How Avaana Capital is looking to create an ecosystem that champions sustainability

In the midst of a precarious global investment scene, climate-tech venture capital (VC) managed to beat the odds and delivered a whopping $70.1 billion in investments in 2022, marking an impressive 89 per cent surge from the previous year, according to a report by HolonIQ, a global impact intelligence platform. Such investments are becoming popular in India, too. The country received as much as $6.2 billion in investments in 2022—$3.7 billion more than the $2.5 billion in the previous year, according to the report. Well, it’s no secret that most of these funds are directed towards big renewable energy infrastructure and storage projects, and mobility. But VC investment in pure-play early-stage climate-tech start-ups are still elusive—a mere whisper in the wind.

However, Mumbai-based VC Avaana Capital is a trailblazer in India’s fledgeling climate-tech start-up scene, with its focus on climate action and sustainability. Since its inception in 2018, Avaana Capital has backed more than 20 early-stage start-ups working in fields related to climate and sustainability. For instance, it has invested $3.5 million in FarMart, a software-as-a-service (SaaS)-led business-to-business (B2B) food supply platform; $1.5 million in Kota-based eekifoods that has developed a proprietary vegetable-growing technology to produce pesticide-free vegetables at mandi (wholesale) rates; led a $5-million round in Terra.do, a global platform for climate skilling and careers; and participated in multiple rounds of funding in Turno that enables commercial electric vehicle (EV) distribution and financing.

“Climate is a theme. The underlying sectors in which we invest are energy transition, climate-resilient agriculture, mobility and supply chain. These sectors constitute 90 per cent of the emission footprint in India and 70 per cent of our economy. They’re not just large problem areas, but also large market opportunities,” says

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She believes that India’s climate-tech sector represents a huge, unexplored opportunity for VCs. Inspired by its maiden fund’s 70 per cent focus on sustainability, Avaana sees the possibility for further expansion. Now, it has resolved to create a specialised fund entirely for climate and sustainability to capitalise on this emerging opportunity. “We are seeing global capital congregate around this space, but they are unsure where to invest their funds. Growth funds claim they don’t have a pipeline, while early-stage entrepreneurs and incubators say they can’t find Series A capital. So, we saw a clear whitespace in India with enormous opportunity,” she explains.

The inaugural Avaana fund—Avaana Capital Growth Fund 1—was established to support tech-driven businesses that are working to improve social inclusion, consumer market linkage and sustainable consumption through digitisation. The second fund, Avaana Climate and Sustainability Fund, which aims to raise $120 million, will invest $1-2 million on average in 20 to 25 start-ups, while a majority of the capital will be set aside for follow-on rounds.

And as it moves closer to the first close of the fund, Avaana Capital is gearing up to put the pedal to the metal. Early this year, Avaana doubled down on one of its Fund 1’s bets, eekifoods, by infusing further capital from the second fund. Better Capital, Icebreaker VC, Spectrum Impact and Kunal Shah (Founder & CEO of fintech company CRED) also contributed to the $2-million round.

Abhay Singh, Co-founder and CEO of eekifoods, says the relationship with Avaana goes beyond financial investments. Avaana has connected them with many prominent families in India and the Middle East and consequently, they are in the process of setting up proprietary farms in many new locations, including in Dubai through mutual investments. Furthermore, Avaana facilitated connections with development financial institutions (DFIs) that specifically prioritise investments in climate and sustainable infrastructure projects.

“These [institutions] have the mandate to invest only in climate and sustainable infrastructure. They require a lot of environmental and social impact diligence, and this is something you are not exposed to when you raise from a generalist VC fund,” says Singh.

Alekh Sanghera, Co-founder and CEO of FarMart, echoes Singh’s views. “Avaana is the only investor which asks for an ESG audit every quarter and what it essentially tells you to do is to think about ESG far more from a governance standpoint,” Sanghera says.

FarMart also benefitted from Avaana’s industry connects. The investor was instrumental in setting up the start-up’s first meetings with some of the biggest names in the food sector, including Nestlé and Godrej. Being the first institutional investor, Sanghera says, Avaana provided continuous guidance throughout the start-up’s fundraising journey—from seed to Series B and debt financing.

The fund maintains constant communication with major corporations to stay abreast of their sustainability requirements. This gives it the ability to foresee and predict demand trends, whether they pertain to consumer goods or business solutions. According to Bansal, there is a greater emphasis on strategies to address climate change in boardrooms today.

However, beyond the capital side of all this, Avaana’s all-women leadership team comprising Bansal and Swapna Gupta, General Partners (GPs) in the fund along with Shruti Shrivastava, Investment Director, are deeply passionate about the sector. A former Global Partner and Managing Director with TPG Growth PE, Bansal chairs the ‘Climate Special Interest Group’ within Indian Venture Capital Association and serves as an independent non-executive director on several leading boards, including those of Tata Power (Chair, Sustainability Committee), Nestlé (Member, CSR and Sustainability Committee), and Piramal Enterprises. Gupta was the head of investments in India at Qualcomm Ventures, the chip-maker’s corporate venture arm, where she established Qwein, a first of its kind networking, learning, and mentorship programme for deep-tech, early-stage female entrepreneurs in India. Shrivastava’s experience includes her stints at agritech VC fund Omnivore; International Finance Corporation (IFC), the private sector investment arm of the World Bank Group; and global impact venture fund Acumen.

“Beyond the financial aspects, all of us are driven by making investments that create large, sustainable, successful, but also responsible businesses. Hence, as a team, we are very purpose- and mission-led around solving for climate. What is the use of technology if it doesn’t solve large problems? We have also made significant General Partner commitments for the fund, so we are all in,” says Bansal. According to her, Avaana’s collective portfolio currently impacts nearly 300,000 women and around 200,000 micro, small and medium enterprises.

In the second fund, Avaana is looking at opportunities across the climate spectrum, including greenhouse gas emissions, grid storage and stability, battery technologies, regenerative agriculture, water management, energy access, and Scope 3 (indirect emissions from a company’s value chain) measurement, monitoring and reporting.

A vaana has been “very disciplined” regarding the selection of investment areas, says Bansal. “We’ve also defined what we will not do... we won’t do generalist fintech, generalist consumer, generalist SaaS, or generalist education. We also don’t do OEMs or charging infra,” she adds. “Everything has to solve for mitigation, adaptation or resilience—those are our climate winters.”

Chaitanya Kalia, Climate Change and Sustainability Services Leader at EY India, asserts that India’s climate-tech ecosystem is rapidly maturing, creating abundant opportunities for thematic funds like Avaana. “We are not only looking at what impact it is creating but also how it is changing the rules of the game related to ESG overall. Second, the regulations are shaping up. So, we will see a lot more VC funds flow into the segment because it now gives them better visibility into the growth and possible returns of their investments. Third and most importantly, everyone is realising the enormous value this sector is creating, and that is the core of this growth story,” he says.

India is just getting started on its path towards sustainable finance. Research and analytics firm Benori Knowledge predicts that by 2026, Indian PE/VC firms will have invested $125 billion in sustainable projects, representing 40 per cent of their total assets under management. And, most of these investments will be in renewable power production, e-mobility, agritech, and waste management.

The government’s environmental policies will further impact sustainable investments by PE and VC firms as companies are required to prioritise green investments in light of India’s commitment to reducing carbon emissions. As a result, India-focussed VC firms are increasingly raising funds to invest in climate-related initiatives in the country. For instance, GEF Capital Partners, an Indian alternative asset manager, in March last year secured $200 million for clean energy and climate-related investments. EverSource Capital, a JV between Everstone Capital and Lightsource BP, raised $741 million for its Green Growth Equity Fund in January 2022. Global alternative asset management firm TPG in April 2022 raised $7.3 billion for TPG Rise Climate, for which India is a priority market. All these examples indicate that the early-stage climate-tech start-up ecosystem in India is slowly emerging.

India’s pivotal role in the global climate challenge positions it as a crucial player for a sustainable future, and Avaana aims to be a catalyst to spearhead this transformation by championing early-stage climate-tech start-ups.

@binu_t_paul