Data centers that power artificial intelligence models, reborn factories churning out fighter jets and drones, and growing fleets of electric vehicles all need clean power. Investors are betting on the startups generating and storing it.
This year, venture capital investment in companies tackling rising greenhouse gas emissions from the breakneck buildout of manufacturing and AI infrastructure had its strongest first half since 2022, hitting $26.1 billion, according to a new report from market intelligence firm Currence.
“This is a really big deal, and it’s been pulled by two sectors: low-carbon data centers and baseload power, (which is) anything that provides 100% low-carbon, 24/7 energy,” said Charles Bondu, Currence’s research lead.
Mega-rounds across low-carbon data center solutions, autonomous vehicles and energy drove a 55% year-over-year investment bump in the first six months of 2026. Venture capitalists are particularly interested in baseload power sources like geothermal and nuclear that satisfy data centers’ need for around-the-clock, behind-the-meter energy, Bondu said.
Booming venture capital investment in climate tech is lifting Los Angeles’ energy innovators. Among the biggest winners is El Segundo-based nuclear energy company Valar Atomics, which just topped its $340 million raise in March with a $1 billion series B round. The blockbuster funding puts the startup on the path to commercializing its next generation microreactor.
Another local player benefiting from the surge is Long Beach-based microgrid startup Critical Loop, whose $26 million series A round in April brought its total funds raised to $49 million. The company’s battery systems are a sought-after shortcut to megawatts of power for industrialists racing to build and operate energy-intensive facilities.
“There’s a lot of awareness among investors that to build anything, in modern conditions and techniques, you need the ability to get more power,” said Bala Ramamurthy, founder and chief executive of Critical Loop. “The utility is not responding fast enough in some cases, and so it needs to be augmented.”
Data centers drive the time-to-power point home, he said. Investors know hyperscalers like Amazon.com Inc., Microsoft Corp., Meta Platforms Inc. and Oracle Corp. aren’t waiting the several years it can take to plug into a utility grid, so they’re funding the technology that gets them there faster.
Capital flows have picked up as startups on a similar timeline to Critical Loop, founded in 2023, become ready to deploy, Ramamurthy said.
“A couple of years ago, companies were building prototypes and proving things out in the space, and now people are infusing a lot of capital as these companies scale,” he said.
‘Bring your own capacity’
The U.S. is growing increasingly energy-hungry, and data centers, alongside electrification and onshoring manufacturing, are the key culprit. Sprouting up across the country despite widespread local opposition, facilities that train and run AI models consume as much electricity as 100,000 to 2 million households, the International Energy Agency estimates. Goldman Sachs’ commodities research team expects the U.S.’ data center power demand to reach 66 gigawatts in 2027, more than double the amount used last year.
Renewables and natural gas take the lead in meeting today’s demand. Balancing rapid expansion with corporate sustainability commitments, hyperscalers are signing long-term contracts with solar, wind, nuclear and geothermal providers before growing demand sends energy prices flying.
They’re also building on-site generation and using batteries to capture off-peak electricity in a move to “bring (their) own capacity,” said Shomik Dutta, co-founder and managing partner at Overture VC, an early-stage venture fund based in Santa Monica.
Overture has recently funded startups developing thermal batteries, connecting small-scale energy sources like batteries and solar panels to the grid, and using AI to speed up battery storage projects. To companies plotting major infrastructure projects, renewable and alternative energy is “much cheaper and more attractive,” compared to coal, oil and natural gas, whose prices tend to spike in times of economic and geopolitical volatility, Dutta said.
“The largest companies in the world are singularly focused on energy as the choke point for artificial general superintelligence,” he said. “You are seeing hyperscalers ask nuclear companies to name their price, so (there’s) a lot of dislocation between demand and supply creating a bizarre pricing world.”
While private markets have slowed down since interest rates began to climb in 2022, the tailwinds behind energy generation and storage have far outweighed the macro environment’s slumping effect, the investor said.
“The themes that Overture invests in – the infrastructure layer of AI, energy, robotics, compute, land, cabling, power electronics – these are areas that have most of the business world’s attention right now, and that backdraft has proven much more powerful than the cost of a higher interest rate,” Dutta said.
For firms already investing in renewable power, AI has supercharged the existing thesis: that a modernizing grid moving toward electrification would put energy startups in the spotlight. Explosive data center-driven demand came as a surprise to investors at Beverly Hills-based Angeleno Group, said Danny Jaffe, a partner at the clean energy-focused venture capital and growth equity firm.
“The thing that we completely missed at the time (of our founding in 2001) was that there was going to be this incredible onslaught of demand from AI and data centers that was going to fundamentally make every utility in the country short on energy,” he said.
Bringing on energy companies outside of the “data center world” and plugging them into it has been a key value-creation strategy for the firm, Jaffe said.
Ripple effect
Energy startups oriented around data centers and manufacturing facilities are garnering the most venture capital dollars, but investor interest reaches further. Surging industrial power needs are putting pressure on the existing grid and boosting the likes of Sawtelle-based Haven Energy, a home battery backup company. In December, Haven announced a $40 million series B raise, including a $15 million equity round, that’ll help the company ramp up deployment of its solar and home battery systems. Co-founder Vinnie Campo said new capital flows are freeing up capacity bottlenecks facing the energy sector as a whole.
“The big challenge everyone’s trying to solve for is, ‘How do you have enough energy capacity to meet this massive growing demand around energy?’” Campo said. “The platforms that have paths to deploying energy capacity quickly, that’s where the value is occurring in the industry right now.”
Aside from venture capital funding, Haven has enjoyed interest from private credit investors wading into energy, Campo said.
“There’s just a tremendous amount of investors we’ve seen coming into the space that historically probably were not looking at energy assets,” he said. “There’s a lot of capital chasing the trillion-dollar buildout of both power and compute across the country.”
Capital crowding at the top
Despite rising demand for clean energy projects across the board, much of that capital is circling the largest, most scalable opportunities. Venture capital’s climate tech deal count hit a five-year low, the Currence report showed, and the 10 biggest deals took 42% of all funding.
“Venture capital funds are being more selective in the bets that they’re making because we’re not in an area of free money, and their (limited partners) are asking for returns,” Bondu said. “They’re making fewer bets, and they’re placing them on more mature technologies that will have bigger check sizes.”
Investors are increasingly doubling down on previous investments to lead portfolio companies to as much scale in their given market niche as possible, Critical Loop’s Ramamurthy said.
“We’re seeing a lot of conviction from investors in this market. Everybody strongly believes that this is needed,” Ramamurthy said. “Investors have their pet companies that they are championing to solve some portion of this market.”
While strong investor interest in energy has in some ways been the “tide that lifts all boats,” the scale-is-king dynamic has also left a gap at the bottom, said alternative energy investor Seth Zeleznik.
Investment in infrastructure separate from major industrial projects has been crowded out, said Zeleznik, who founded CenterNode Group, the alternative energy investment arm of Century City-based merchant bank Forest Road Co., to fill that need. The firm, launched in April with up to $750 million in committed institutional capital, finances small commercial solar and battery projects that need help clearing permitting hurdles and getting off the ground.
“There’s just a focus on being able to put a lot of capital out at once,” Zeleznik said. “You have a lot of really great developers who’ve got small projects, but there’s no transmission mechanism (for them) to get money at this point.”
