A report by Impact Investors Council (IIC), Climate Collective and Arete Advisors, 120 climate-tech start-ups raised US$1.2 billion over the past five years.
The report “Early-stage Climate-tech Start-ups in India: Investment Landscape Report 2021” is the outcome of a ground-up study that puts a spotlight on the investment activity in the Indian climate-tech sector over the past five years.
Given the gravity of the climate crisis in India, innovative low-carbon technology start-ups are needed to achieve the transition to net-zero.
Climate-tech start-ups are for-profit enterprises that work on innovative technology-based solutions that help cut carbon footprint or improve people’s adaptation and resilience to climate change.
For such enterprises to prosper, they need all-round support that includes abundant capital and conducive policies. So far, the discourse on climate finance has centred around large utility-scale renewable project financing with little focus on early-stage innovation driven start-ups, precisely the intention of our current research.
The four key takeaways from the report are as follows –
1. A new wave of climate-tech is blooming in India. 120 climate-tech start-ups raised over 200 funding rounds from 272 unique investors over the past five years. There was a sustained growth in both volume and value of equity deals in the sector between 2016 (18 deals; US$102 million) and 2019 (58 deals; US$506 million), before a dip in 2020, owing to the pandemic.
2. Sustainable Mobility leads the action, followed by Energy. Climate-tech is a broad term comprising several sub-segments, of which Sustainable Mobility (including EV manufacturing, clean logistics and novel components) has seen the highest investment activity (84 deals; USD 705 Mn). This is followed by Energy (including clean energy generation from new feedstocks, energy access, energy storage and energy optimisation products) that saw 44 deals amounting to USD 301 million. Both these sub-segments, i.e, Mobility and Energy are ahead on the maturity curve, and benefit from favourable regulatory environment and easy-to-capture impact metrics. Climate-smart Agriculture, Waste Management and Circular Economy, and Environment and Natural Resources – are the other sub segments gradually beginning to gain traction in terms of new innovative business models as well as investments.
3. A host of enablers lend climate-tech in India the potential for disruptive growth. The four key factors aiding the growth in climate-tech are (i) increasing realization on the need for climate action (ii) a large asset base in clean energy (developed in the last decade) encouraging new start-up innovations to service these assets (iii) growing interest from global capital allocators and (iv) emergence of innovative deal pipeline. Even as the number of start-ups working on novel technologies (be it green hydrogen generation, alternative proteins, or carbon capture to name a few) grows, the enabling ecosystem in India including incubators and accelerators, policy advocacy groups, and think tanks is also expanding.
4. The sector is presently at a nascent stage, needs mainstreaming: The sector accounted for only 9% of the investment flows to total impact investing flows (which also include financial inclusion, healthcare, agriculture, education etc.). Most deals were ‘early-stage’ and of smaller ticket sizes – 68% received seed stage funding, and 83% of the transactions were USD 5 million or lower in size. An overwhelming proportion of investors and entrepreneurs called out the ‘the lack of patient capital’ as one of the biggest weak links in the present ecosystem.