Unlocking Potential: Why Indian Climate Tech Is the Next Big Thing!
India is not just a rising star; it’s the world’s fastest-growing major economy, poised to leap into the third largest economy by 2030. Nevertheless, this meteoric rise brings along a daunting challenge − sustainability. Ranking seventh in global climate vulnerability, many consumers and businesses in India often hesitate to pay a ‘green premium’ for sustainable options. This scenario propels climate entrepreneurs in India to innovate cost-effective solutions that can scale without inflating prices.
Moreover, solutions must address the needs of the most disadvantaged Indians, as they stand to face the brunt of climate change. A hefty task, especially considering that 70 percent of the urban infrastructure required by 2047 remains to be built.
But here’s the silver lining: India’s climate tech ecosystem is stepping up, fueled by innovation, entrepreneurial zeal, and a burgeoning network of support. Now is the perfect time for entrepreneurs, investors, and business leaders to dive into the promising world of Indian climate tech and explore opportunities that can pave the way for long-term success.
Let’s unveil four key areas overflowing with potential, drawn from our insights into this dynamic ecosystem.
1. Transition from Early-Stage to Later-Stage Investment
While India’s climate tech venture capital scene is still gathering momentum, it witnessed an impressive US$5 billion in investments in 2022, marking a 29 percent increase since 2019. However, much of this funding focuses on early-stage startups, creating a significant void in Series B and C funding for companies eager to scale.
Funds like Avaana Capital and Omnivore are highlighting the need for patient capital to nurture later-stage climate tech ventures. Unlike the fast-paced returns seen in software and e-commerce, climate tech investments demand a different mindset. Supporting these ventures is essential for securing the future of other industries.
Entrepreneurs and investors should take note of this shift, as it signals a move towards sustainable, growth-oriented funding models. Later-stage investments present a golden opportunity for those eager to champion the next wave of climate innovations.
2. B2B Leads the Charge, but D2C Has Its Moments
Given India’s income disparity, scaling direct-to-consumer (D2C) models can be quite challenging. The cost of acquiring individual customers often proves to be prohibitive for climate startups. However, those pivoting to business-to-business (B2B) models have tasted considerable success. A notable example is Zypp, which transformed from a D2C approach to corporate partnerships, emerging as one of India’s largest electric vehicle (EV) companies.
Yet, D2C isn’t entirely off the table. Take SolarSquare, a Mumbai-based rooftop solar provider, which smartly shifted from B2B to D2C in 2020 by making their solar panels modular and affordable, enabling rapid expansion into households. Today, they power 14,000 homes across 12 cities.
While B2B models dominate scalability, adaptable companies can find their own niches in the D2C space.
3. Agriculture: The Next Frontier for Disruptive Innovation
Although energy and mobility have snagged over 60 percent of climate tech funding since 2021, agriculture is emerging as the next promising frontier. With around 55 percent of India’s workforce engaged in agriculture, this sector is highly fragmented, with 86 percent of farmers owning less than two hectares of land. This fragmentation presents customer acquisition challenges, but many view it as ripe for innovation.
Innovators like Strawcture and Dharaksha Ecosolutions are turning agricultural waste, which would otherwise be burned, into sustainable materials, creating revenue streams for farmers while minimizing environmental damage. Meanwhile, FarMart is connecting small-scale farmers to markets and offering financial support.
Opportunities abound in agri-tech, from carbon markets to software solutions and loans for farmers. The combination of enhancing farmers’ livelihoods while protecting the environment makes this sector an incubator for climate tech innovations.
4. Climate Innovation Across the Global South
As the “Voice of the Global South”, India is carving its niche as a leader in climate tech for developing nations. Take the Unified Payments Interface (UPI), which has rapidly gained traction since its 2016 launch, serving businesses from street vendors to upscale restaurants. Now, the next frontier is climate tech with the Unified Energy Interface (UEI).
Similar patterns are evident in the electric vehicle sector, where last year, 60 percent of global electric three-wheelers were sold in India. Nearly half of the three-wheelers on Indian roads today are electric, thanks to pioneering startups like Turno and Kazam, leveraging government incentives such as the FAME II legislation.
Business leaders should keep an eye on how India’s innovative climate solutions are poised to transcend borders, offering scalable opportunities to other developing nations grappling with similar climate-related hurdles.
The Critical Role of Government
In conversations with investors and entrepreneurs, a prevailing sentiment underscores the government’s indispensable role in propelling India’s climate agenda forward.
Our insights highlight three key government responsibilities: crafting regulations that promote green adoption, providing patient and affordable capital to fuel climate innovation, and stepping in as a flagship customer for startups.
Shriti Pandey, CEO of Strawcture, shared how crucial government funding was in launching her venture, especially when venture capital was scarce and costs were high. During the pandemic, her company secured government contracts to construct hospitals using sustainable materials, providing both revenue and validation for broader commercial adoption.
As the climate tech industry is still in its formative stages, any governmental support through investment can have a far-reaching impact, driving innovation and accelerating the uptake of sustainable solutions.
A Unique Opportunity for Businesses
India’s climate tech sector transcends merely addressing environmental hurdles; it brims with genuine opportunities for entrepreneurs and investors to innovate and thrive. From novel financing and adaptable business strategies to groundbreaking agricultural technologies and global leadership, Indian climate tech is reshaping our future.
As Anjali Bansal, founder of Avaana Capital, aptly states, “India is not merely transitioning to green; it’s undergoing a green revolution.” The time is ripe for business leaders to align with these trends. The green revolution is already afoot − now is the moment to join in!
Our insights were crafted with the collaboration of leading industry experts. To delve deeper, check out more information here.
