ImpactAlpha, September 9 – India’s recognition of its vulnerability to climate change has spurred a set of ambitious targets to curb carbon emissions (by 35% of 2005 levels by 2030), ramp up renewable energy consumption (to 40% by 2030) and ignite electric vehicle adoption. Climate tech innovators and investors are responding to the challenge.
Investors have pumped $1.2 billion in equity into India’s homegrown climate tech startups in the past five years, including $506 million in 2019, according to a new report by Impact Investors Council, Climate Collective and Arete Advisors. Among them: India-based Infuse Ventures, Ankur Capital, IAN Fund and SINE as well as international investors and development finance institutions, like Netherlands-based FMO.
The dollar volume is far short of the capital needed to meet India’s climate goals, but aligned with the country’s very early-stage technology companies. More than half of the climate tech startups funded between 2016 and 2020 were seed-stage ventures.
“Startups have proven to be great at piloting new pathways and further developing inventions to the point that they become ubiquitous,” the authors say.
Mobility and energy
Sixty percent of India’s climate tech capital went to clean mobility, including logistics, electric vehicle adoption and charging infrastructure (for context, see, “Shift to electric rickshaws and motorcycles is drawing investors to emerging markets’ e-mobility opportunity”). Ride hailing company-turned-EV manufacturer Ola Electric raised $267 million in 2019.
One-quarter of the capital went to clean energy, including generation, access, storage and optimization. “A lot of government work has been focused on emission reductions and a shift to renewables—and consequently the technology ecosystem in this space has thrived,” the report states.
More than half of India’s electricity still is powered by coal.
Climate, impact and gender
India’s nascent climate tech sector accounts for 9% of the country’s total impact investing activity. The typical deal profile: a seed-stage round of less than $1 million, backed by venture capital or private equity. More than 90% of funded climate tech ventures are male-led.
“This is low compared to the 14% women-founded/co-founded startups among the top 150 startups” in India, the report states. India’s broader startup scene is 20% women-led.
Technical complexity, long gestation cycles, and a dearth of early-stage “risk capital” has yielded few follow-on funding rounds in India’s climate tech scene. Only a handful of clean mobility and energy companies have raised growth rounds. Investors’ “stringent return expectations” is a barrier.
What’s needed: grants to get startups through the incubation and testing phase. Also, “appropriate, well-designed blended finance and/or affordable debt structures can help in de-risking private investments,” the authors state.