The firm which was initially targeting to raise $100-125 million had made the first close of this fund at $70 million in June last year. Through this specialised fund, Avaana Capital plans to invest in 20-25 early-stage companies.
The average first cheque size will range from Rs 10 crore to Rs 30 crore, and it plans to double down on successful investments.
According to Avaana Capital founding partner Anjali Bansal, climate change and sustainability will cause a major transition in social systems, like digitalisation that had a significant social and economic impact over the last few decades.
“The biggest investment opportunities, and subsequently returns, come from innovations in areas that are undergoing large transitions. If you look at the two mega trends playing out in the world right now … first is artificial intelligence and everything that comes with it, and the second is climate change,” Bansal told ET.
“The thesis behind creating the Avaana climate fund is that…much like the digitalisation was the story of the last 30 years, which changed how we live, work and interact, sustainability is the next big problem to solve. It’s a significant transition in our social systems,” she added.
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Avaana Capital will provide early-stage capital to startups having a “core innovation” focus on building in areas surrounding energy transition, supply chain, resources, industrial decarbonisation and food systems, Bansal said.“Think about energy security, food security and the market linkages that bring all of this together…our filters are around mitigation, adaptation and resilience. We screen startups in a technical way to understand how they are solving these problems,” she said, adding it follows the Green Climate Fund (GCF) framework.
GCF, the world’s largest climate financing fund that was set up within the United Nations Framework Convention on Climate Change, is also one of the sponsors of the Avaana Sustainability Fund.
Other limited partners of the fund include the US International Development Finance Corporation, the UK Government through the UK-India Development Cooperation Fund, the Self Reliant India Fund managed by SBI Ventures, Small Industries Development Bank of India, Azim Premji Trust and several large corporations.
Through this new fund, the firm has already backed six startups. These include Kazam, a company offering charging products and services for electric vehicles; Sentra World, a technology platform powering ESG (environmental social and governance) for industrial businesses; and agritech startup Eeki Foods.
Changing climate
Over the past few years, several specialist climate-focused risk capital investors, as well as generalist venture capital firms, have been increasing attention to this area.
ETtech“We were told that this is probably one of the most difficult fundraising environments in the last few years. But honestly, fundraising is never easy. We have gone through a period of a lot of liquidity followed by a shrinkage of liquidity,” Bansal said. “But what has worked for us is a very focused and disciplined thematic strategy. We have built a team with big capabilities, and we’ve assembled our own captable and investor base that are aligned with that strategy.”
On May 20, ET reported that supportive policies and a growing consumer cohort were drawing risk capital investors to back startups in India’s climate tech space, particularly in the early stages.
In April this year, IIT alumni and veteran investors Ruchira Shukla and Karthik Chandrasekar launched Synapses, a venture capital firm that aims to invest in climate tech and health tech startups. It is looking to raise $125 million for its first fund.
According to a Bloomberg report in May, Eversource Capital, which closed India’s largest climate impact fund in 2022, was planning to raise at least $1 billion for a new fund to back companies in the water, food, agri-chain and recycling sub-segments of the broader climate theme.
In November last year, ET reported about former KKR India CEO and veteran investor Sanjay Nayar teaming up with Mumbai-based Peak Sustainability Ventures to enter this space.
According to data intelligence platform Tracxn, startups in the climate tech space raised nearly $2 billion in 2023 across 226 rounds. So far in 2024, they raised $1.2 billion through 137 rounds.
As per a report by IIMA Ventures which has invested in over 100 climate tech startups, early-stage funding sees more action with two-thirds of funded startups securing seed rounds. However, there is a shortage of growth-stage capital. “Less than 3% of the startups have raised Series B or beyond, indicating a need for more substantial later-stage investments to help promising solutions scale,” the report said.
