The world has had 50 years of practice in funding innovation in bits. That has given rise to the connected world we live in and the digital wealth of information, art & music that we enjoy.
Solving for climate change, however, would depend on our ability to move atoms. That means technologies that decarbonise steel, deploy ocean sensors, capture carbon from air, scale electrolysers to gigawatt capacity, build more efficient motors, grow proteins in vats and so on. These technologies were the basis of the Industrial Revolution, and are the basis of our material progress for the past 200 years.
Unfortunately, investing in atoms is hard. Such technologies can take years, even decades to prototype and then commercialise in markets that move slowly. It can take many years, even decades, and can often exceed the lifespan of typical venture funds. In fact, building companies here is so hard that instead of the famous ‘valley of death’ that software startups face, climate startups face as many as four!
Let’s look at these stages and what role capital can play in helping climate innovators leap across them.
The first chasm to jump is from the lab into an actual start-up. Unlike the US, we’ve historically under-invested in fundamental research in both universities and national institutions in India. And, as Naushad Forbes points out in his book The Struggle & The Promise, so have corporations. And, yet, at India’s scale, these add up. To tap into this pool, we need to create models like Activate.org in the US that give grants to promising researchers to take a sabbatical for two years and take a risk-free shot at commercialising their technology.
The next jump is for the start-up to find product-market fit in complex markets. Unlike the Internet which democratised access to customers, we’re talking about selling the first prototype to a cement manufacturer or a food processor. These are long sales cycles with risk-averse incumbents and product iterations that can take a toll on early stage climate startups.
In both of these stages, grant makers have an incredibly important role to play. Again, there’s much to learn from the US. Large programs like ARPA-E (modelled on the famous DARPA that gave us the internet) and SBIR grants focused on tech commercialization catalysed an incredible amount of innovation. In India, the government has historically played a minimal role and that slack has been picked up by organisations like ACT Grants, Rainmatter Foundation and Rohini Nilekani Philanthropies. At my company Terra.do, we interviewed more than 30 grant makers, startups and ecosystem enablers to understand what’s going on. The big insights were:
• Most grant makers still think in terms of ‘inter-sectional’ areas separately -- water, livelihoods, bio-diversity. What is needed to bring them together on a common platform with a shared vision for climate solutions in India. India Climate Collaborative is attempting to fix that.
• To the founders, both the discovery and the process of accessing these grants are opaque, slow and project-specific. Grant makers have to learn to ‘market’ their programmes more effectively and to open up their minds to unrestricted funding (including to for-profits).
In India, the government has historically played a minimal role and that slack has been picked up by organisations like ACT Grants, Rainmatter Foundation and Rohini Nilekani Philanthropies
The third chasm is from successful prototypes to the first few commercial deployments. Here is the first time when traditional venture capital starts to come into play. However, even here one needs to be creative. One approach is ‘patient’ venture capital (oxymoron notwithstanding). A great example is Breakthrough Ventures, Bill Gates’ $2B climate fund that has a fund cycle of 20 years, instead of the traditional 7-10 year cycle. Funds like Avaana Capital are beginning to break that mould in India.
Another is catalytic capital that combines debt, grants and equity in smart ways to help climate companies get to scale. Prime Coalition has demonstrated this strategy successfully for over a decade. And lastly, we need models like New Energy Nexus that bring a slew of corporate partners that are ready to be the first place to deploy new climate tech commercially.
The last jump is from commercial deployment to ‘planetary-scale’ deployment. This is the province of growth capital of a special kind – project & infrastructure finance. By this time, the technical & commercial risk is addressed and one needs deep pockets that thrive on predictable cash flows for decades. Renewable infrastructure across the world, including India, is at that stage now.
In the past two years, we’ve seen a massive wave of capital getting unlocked for climate solutions at every stage of the capital stack. At Terra.do, we see this reflect in our ambition to get 100 million people working in this new climate economy. This tidal wave of capital is about to hit India and channelling it smartly into the right stages of company creation can give India the chance to be a leader in this next Industrial Revolution.