Climatetech On The Rise, But Hurdles Remain

ClimateAngels | Apr 12, 2023

Amidst all the euphoria that surrounds such innovations, it can be easy to forget the humbling and complex reality that subsumes the sector in India

It is increasingly becoming less disputable that the top business opportunity of our age is climatetech, much like e-commerce ruled the 2000s and fintech dominated the 2010s. But amidst all the euphoria that surrounds such innovations, it can be easy to forget the humbling and complex reality that subsumes the sector in India.

“There is no dearth of great ideas in the climatetech space, but the number of ideas that survive beyond the first 24 months is very low. The valley of death is very profound in this sector. Mortality in this space is very high. Many innovations are less investible and more moonshot,” says Anand Ganesh, COO, IIMB NSRCEL.

Notably, climatetech technologies are often referred to as ‘hardtech’, a fitting term to describe the many challenges encountered along the way in terms of high capital requirement, lengthy research and development, limited resources and so on. “Working in this space, we have to adopt a ‘bread and butter and beyond approach’: for instance, in order to give due time to the development of sophisticated technologies such as motor controls for solar cooling, we had to do other things in the same vertical, such as solar pump installations and consulting work, to keep our business afloat in the meantime,” explains Vivek Pandey, the founder and CTO of Pune-based Ecozen, one of the rare Series C-funded climatetech startups.

With specific regards to securing capital, while government grants, angel investors and incubators do provide the initial push, it is venture capitalists that offer a real chance for long-term survival. “In a way, we evade the so-called valley of death. Once startups have made it to the other side—and very few do—by themselves, we help get the product market fit (PMF) right. Since we are in the outlier-driven business as VCs, we need to bet hard on hardtech. That’s what’s lacking. VCs are allocating capital to climatetech but they are not willing to take the lead,” explains Raiyaan Shingati, founder and MP, Transition VC.

What impact does governmental policy intervention, especially subsidies, have on propelling the sector? For instance, consider that due to concerns around the possible shutting down of EV startups post the expiry of the FAME-II Scheme (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India) in March 2024, a parliamentary committee recently recommended its extension by two years. According to Pandey, while such subsidies play a key role in bringing the business to scale, they also carry their own set of hurdles, especially in the case of securing bank loans. Additionally, believes Shingati, VC funds discount subsidies before investing in cleantech ventures as such schemes are applicable for limited periods to drive faster adoption and cannot be relied on too much as the investment horizon in these businesses is typically between eight to ten years.

For Shailesh Vickram Singh, the founder of Gurugram-based fund Climate Angels, funding depends largely on ‘impact’. “All we ask founders is whether they can build a INR 1000 crore company in the next five to ten years. Revenue is the only metric we use to measure impact. Also, climatetech is a widely misunderstood sector. While there’s an overwhelming focus on carbon sequestering in the West, particularly the US, in a resources-constrained country such as India, all ventures aimed at cultivating energy efficiency fall under climatetech as they ultimately produce environmental benefits,” he opines, adding that the irrational funding exuberance that currently surrounds consumertech will wane in the four to five years and climatetech ventures will only grow larger. “All it takes is one unicorn, one winner to change the game,” he says.