This is where climate tech meets global venture capital
Business activity is doing well, while capital spending has risen sharply in recent months and rail freight volumes have hit record highs. India’s largest companies including Wipro Ltd., UltraTech Cement Ltd. and Reliance Industries, are increasingly talking about sustainability to their shareholders. Private capital is also looking to support climate change-related technologies: of the nearly $27 billion in such investments globally in the first half of this year, nearly $2 billion went to companies Indian.
Impressive, but a few billion dollars is barely enough – and weary global venture capitalists looking for green investments are missing from the picture. Billions more are needed to help these companies meet their emissions targets. Tighter financial conditions don’t help, but more the challenge for India is to overcome the usual skepticism about its dysfunctional policies, creaking infrastructure and red tape.
What’s understated, however, is that all of this climate-friendly activity isn’t just driven by multibillion-dollar subsidies. These measures, while moving in the right direction, have not been a massive incentive in themselves. In several areas, policies are still in draft form. India’s belief in going green stands in stark contrast to how such changes have taken place elsewhere in the world. In China, carrot-and-stick policies and subsidies have been rolled out to entice entrepreneurs, industries and businesses to get on board. Even in the United States, tax credits and incentives have been driving change.
The country’s post-Covid resurgence has been supported by better roads and infrastructure, and a recovery in manufacturing. Big checks have been paid out to the traditional sectors. KKR & Co. has launched an Indian road infrastructure investment trust and is also investing $450 million in Hero Future Energies Pvt., an independent power producer with a portfolio of solar and wind projects, alongside the maker of Hero Group motorcycles. Brookfield Asset Management Inc. invests more than $2 billion in renewable energy projects, which tripled their capacity from 39 gigawatts to 110 gigawatts in 2015. Once-crowded banks have resumed financing the power sector . Even Amazon.com Inc. has announced plans to set up a solar farm in the western state of Rajasthan.
Mobility and transport have attracted a large share of seed investment so far, which makes sense: the sector accounts for more than 10% of India’s emissions. As thousands of miles of highways are being built, fledgling electric vehicle charging station companies are popping up along with those making batteries and electric vehicles. To finance electrification, the government is working with the World Bank to put in place an instrument to reduce the risks associated with financing electric vehicles. Banks offer green car loans, while non-bank financial institutions also provide credit.
The economic case for going electric is real, as shown by the widespread adoption of two- and three-wheel electric vehicles and electric buses, Road Transport and Highways Minister Nitin Gadkari told me. in an interview. They lower the cost of travel. India’s market for climate-related technology solutions is not just a massive technological shift, but an affordable energy transition.
The other crucial ingredient: Entrepreneurs – many of them from top universities in the country like the Indian Institute of Technology – are founding companies working on projects ranging from battery swapping and EV chargers to carbon accounting, as well as new ways to improve agricultural efficiency and increase consumers’ green consciousness. As one investor told me, these founders put not just their capital, but their time, energy, and belief behind these startups. They probably could have had their pick of jobs in Silicon Valley. Instead, they chose to leverage this opportunity to help solve India’s energy transition dilemma.
Anjali Bansal leads Avaana Capital, India’s first and largest climate technology venture capital fund, and reviews hundreds of deals every quarter. She says, “This is just the beginning.” Sustainability, much like the digital revolution was, will be the next big step change “and therefore an important and attractive opportunity to invest in technology for global green solutions”. As the country develops and energy consumption increases, she says there is a recognition “we have so much building to do – we can do it right, right from the start.”
While seed investments around climate technology are gaining momentum, there is still a shortage of domestic venture capital for later stages, when working capital needs to increase: the missing middle. This forces entrepreneurs to be realistic about the current value of their business and proactive about raising global capital for future fundraising.
Meanwhile, climate tech is different from, say, more traditional tech investing. The former will not only include lightweight software solutions, but also investments in manufacturing, hardware, and research and development for product innovation. This means that global venture capital funds will have to adapt if they want to participate in the energy transition, particularly in terms of gestation periods and timing of exit, as Priya Shah of the technology fund says. climate change Theia Ventures.
For now, climate tech investors can still come up with reasonable valuations, or with relatively small tickets given the early stages. Global VCs sitting on the sidelines should take note: rather than waiting for the herd and pumped-up multiples, now may be the time and place to put their dry powder to work.
More from Bloomberg Opinion:
• Venture capital has a battery blind spot: Anjani Trivedi
• Tiger Global’s Judgment Day May Never Happen: Shuli Ren
• Where BlackRock Sees Value in India’s Biggest IPO: Andy Mukherjee
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.
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