Funding in climate-tech startups cools but VCs signal a greener future

Funding in India's climate-tech startups fell from $2.4 billion in 2022 to $1.5 billion in 2024, with capital needs, scale issues and slow adoption posing key challenges

As the world observes Environment Day on June 5 with fresh calls for climate action, India's climate-tech startup sector tells a different story — funding has plunged from $2.4 billion in 2022 to just $1.5 billion in 2024.

 

The overall startup funding amount, which stood at $5.01 billion (127 companies) in the first five months of 2024, reduced to $2.79 billion (60 companies) in the corresponding period this year.

 

While the slowdown can be partly attributed to the funding winter, venture capitalists (VCs) point out several challenges in the climate-tech ecosystem, ranging from a long gestation period to high capital requirements and an unproven return on investment (RoI). 

 

Vipul Patel, head of seed investing at technology-focused investment platform IIMA Ventures, said: "Climate-tech startups face challenges in scaling up mainly due to customer acquisition cycles, which are typically longer as compared to traditional B2B (business-to-business) startups. For startups working in sectors like industrial decarbonisation and alternative fuels, high capital demands of R&D (research and development) and product development (hardware) present significant challenges to scaling."

 

Echoing Patel's thoughts, Ankit Kedia, founder and lead investor at early-stage VC firm Capital-A, also pointed out high capital requirements, long development cycles, and market access as hurdles.

 

"Climate-tech startups, especially those focused on manufacturing-led innovation, often face a double bind: high capital requirements and long development cycles. These ventures need to prove hardware, run industrial pilots, or pass regulatory thresholds before they can scale, making it harder to unlock fast-follow funding," Kedia added.

 

Another challenge related to scale has been commercial adoption timelines of climate tech solutions by relevant industries, said Vineet Rai, founder and chairman of the Aavishkaar group.

 

However, despite these challenges, many VC firms are confident of investing in climate-tech companies. IIMA Ventures, which has invested over ₹17 crore in around 40 climate-tech startups, intends to infuse capital into up to 30 more startups in the next three years. The firm added that it would deploy at least $1 million (approximately ₹8.5 crore) across these startups.

 

Kriscore Capital, which puts in money in early-stage tech startups, has invested ₹2.5 crore in two climate-tech companies. In the next two-to-three years, it plans to invest in up to five more startups in the space. The company’s first cheque could range between ₹3 crore and ₹5 crore out of the total allocation of ₹15-20 crore, said Nilesh Balakrishnan, general partner at the firm.

 

Not just this, VC firms like Capital-A and the Aavishkaar group said they planned to allocate a percentage of their funds to climate-tech companies. While Capital-A plans to allocate around 20-25 per cent of Fund II (whose total size is ₹400 crore), the Aavishkaar group expects it to be at 15-20 per cent of fund investments in the next two-three years. The group has invested in startups, including waste management firm Nepra, and says climate tech is a priority investment sector for them.

 

Inflection Point Ventures said it was particularly interested in sectors such as energy storage, sustainable transportation, industrial decarbonisation, carbon management, and climate-smart agriculture. The firm has invested more than ₹80 crore in 12 climate-tech startups to date. These startups include Buyofuel, an online marketplace for biofuels; waste management platform Cercle X; and sustainable investment platform SustVest, said Ankur Mittal, co-founder of the firm.

 

Notably, the country's investments in climate tech to date stand at $11.4 billion compared to $193 billion in the US.