What tech sector is today, climate-tech will be tomorrow, says Avaana Capital

The technologies of the last 10-15 years—computer science, information technology, deeptech, etc—that got us to today aren’t going to take us to tomorrow, which is why climate-tech is an important area to look at for venture capitalists, believes Swapna Gupta, Partner at Avaana Capital.

The need for venture capital to be infused in climate-tech startups has never been so urgent. From the escalating threats of climate change to the mounting concerns over pollution and resource scarcity, sustainable solutions are needed for a planet in peril. Startups are leading the charge in many ways and investors are finally taking notice of the long-neglected climate-tech sector.

“The next 1,000 large private companies that will emerge in the next 20 years are going to be climate-tech…to me, climate-tech is basically the new computer science, where you’re thinking about materials, physics, chemistry, basically everything to do with new technologies,” she said at TechSparks 2024 Mumbai edition.

Yet, even amid the proliferation of a thousand companies, the daunting truth remains that combating climate change is no small feat, and their collective efforts may still fall short of the monumental task at hand. There's an opportunity for more companies companies need to get involved, especially in India.

“In a country as large as ours, there’s definitely a lot of opportunity, across sectors,” said Rehan Yar Khan, Managing Partner at Orios Venture Partners, on a panel discussion on the climate-tech opportunity in India.

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Evaluating companies

Even as startups in the sector are doing crucial work and investors rally behind emerging technologies in the sector, ROIs and profits do matter despite the underlying “social” imperative. When evaluating startups for potential funding in the climate-tech sector, investors don't just consider their impact but also look at several financial parameters.

Khan asserted Orios does not look at startups in climate-tech any differently than others in his portfolio.

“You can have different parameters in the same fund,” he says.

Orios looks at the three Ts: team, TAM (total addressable market), and traction.

“In 2023, we looked at about 4,800 companies to invest in 10. So, yes, the funnel is extremely sharp and the bar is very high,” Khan added.

For Avaana’s Gupta, what matters is whether the startup can show large outcomes and opportunities, irrespective of the sector, as long as the company is razor-focused on climate.

“It could be process, it could be product,” Gupta said, adding Avaana breaks down climate-tech into three areas: energy transition, resource management, supply chain and mobility, and agriculture and food systems.

“These three contribute approximately 70% to India’s GDP, and 90% to emissions. So we look for any technologies that can move the needle fast,” she remarked.

Certainly, the founders' backgrounds hold significant weight for both Orios and Avaana and are a crucial aspect of their assessment process.

But Gupta noted that the big difference in the climate-tech sector, in particular, is that the founders are not people “who have just come out of the IITs with a computer science degree saying I have this great app”. Instead, founders in the sector are often seasoned experts in their respective fields, possessing both deep domain knowledge and technical expertise.

“[To build in this sector], you need to understand what you’re building. If you’re selling to enterprises, for example, you need to understand supply chains, mobility, how grids work, how companies think about things...,” she explained.