India is emerging as a climate tech hub
Financial Express: Is there a lot of enthusiasm for climate tech right now in India and, is a lot of money being raised for it?
Shauraya Bhutani: In a span of last six months, numerous India-focused venture capital firms have publicly declared their climate tech intentions and prioritisation of the sector including global VCs (like Lightspeed) and domestic VCs (like Merak Ventures).
Climate change has moved from being an intellectual debate to mainstream acceptance. The Indian government, corporates and consumers are not only acutely aware but also conscientiously pushing for solutions to tackle this existential threat and climate tech companies are a core part of the solution.
Venture capital firms have been tasked by their capital providers to find and back climate tech startups in India.
As per a report from Unitus Capital, $7bn was raised by Indian Climate Tech related start-ups in 2021. Although a large part of that funding was dedicated to energy and electric vehicles, we saw more diverse sectors getting funded. The early stage activity is always a leading signal for emerging solutions and unicorns in the making – we predict in the next five years, the funding would grow at least by 5x and agritech, food tech and circular economy will command a lion’s share of the funding.
FE: What is the share of climate tech in your portfolio?
SB: We are a sector agnostic investor and have primarily invested in e-commerce, fintech and edtech. Climate tech is a core part of our thesis, and we hope to close two deals in this sector quite shortly, one is a circular economy play while the other is an agritech.
FE: What do you look for in a climate startup?
SB: We first evaluate any startup from a pure returns perspective, looking for founder’s domain expertise, future market size, scalable unit economics, early signs of customer adoption and how quickly can the startup move to establish competitive barriers.
We believe climate tech is the opportunity of the decade if not the century, similar to what ecommerce was in the 2000s or fintech in 2010s. There is a great amount of brain power and capital being directed towards this sector and rightly so. We want to participate in the upside sure but also contribute to the maximum extent possible.
FE: How many climate tech startups are there in India and what is the focus area of the majority of these start-ups? IS there any particular reason for choosing one area?
SB: We don’t have access to this level of data. However, there were over 180 fundraising transactions in 2021 spread across early stage, growth stage and late stage.
A majority of the mature start-ups, Series B and above, are in the green energy, electric mobility and agri supply chain related tech. More than 80% of the funding went to these sectors. There is no particular reason for this other than the technology development curve and advanced business models present in these sectors.
Smart farming, circular economy and waste management, decarbonisation solutions, sustainable farming and built environment activity pickup in early stages which is a sign these are emerging sectors within climate tech and will attract increasing amounts of capital in the future.
FE: What are the revenue models of these startups?
SB: A bit hard to pinpoint a specific revenue model for climate tech start-ups as a whole since it’s a very wide universe. However, we do see B2B and B2B2C models as being more dominant than B2C, at least in the foreseeable future. This is largely due to enterprises and government can use climate tech solutions to have impact at scale.
FE: Do these startups face talent challenges?
SB: To the contrary, climate tech is attracting the best talent in the industry – driven by increasing number of people being more aware of the climate change impact and them wanting to contribute at an individual level. Furthermore, the smart talent is realising climate tech industry is going to continue to attract significant amount of capitals for decades to come and there is good money to be made in the sector.
FE: Do you think that the Paris Agreement of 2016 has an impact on climate tech investment in India?
SB: It has been claimed India was slow to act as we only agreed to pursue the net zero goal in 2021 at the COP26 summit at Glasgow, but I believe there is much more to it than that. India has shown, when it comes to world’s politics, it marches to its own drumbeat, and we actually have been on the mission to reduce our fossil fuel dependance by relentlessly investing in renewable energy infrastructure for energy production for over a decade now. Similarly, climate tech investments are surging in India, growing by 4x in 2021and quickly becoming of the fastest growing technology sectors. I believe, India is going to lead the way in climate tech innovation especially in building solutions for developing economies which face fundamentally different challenges to developed ones e.g., balancing energy and nutrition needs of a massive and growing population with controlling emissions.
FE: Has greenwashing forced investors to look beyond mere words for action?
SB: I believe climate tech is playing a critical role here as well – we now have access to software-based and satellite-aided tools which help with carbon accounting and understanding climate risk, which makes greenwashing increasingly harder. Private companies and investors’ net zero commitments can be monitored much more effectively than ever before.
FE: What are some of the key developments you think are coming to climate tech in the next five years?
SB: We see a lot of growth potential in circular economy, agri and food tech and built environment.
In circular economy – high-end recycling and recover solutions such as remanufacturing and refurbishing of high value products.
In agri and food tech – solutions which are enabling low-GHG processes including smart farming, precision agriculture and urban farming.
In built environment – IoT solutions to reduce energy usage and reducing “upfront carbon” with greener construction materials.