One of the world’s biggest greenhouse gas emitters is trying to clean up. Global venture capitalists looking to put their money to work should keep an eye on it. The Indian Capital Territory of Delhi is full of activity. Rusted metal signs that tell of “electric charging” stand alongside the stations that power electric two-and-three wheelers. Startups are in a tizzy for funding building technology to drive sustainability. Corporate activity has been going hand-in-hand, while capital expenditure has risen sharply in recent months and rail freight volumes have reached record highs. India’s big companies, such as Wipro, UltraTech and Reliance, are increasingly talking to shareholders about green-tech and sustainability. Private capital is supporting technology related to climate action. Of the approximately $27 billion in such investments globally in the first half of 2022, about $2 billion went to Indian firms.
Impressive, but a few billion dollars is hardly enough, and global venture capitalists tired of looking for green investments are missing from the picture. Billions more are needed to help push these firms forward to meet emissions targets. Tight financial conditions don’t help, but the bigger challenge for India is overcoming the usual doubts about its dysfunctional politics, crumbling infrastructure and red tape.
What is not appreciated, however, is that not all of this climate-friendly activity is being driven solely by multi-billion dollar subsidies. Those measures, moving in the right direction, have not in themselves been a great temptation. In many areas, policies are still in the drafting stages.
India’s conviction to go green is in stark contrast to how this kind of change has happened elsewhere. Carrot-and-stick policies and subsidies were introduced for this in China. Even in the US, tax credits and incentives have been the drivers of change.
India’s post-Covid revival has been supported by better roads and infrastructure and a manufacturing shift. Now big money is going to green projects. Mobility and transport have attracted much of the early-stage investment so far, which is understandable: the sector accounts for more than 10% of India’s emissions. As thousands of miles of highways are being built, new electric-vehicle-charging-station firms making batteries and EVs are on the rise. To fund electrification, the government is working with the World Bank to establish a tool to reduce risk in financing electric vehicles. Banks are giving green car loans, while non-banking financial institutions are also giving credit.
Road Transport and Highways Minister Nitin Gadkari told me in an interview that the economic case for going electric is real, as two-wheeler and three-wheeler EVs and e-bus shows are being adopted in a big way. They are reducing the cost of commuting. India’s market for climate-tech solutions is not only a massive technology shift, but an affordable energy transition.
Entrepreneurs are working on projects ranging from battery swapping and EV chargers to carbon accounting, as well as new ways to promote agricultural efficiency and public awareness. As one investor told me, these founders are putting not only their capital, but their time, energy and conviction behind these startups. They could probably choose their job in Silicon Valley. Instead, he has chosen to address the problems of infection in India. Anjali Bansal, who runs Avana Capital, a large climate-tech venture capital fund, says: “This is only the beginning.” Sustainability, like the digital revolution, will be the next big sea change “and thus a huge and lucrative opportunity to invest in technology for global green solutions.” As India grows and energy consumption rises, she says there is a recognition “we have a lot of building to do — we can do it right from the start.” While early-stage investment around climate technology is gaining momentum, there is still a lack of domestic venture capital for later stages, when working capital needs to be increased: the missing middle it gives entrepreneurs about the value of their companies. Being realistic and being proactive about crowdfunding in the global capital for fundraising in the future is compelling.
Climate technology is different from more traditional technological investments. The former will include not only asset-light software solutions but also investments in manufacturing, hardware and R&D for product innovation. This means global venture funds must adapt if they want to in the energy transition, especially when it comes to gestation periods and exit timing, says Priya Shah of climate-tech fund Thea Ventures.
For now, climate-tech investors can still draw on a fair valuation, or look at the relatively small size stamps early stages. Global VCs sitting on the sidelines should take note: Instead of waiting for swarms and pumped-up multiples, this may be the time and place to put their dry powder to work.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia.
catch all business News, market news, today’s fresh news events and breaking news Updates on Live Mint. download mint news app To get daily market updates.