From Early-stage Promise to Funding Winter: Climate Startup Landscape in the first half of 2023

From Early-stage Promise to Funding Winter: Climate Startup Landscape in the first half of 2023

From Early-stage Promise to Funding Winter: Climate Startup Landscape in the first half of 2023

In the first half of 2023, Indian climate startups experienced a mixed bag of outcomes, with early-stage activity remaining stable while growth-stage deals faced the impact of a funding winter. we’re diving deep into the current state of climate startup funding, highlighting some exciting sectors, exploring investor interest, and shedding light on the challenges and opportunities that lie ahead.

Shifting Funding Landscape:

It’s a bit of a tale of two worlds in the climate startup funding landscape. Early-stage deals are still flowing, which is great news. But when it comes to those big deals exceeding $50 million, they’re becoming as rare as it has become to see a  new unicorn these days (Table1)

Even early-stage startups aren’t immune to the funding winter blues, where the investors are supporting their portfolio companies with additional funds.  Notably, existing investors have taken the lead in funding rounds for companies like Racenergy, Probus Smart Things, Satyukt Analytics, and Bounce Infinity, highlighting their commitment to supporting these ventures.

Traditionally, climate startups accounted for less than 5% of total startup funding in India. However, in light of the substantial reduction in startup funding across the board, climate startups now claim around 10% of the total startup funding.

Thriving Sectors and Investor Interest:  Electric mobility stands out as the dominant sector, accounting for over 60% of climate startup funding. From charging infrastructure to last-mile mobility companies like Magenta EV, Blue Smart Cabs, and Zypp Electric, the electric mobility space has garnered significant attention. Battery technology follows closely, with Log 9 material driving funding in this domain. Additionally, there is growing interest in hydrogen startups, such as Ossus bio renewables and Newtrace, as hydrogen emerges as a vital lever for decarbonization in industries like cement and steel.

Solar power, an essential renewable energy source, has also attracted investment. Solar module manufacturers and solar EPC companies like Prozeal Infra and Navitas Solar secured funding from family offices, emphasizing their crucial role in providing patient capital to the solar sector, where early-stage funding is difficult to obtain. However, once these companies grow to a certain size, there is a lot of interest by private equity investors, as was demonstrated by mega fundraise of over 250 mn USD of Clean Max solar and Serentica Renewables. Given the established nature of these two companies, we have not included their funding as part of the climate startup funding landscape.

There were a number of deals in Green fintech, with startups such as solar financing NBFC Aerem and the EV sales and financing platform Turno, driving the importance of financial solutions in driving the uptake of electric vehicles and solar modules.

Deeptech has emerged as a focal point for investors, with companies like Uravu Labs, Zero Cow Factory, Metastate Materials, and Newtrace successfully raising capital. These innovative startups are at the intersection of cutting-edge technology and climate solutions, attracting attention from venture capitalists seeking disruptive opportunities.

Additionally, there have been two notable growth stage funding deals, including Ecozen (solar-based cooling) and Atomberg Technologies (Energy efficient fans) which raised funding from global investment funds Nuveen and Temasek, respectively.

Corporate and Venture Capital Involvement: Since most deals are early stage, investors largely comprise angel funds and early-stage impact investors.  However, participation from family offices and corporates is growing and they contributed to more than 20% of total funding in H1 23.

The Road Ahead:

Looking ahead, venture capital investors are eager to evaluate climate deals. in H1 23, a number of climate investors including Avaana and Omnivore announced that they were raising new funds to invest in climate startups. However, startups with substantial revenue and significant steps toward commercialization remain elusive. Currently, venture backable startups primarily exist in three sectors: electric vehicles, deep tech, and green fintech. The nascent carbon credit market, buoyed by regulatory action, also presents opportunities for venture capital investments.

You can download the list of climate-tech deals in 2023 here.

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