Investors and "Climate Tech" Startups Talk About Industry Challenges
East Ventures, British International Investment and Arkadiah's views on investment measurement and blended funding
In recent years, solutions in the green realm developed by startup companies have continued to develop. Despite the high VC investment flows, the sector climatetech still relatively new.
Founder You may still be faced with funding issues and how to balance the impact produced while running the business. Meanwhile, VCs may need to find ways to understand their investment valuations.
In the session "Opportunities in climate tech investing: Bridging the gap between ambition and action" it was revealed how startup Arkadiah, as well as East Ventures and British International Investment face the above issues.
Utilize mixed funding
Co-Founder & CEO Arkadiah Reuben Lai said, if you don't have a solid business, everything you have done so far will be just charity. In the journey of building his business, he found sources of funding that were a significant challenge instead of talking about developing new technology. In fact, this funding is needed so that startups can increase their scale.
For your information, Arkadiah is developing AI-based technology to revive degraded land to overcome the issue of deforestation.
It recognizes external funding and options blended finance is indispensable. There is no one standard formula for utilizing both. Therefore, he uses two approaches when looking for investors, namely the corporate segment and the segment that focuses on certain projects.
He gave an example of impact investors focusing on environmental impacts, while other investors focus on returns - for example from selling carbon credits. These two synergistic approaches are considered to be able to benefit both startups and investors.
"Bringing these two sources of capital together allows us to fund projects at scale and meet stakeholder needs. We see blended finance happens, more funding is needed."
Assessing impact investments
East Ventures Partner Avina Sugiarto commented on how investors assess startup investments climatetech considering that this sector may still be relatively new compared to other sectors E-commerce or fintech
He emphasized measurable mitigation steps, such as reducing greenhouse gases. Indeed, this measurement metric in the field is not as easy as it is said, but he believes that it still attracts investor interest, especially startups that accommodate the needs of small farmers by tool for weather predictions or potential crop failure due to weather
Despite all that, he emphasized that profitability remains a key investment factor climatetech, there is no difference from other sectors. "I think today a lot of venture capitalists talk about profitability, share of profitability and unit economics. The same is true of climatetech."
Impact first or profit?
Meanwhile, Rohit Anand, Regional Head (SE Asia) & Head of Infrastructure Equity Asia at British International Investment, emphasized the importance of having stable finances for startups climate technology. It doesn't matter if that means the company's growth will slow down, or the impact targets you want to achieve will not be achieved (for example: reducing emissions).
He argued, whatever environmental impact you want to create, the business must first be commercially viable so that it can attract investors in the future. That way, the business can be sustainable in the long term. Creating impact should not be the only reason for their existence.
Policies and incentives for business continuity are also critical to the long-term success of the industry. He gave an example, sales of electric vehicles can be successful because they are supported by government policy.
"You may get funding thanks to a brilliant idea, but you can't create a sustainable business from it. The impact of reducing carbon emissions is an implication, but it cannot be the only reason your business exists."