Investors see opportunities amid focus shift towards environmentally sustainable ventures
The cleantech industry is poised for significant growth and is expected to become a major power source by FY2050. This growth trajectory is not just beneficial for the environment; it’s also creating substantial economic opportunities, including new job opportunities and a positive trend in raising funds for cleantech startups.
According to Prateek Tosniwal, Co-founder at Ivy Growth Associates and Partner at Mi Capital Services, “The shift towards sustainability-focused companies is being fueled by governmental support for renewable energy and sustainable infrastructure projects. This is generating an attractive environment for investments in the Indian cleantech space, offering ripe opportunities for domestic and international investors alike.”
The robust push from the government is also catalyzing co-investment opportunities at various growth stages within the cleantech sector. “This uptick in interest from investors is expected to bring about an influx of foreign companies and institutional investors looking to capitalize on India’s burgeoning cleantech market,” Tosniwal added.
Reflecting on India’s startup ecosystem’s evolution over the past decade, it’s clear that both domestic and international investment firms have developed a keen interest in these innovative ventures. This interest has translated into significant financial support, with startups raising nearly $105 million in venture debt financing up to May 2024, demonstrating an increasing confidence in the potential of these enterprises compared to $151 million for the entire year of 2023.
Rohit Madan, Partner at Deloitte India, pointed out, “Given the substantial investment required for cleantech startups to achieve profitability, venture debt emerges as a crucial funding mechanism. It enables these companies to access additional funds while preserving equity and extending their runway to achieve next-level milestones.”
Strategies for Cleantech Startups Seeking Funding
For cleantech entrepreneurs, refining the business model is essential. Tosniwal advises that startups need to ensure they have a solid business, cash flow, and revenue model in place to attract investors. “Detailed planning on the utilization of funds, such as expansion strategies coupled with data on target markets and growth potential, will significantly strengthen funding proposals,” he adds.
Emphasizing the importance of quality and innovation, Tosniwal also notes, “Investing in technology, production improvements, supply chain efficiency, and research and development can significantly enhance operations and help cleantech startups stand out in the competitive landscape.”
Madan concurs, highlighting the necessity of communicating the purpose and planned allocation of funds to potential investors. “Cleantech startups must clearly articulate their future financial projections, including anticipated revenue streams and debt repayment strategies, to reassure investors of their viability and promise of growth,” he explains.
Risk Assessment and Due Diligence
The increasing interest in sustainable ventures is altering investor approaches to risk assessment. “Today’s investors are more inclined towards startups that focus on environmental, social, and governance (ESG) aspects and strive to minimize their carbon footprint. Regulatory compliance and the environmental impact of a startup’s operations are paramount considerations, alongside traditional metrics like profitability,” Tosniwal remarks.
For cleantech startups, demonstrating how their offerings contribute to sustainability goals can significantly enhance their attractiveness to investors. “Understanding the specific environmental and social impacts of a startup’s products or services, as well as the unique challenges and technological innovations, is critical in the due diligence process,” adds Madan.
Given the sector’s complexity, the pedigree of the team and their technical advisors also plays a crucial role. “Expertise in the cleantech domain, coupled with access to government and regulatory bodies for necessary approvals, are key factors in assessing a startup’s potential for success,” industry experts agree.
In conclusion, as the world increasingly shifts towards sustainable and environmentally friendly technologies, the cleantech industry not only promises to make a significant impact on our planet but also offers lucrative and exciting opportunities for investors and entrepreneurs alike.
