Heating and cooling represent one of the largest sources of global energy use in buildings. In the United States, buildings consume about 39% of all primary energy and 74% of electricity. Thermal end uses such as space conditioning, water heating, and refrigeration make up nearly half of building energy demand and are expected to rise in the coming years.
As energy consumption grows, improving the efficiency and electrification of heating and cooling systems has become an investment priority. Governments, corporates, and investors are increasingly backing technologies that electrify and optimize heating and cooling systems. Advances in smart controls, energy management, and high-efficiency heat pumps are attracting capital.
This final article, part of our Heating and Cooling for Buildings series, examines how funding is shaping the future of heating and cooling technologies. It explores where capital is flowing, who is investing, and how these shifts are driving the transition toward cleaner, smarter, and more efficient buildings.
Investment momentum cools in 2025 after 2024 surge
Investment in heating and cooling for buildings accelerated after 2021 marking the segment’s most active period of growth. Total funding jumped from $0.28 billion in 2021 to $0.43 billion in 2022, followed by consecutive year-on-year increases of 43% in 2023 and 20% in 2024.
Equity dominated during this innovation phase (2020–2023) making up 80–95% of total capital inflows which is typical of venture-led funding for early-stage R&D. 2023 marked the peak year for equity reaching $727 million, before declining to $455 million by October 2025.
In contrast, debt financing surged in 2024 reaching a record $308 million and accounting for a third of total funding. This shift signals that H&C technologies, such as advanced heat pumps, thermal storage, and smart Heating, Ventilation, and Air Conditioning (HVAC) systems, have reached a level of technical maturity and bankability suitable for non-dilutive financing.
In 2025, total funding has moderated driven by a slowdown in both equity and debt financing. Still, debt remains a secondary source of capital suggesting that 2024’s surge may have reflected one-time deployment efforts.
Grant funding which had averaged around $20 million annually since 2022 has fallen sharply in 2025 with less than $1 million received to date.
Late-stage funding strengthens with major Swedish deals in 2025
Early-stage investment in heating and cooling for buildings remained steady from 2022 to 2024. Funding grew nearly sixfold during this period, peaking at $397.84 million across 36 deals in 2024. This growth highlights investor confidence in emerging technologies for efficient building energy systems.
The 2024 spike was largely driven by Sweden-based Aira which raised €145 million ($132 million) in Series B funding. However, as of October 2025, early-stage activity has slowed sharply to below $100 million across 14 deals, suggesting a near-term pause in the pipeline for new entrants.
Pre-seed and seed funding, by contrast, has remained stable over the past five years, except for a brief surge in 2023 when 32 deals raised $101.14 million. This consistency points to a resilient early innovation climate and sustained investor interest in nascent solutions.
Late-stage investment patterns tell a different story. Deal counts have remained modest averaging 4–5 annually but funding volumes have fluctuated sharply. 2025 has emerged as a strong year for late-stage capital, with funding reaching $320.86 million, driven by major Series C rounds from Swedish-based companies – Aira ($175 million) and Qvantum Energi ($96 million).
Together, these trends signal a maturing market. Investors are concentrating capital on proven, scalable technologies capable of faster commercial deployment.
The sharp rise in debt financing in 2024, followed by a surge in late-stage equity in 2025, signals that heating and cooling technologies are moving from early innovation to large-scale deployment. Broader investment patterns show that much of the software-oriented capital has gone into sub-segments such as predictive maintenance, energy analytics, and connected HVAC systems.
Although total funding has dipped in 2025, the strong early-stage investments made in previous years have built a solid innovation pipeline. This trend is likely to sustain momentum and attract new late-stage capital over the next two to three years.
HVAC is the backbone of building decarbonization efforts
Investment in HVAC systems has grown steadily from $96 million in 2020 to nearly $700 million in 2024, reaching $520 million as of October 2025. With $2.3 billion raised across 241 deals, HVAC remains the largest and most mature segment within heating and cooling technologies for buildings.
Within this category, building HVAC optimization which represents digitally enabled technologiesUnlike traditional HVAC solutions focused on hardware performance, this subsegment emphasizes intelligent energy management through AI, IoT sensors, and data analytics. It integrates real-time monitoring, predictive maintenance, and automated controls to enhance system efficiency and reduce operational costs. The segment has secured $1.1 billion across 128 deals since 2020, accounting for nearly half of total HVAC investments and highlighting the rapid convergence of mechanical systems with digital intelligence.
Water heaters represent the third-largest funded category but have demonstrated the steepest growth curve. Funding surged nearly 20-fold, from just $19 million in 2020 to $372 million in 2024, reflecting strong market demand to electrify one of the most energy-intensive household systems.
Funding in thermal energy storage expanded from $2.8 million in 2020 to $128 million in 2024 as investors placed bets on both hardware (storage) and software (optimization) solutions enabling grid flexibility. This signals investor confidence in technologies that can decouple heating and cooling demand from real-time power generation.
Refrigerant solutions, once a niche area of interest, saw peak activity in 2023 at $31 million, mainly targeting low-GWP (Global Warming Potential) and solid-state cooling technologies. However, funding has tapered off in 2025.
HVAC load reduction saw a one-time spike in 2022, likely driven by technologies enhancing building envelopes, such as advanced insulation, smart glazing, and phase-change materials, designed to lower heating and cooling demand at the source.
Despite diversification across categories, HVAC systems, particularly modern heat pumps and smart chillers, continue to dominate investment by absolute dollar value and deal count, reaffirming their critical role in decarbonizing building technologies.
Sweden powers Europe’s heating and cooling investment boom
Europe dominates investment in heating and cooling for buildings, securing nearly twice the funding volume of North America. As of 2025, Europe has attracted close to $2 billion in funding, compared to $1 billion in North America. The same pattern holds true for deal activity, with Europe recording 26 deals this year double that of its counterpart across the Atlantic.
Sweden remains the region’s clear leader, drawing close to $800 million since 2020 and accounting for nearly 40% of Europe’s total H&C funding. The United Kingdom and Germany follow, supported by strong public incentives and advanced deployment markets for electrified heating systems.
The regional funding landscape remains highly concentrated but is gradually evolving. Most capital is flowing into colder regions with established Climate Tech ecosystems such as the U.S., Western Europe, and Scandinavia where demand for efficient heating solutions is strongest. Canada and France have also reported significant growth, though their ecosystems remain smaller in comparison.
Asia is the only emerging market with a visible footprint, securing $55 million across 20 deals since 2020. However, markets in South America, Africa, and Oceania remain largely absent, together accounting for less than 2% of total disclosed funding. This imbalance reflects both climatic realities and limited local incentives for heating innovation in tropical regions.
Europe’s dominance is further underscored by its higher average deal size, suggesting that investors in the region are backing more capital-intensive, later-stage companies. Strong policy support and a clear pathway to large-scale deployment continue to make Europe the beehive for heating and cooling innovation.
VC participation triples as investors back scalable heating solutions
The investment landscape in this segment is defined primarily by venture capital and government support. Together, they have shaped the sector’s evolution from early innovation to early-scale deployment.
Venture capital (VC) remains the most active investor group, with participation rising from 21 investors in 2020 to 70 in 2024 (totaling 241 investors). VCs are backing scalable, high-risk technologies that challenge traditional heating markets. Companies like Quilt (U.S.) and Aira (Europe) have raised substantial VC and growth rounds to expand electrified heating and smart heat pump platforms.
Government programs form the backbone of the heating and cooling financing ecosystem, averaging around 12 active investors per year (76 in total since 2020). Public investment through grants and market incentives continues to play a pivotal role in de-risking early deployment and stimulating demand.
Market-friendly policies have helped accelerate private sector participation by creating clear commercial pipelines for technology adoption like:
- The EU’s Net Zero Industry Act
- The U.S. Inflation Reduction Act (IRA)
- Ireland’s Warmer Homes SchemeÂ
Private equity (PE) participation, though smaller in scale with 33 investors, is increasingly focused on mature markets. PE firms are driving consolidation and operational efficiency by acquiring established HVAC and industrial refrigeration companies to modernize their technology portfolios.
Meanwhile, corporate venture capital (CVC) are ramping up their involvement, rising from just one participant in 2021 to six in 2024. These players are investing strategically to align with electrification and digital optimization trends. Carrier Ventures, for example, is targeting innovations in smart grids and electric transport refrigeration.
Investing in the future of building efficiency
2025 signals a period of transition for heating and cooling technologies. Following several years of rapid growth, funding patterns now reflect a market moving from innovation to deployment.
As heating and cooling become a central focus of net-zero strategies, investors and startups alike have a pivotal role to play. Targeted financing mechanisms, supportive regulations, and long-term capital commitments will determine how quickly the sector can decarbonize one of the most energy-intensive parts of the built environment.
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