Climate technology startups stumble in a cold investment climate in India

PE/VC firms scale back as long-term needs clash with bankable returns

Investment by private equity (PE) and venture capital (VC) funds in the country’s climate technology (tech) startups has seen a sharp fall, despite the big focus of the government on reducing carbon emissions and pushing for cleaner fuels. The reason: There is a big gap between startup climate tech needs for long-term funding and what VCs find bankable.

 

According to data by research agency Tracxn, PE and VCs in 2023 put in  substantial $1.66 billion in over 157 climate tech companies, with an average deal size of $10.57 million. But that number nosedived to $910 million in 2024, with the average deal size falling by half to an average of $5.5 million. And in 2025 to date, PE/VCs have put in a mere $270 million in the first six months of the year, but in only 37 companies — a third of what they did in the last  year. 

 

The value of the largest deal this year to date has been in Euler Motors, which raised $75 million from the UK government climate fund British International Investment, a development finance institution of the UK government, and Hero MotoCorp in May of this year. The top five deals (which collectively received $188 million) until now accounted for over 68 per cent of the total

PE/VC investment.

 

Explaining the trend, Vasudha Madhavan, founder and chief executive officer of Ostara Advisors — which has facilitated deals worth over $125 million in the climate tech space, where they have focused exclusively for the past four years — says that they get a lot of demand for organising investments from startups in this space — ranging from agritech firms working on smart regenerative practices, Internet of Things-based models to make places and buildings more energy efficient, electric mobility, and companies in the recycling space, etc.

 

But, says Madhavan: “Only a few make the cut. One of our key criteria is that the company should be in a position to raise $2-4 million. Only then do we take them to the larger fund audience and support them at a strategic level. We come in at the Series A level — when the company is generating $2-4 million in annualised revenue and has some visibility towards profitability, even if it is at the earnings before interest, tax, depreciation, and amortisation level.” 

 

She also points out that government policy support helps in making investors comfortable — for instance, Ostara is talking to companies in the solar space, where the government has a big role and a supportive policy.

 

However, despite the problems, some of the key funds that have invested in the tech space include British International Investment (it has done two deals this year already), Zerodha founder Nithin Kamath’s Rainmatter Foundation (two deals this year), UK-based EM Impact Capital, an independent investment firm focused on emerging markets (one deal this year), and Zurich-based responsAbility (one deal until now this year), which invests in climate finance and impact-driven startups, among others.