and lengthy decarbonisation projects, software investments often promise quicker scalability. But software won't stop climate change, and in the case of AI-based tools it massively increases electricity consumption, and could render millions of jobs obsolete. Solutions still need to be found for the challenge of long-term capital commitment from the VC sector. If that happens, a better business climate in the industry might actually help the climate outside.