Even for those with many years of operating experience who have weathered earlier cleantech cycles, fundraising can still be a slog. That was true for VoLo Earth Ventures, which this week closed its second fund, which at $135 million, is 50 percent bigger than its debut fund three years ago.
Kareem Dabbagh, VoLo Earth’s co-founder and managing partner, describes the process a “a haul” that lasted a year and a half.
“It was a tough market,” he tells Venture Capital Journal. “Most of the raise was in 2024 and as the year progressed there was a lot of apprehension [among LPs] leading up to the [presidential] election. Then the election happened and then there were a lot of questions.”
The Colorado-based firm’s investment thesis, performance and the way it is expanding its portfolio resonated with many of its existing LPs. But like Energize Capital, which we wrote about here, VoLo Earth also looked outside the US for new investors, including Carbon Equity, the impact investing platform in Amsterdam.
Another new LP, Cathay Innovation’s fund of funds, called the InnoSquare Fund, brought many European corporates into the fold. VoLo Earth has always tried to understand corporate adoption of climate tech because most of the companies in this sector are B2B rather than consumer-oriented.
“Having a pulse on what corporations are looking for and what is the value proposition needed to sell to these large corporates and actually get this technology off the ground – those are really important to us as investors and as part of our thesis and investment mandate,” Dabbagh says.
Strong performance
Despite the boost from existing and new LPs, Dabbagh is quick to add, “Let’s be real. We got a lot of no’s as well, so we had to power through that. We got a lot of, ‘You guys seem amazing. Come talk to us when you’re raising Fund III.’”
The strong performance of VoLo Earth’s debut fund was a key factor in assuaging concerns that LPs that ended up committing may have had, he notes.
The $88 million Fund I, with a 2021 vintage, ranked in the top decile of venture performance as of the end of 2024, according to data from Carta. Exits so far this year include Pearl Street Technologies and Gaiascope, both of which were acquired at above book value. Pearl Street, whose simulation and optimization platform is designed for easier power grid planning, was acquired by Enverus, a SaaS company focused on energy, while Gaiascope, whose energy analytics software aims to make power more investable, was acquired by Engie.
“We knew of those [exits] potentially coming in 2024, so we leveraged a bit of a forward view,” Dabbagh tells VCJ. “And then those exits actually happened in early 2025, which really helped us charge up the back end of the raise a little bit more.”
Even though most of the commitments to Fund II had been secured by the end of last year, VoLo Earth decided to keep the fundraising open beyond the political cycle. “We didn’t want to close the raise at the end of 2024 right on the heels of an administration change and a political change,” he notes. “We wanted to keep it open for another six months just to give allocators a little bit more stability and time to make decisions on whether they wanted to partner with us.”
While Volo Earth found success with its fundraise, the same cannot be said for many other climate-focused VCs. As we previously reported, US climate-focused VCs closed on 23 vehicles in 2024, the lowest number in 15 years, per Silicon Valley Bank’s Future of Climate Tech 2025 report. Tighter LP allocations and greater selectivity kept nearly two-thirds of the funds raised at less than $100 million, the report stated. Trump’s directive on starting his second term for federal agencies to pause disbursements appropriated through the Inflation Reduction Act put further pressure on climate funds.
“I don’t think there’s been that many proof points yet for large allocations into this sector — not enough to support a large influx into the sector,” Dabbagh says.
After cleantech 1.0, whose niche returns were not fully bankable for most allocators, came more VCs entering the space in the late 2010s and increased allocations. But those returns are barely ripening now, partially due to the sector and partially due to the elusiveness of exits,” Dabbagh explains. Then between 2021 and 2023 came a swell of fund managers focused on climate but not enough allocation to go around, making it especially challenging for emerging managers.
“And then the businesses have not totally proven themselves yet — and that’s because, in my view, the economics only started getting to a point where these technologies can win on unsubsidized economics in the last five years,” he notes. “So we’re still a bit immature from a return perspective.”
LP hesitancy remains
Those are the key reasons why some LPs remain hesitant, even reluctant, to allocate large pools of capital to climate tech, he says.
In addition to Volo Earth’s partners’ prior operating and investing experience across political economic cycles, investors appreciate the firm’s consistent focus on backing technologies that can scale without government subsidies.
Dabbagh concedes that some of his portfolio companies have used subsidies and incentives when they were available “as a tailwind.” But he says remaining disciplined about decarbonization and saving money through unsubsidized winning economics is “how we – the collective we – outlast political cycles, by not being overly dependent on one administration’s preferences and subsidies.”
The most recent of Fund II’s six investments so far is Reframe Systems, whose $26 million Series A round VoLo Earth co-led in August. Reframe uses robotics and off-the-shelf materials to automate modular housing, from duplexes and triplexes to multi-family buildings.
Another recent investment is Cambium Carbon, a timber supply chain company focused on mass timber, which uses glue-laminated beams made from smaller pieces of wood in place of very large wood pieces.
“Now mass timber is seen as a substitute for steel and concrete buildings,” Dabbagh says. “The carbon [emissions are] way lower and the instillation is way easier. No subsidies or incentives are needed or used there.”
As for exits, he believes some of his companies still have a path toward IPOs, but he’s monitoring the M&A scene because that’s a more common exit route for many B2B companies.
“With geopolitical conditions, corporates are ensuring that they’re investing in solutions that can scale today and in a near-term cycle with demonstrated and validated value propositions in the market,” he notes. “Some of the moonshot hype has died down and it’s back to fundamentals. That’s good for the ecosystem and that’s good for investor returns.”
