The need for sustainable development, clean energy, and eco-friendly measures has risen in recent times as the climate crisis has worsened, leading to the rise of low-carbon innovative technology and climate-tech start-ups to decrease the dependency on carbon and transition to net-zero. This effort has borne fruit, as about 120 climate-tech start-ups have raised equity capital of $1.2 billion from 272 unique investors over the past five years, according to a report by the Impact Investors Council (IIC), Climate Collective, and Arete Advisors.
Titled “Early-stage Climate-tech Start-ups in India: Investment Landscape Report 2021,” the 150-page-report is the culmination of a ground-up study that highlighted the investment activity in the Indian climate-tech sector over the past five years.
Not only did the start-ups raise record capital during this period, but there was also a sustained growth in both volume and value of equity deals between 2016 (18 deals and $102 million) and 2019 (58 deals and $50 million) before 2020 saw a dip owing to the pandemic.
Sustainable mobility, which includes the manufacturing of electric vehicles, clean logistics, and novel components, witnessed 84 deals of a brand value of $705 million (the largest in the climate-tech sector), followed by Energy, which includes the generation of clean energy, energy access and storage, and energy optimization products (44 deals amounting to $301 million). The other sub-segments, which include climate-smart agriculture, waste management, and circular economy, and environment and natural resources, have gained traction as well.
Why has the climate-tech sector grown so much in recent times? The report answers that as well, stating that the increasing realization of the necessity for climate action, the development of a large asset base in clean energy, increasing interest from global investors, and the emergence of the innovative deal pipeline have been the key factors for this growth.
While the clean-tech sector accounted for only 9% of the investment flows to total impact investing flows, which also include financial inclusion, healthcare, agriculture, education, and others, it is currently in a nascent stage as most of the deals were early-stage – 68% received seed-stage funding while 83% of the transactions were worth $5 million or lower.
It is thus clear that firms who are working on science/tech innovations are in the need of customized support in the early stages for prototyping, testing, technical validation, and product commercialization. This is something that can be done by setting up dedicated Centres of Excellence (COEs), Specialized Entrepreneur Support Organizations (including incubators and accelerators), and a greater academia-industry interface.
Other measures mentioned in the report include the availability of patient capital, proactive government policies, and greater capacity-building.