[Podcast] GigaWhat: Fuelling startups

India is home to the third-largest startup ecosystem, with about 57,000 startups. A fraction of this number is working in the sustainability space, by providing solutions to climate change issues. However, as the pioneers in the industry are collaborating to build technology that will power a low carbon future and help India meet its energy demands with renewable sources, they are met with several challenges. Investment for large-scale deployment of technology is one of the toughest challenges for these startups.

The innovators say that their technology can survive the changes that come over the next two decades. A stakeholder involved in supporting a startup’s journey identifies the need for innovative business models. While the energy sector experts note that finance during all stages is important for the startups, an investor also says that clean tech startups are the cusp of fast growth and are set to become profitable in the coming years.

In this episode of GigaWhat, Mongabay-India Contributing Editor and the podcast host, Mayank Aggarwal, speaks with Pankaj Sharma (Co-founder, Log9), Smita Rakesh (Vice President and Partner, Social Alpha) and Arpit Agarwal (Director, Blume Ventures).

Listen here:

Full transcript:

Mayank Aggarwal (MA): You are listening to Everything Environment by Mongabay-India.

Clean energy is one of the world’s ammunition to meet the challenges of climate change. The energy sector is the source of around three-quarters of global greenhouse gas emissions. In India, clean energy is also pitched as a promise to bring reliable electricity to millions.

India has an ambitious clean energy target that needs technology and innovation. While government and private sectors have their role to play, startups are critical for innovation and faster execution. They identify local, national and global problems, find opportunities and develop solutions.

India is home to the third-largest startup ecosystem, with about 57,000 startups. A fraction of this number is working in sustainability and solving climate change issues. Worldwide, it’s noted that the number of government policy measures to help startups get new clean energy technologies to the market, has risen sharply since the Paris Agreement was signed in 2015.

As of now, electric vehicles or EVs are an investor favourite. Some startups are also finding ways to recycle electronic waste and recover rare critical minerals that can be reused in renewable energy systems. You can listen to the journey of one such startup, in episode seven of GigaWhat.

From bringing solar power-based products to provide job opportunities in rural India, to companies innovating to increase the life of batteries, startups are addressing various needs of the different stages in the renewable energy journey.

But are there enough ideas? Enough startups? And enough support for such startups?

And more importantly, is there money to be made? Is there money to invest?

In this episode, we will speak to stakeholders involved in a startup’s journey to success, a co-founder, an investor and an incubator.

I’m Mayank Aggarwal, Contributing Editor at Mongabay-India. We are an online publication dedicated to bringing you stories on science and the environment in India.

In our special podcast series, GigaWhat, we’ll explore some of the biggest questions, challenges and opportunities in India’s transition from fossil fuels to clean energy sources.

We start this episode by talking to a startup.

Pankaj Sharma (PS): How Log9 came up? It came up, almost like every startup comes up.

MA: Pankaj Sharma is the Co-Founder at Log9 Materials, a startup focussing on deep tech innovations for energy storage technologies and clean mobility.

PS: There is a very powerful idea or an early idea that we had. My co-founder, Akshay had figured out a way to synthesise graphene, literally in his kitchen lab. It’s been very difficult to get graphene synthesised at a decent quantity, without spending too much of money. It’s a good conductor of heat. It’s a good conductor of electricity. It has a lot  of surface area. So, we had some material in our hand, but we didn’t know what to do with it.

MA: They kept experimenting. A brief effort to improve lead acid batteries led them to mix graphene and enhance the product. From there on, they saw the potential to expand their research and development (R&D) in the sustainable energy space.

Pankaj says that only installing solar and wind farms will not help us transition to renewable energy. Energy storage, one of the significant gaps in India’s clean energy transition, is Log9’s focus area.

PS: So, we never get a constant generation of energy. Sometimes the clouds are out, sometimes the sun is not shining that well, because of some atmospheric change. So, what you get is a intermittent energy — sometimes very high, sometimes it’s low. And the grid is not designed to take variable or fluctuating power. It needs a constant input of energy. And hence, we lose a lot of energy that we generate in a solar plant, just because it’s not been conditioned to go into this thing.

On an average (the numbers are out there), something like 16% – 20% of energy gets wasted in this process. So, if you’ve installed, let’s say, 100 gigawatts (GW) of renewable solar, you’re able to consume 75% – 80% of that back into the grid, the remaining 20% – 25% is getting lost. It’s not usable. If I can store that 20% – 25% energy that’s getting generated intermittently or not at the level at which it can be absorbed, store it in a battery pack, and then give it back to the grid in a very clean stabilised way.

MA: The deep technology and material science startup believes that it is ‘pioneering responsible energy.’ It has focused on developing efficient alternatives to the high-demand lithium-ion batteries, battery packs that last long and charge faster in tropical climates such as India’s.

PS: We created a battery pack that’s built on a very advanced lithium-ion technology. Now these batteries can survive for 20 – 25 years easily. So, here’s a great example of technology and innovation coming together where the technology is ready for today. But the innovation that’s been built into that particular product, is something that will survive for another two decades. 

There is there is an interplay of companies. But honestly speaking, there is so much of pressure to go cash positive to become profitable as a startup, that you’re never able to kind of deep dive into R&D and just create a solution for immediately tomorrow. So, I think the the chicken and egg is — what is needed is investors who have ability and desire to write bigger checks and wait longer. And startup founders who have who are built with a mindset of building innovation, rather than technology all the time. You build product, that’s fine. But your R&D roadmap should survive for another 20-30 years; there should be constant improvement. Imagine, if Intel could only produce Intel 1, and had no ability producing Intel 2, Intel 3, Xeon processors and everything that they’ve done. That’s the gap between innovation and technology.

MA: Our next guest will speak a bit more on the innovation and funding challenges. Smita Rakesh is the Vice President and Partner at Social Alpha. Social Alpha is an India-based platform that supports startups at different stages in their lab-to-market journey. Smita leads their work in the climate and sustainability sector.

With years of interacting with and grooming startups, Smita observes several hurdles to India’s startup ecosystem – specially for the ones in the clean energy space.

Smita Rakesh (SR):  International Energy Agency’s Energy transition report, had said that 35% of emission reduction potential lies with innovation at early stages. Nearly 50% of it, is with the ones that haven’t reached the market yet. So, we can see what roll early stage innovation plays, and many of them being taken to commercialisation through startups will have a role to play in. But again, innovation and technology can’t operate in isolation.

So, while the tech can bring really irreversible and non-linear change, we will also need innovative business models, right funding at the right time, right partnerships, and a very conducive regulatory atmosphere.

This innovation, will also come from startups along with all the R&D labs, will come from your all the other research institutes. We will need to find for all the research going on anywhere in our labs or anywhere in our institutes — what are the entrepreneurial mechanisms to commercialise these technologies? We are seeing this new model of startups marrying some of these researchers or innovators in the lab and co- creating an enterprise that takes the solution to market.

So, your innovator and entrepreneur doesn’t need to be the same person. This kind of a partnership and the new model is is really, really helpful. We need to move beyond patents and peer reviewed paper and take some of this game changing technology that’s there in the labs to market right now.

SR: And the bottleneck around research not being undertaken, with the correct understanding of the market needs to be gradually broken and therefore research needs to be funded by industry, where the the commercial side is talking to the R&D.

And like I said, startups will provide the necessary fill it, but all the actors will need to come forward and continue that momentum. Because what startups can ensure is innovation, they can also ensure what is very critical right now — the speed of execution. But all the other support, the kind of unburdening and de-risking the startup is what the rest of us will have to do.

SR: So, it’s very interesting, if we were to map the kind of a heat map of the kind of funding that goes into clean energy, especially in the in the innovation space, you’d not, you’d see sectoral differences, and then you’d see stage wise differences. So, there is stage wise inequity as well. And I mean, all of that is logical and can be understood because the investment space is going to invest into what is de-risked. So, the problem is that a lot of deep tech solutions, which is whether it’s the battery tech, and all of this is nascent and even evolving at a global stage. But in India, it’s at a very, very early stage — mostly at a product or prototype development stage.

Therefore, it requires very high risk investment, patient investment from public and private sector with long-term horizons in mind, with sort of an ability to take set of risks around failures. And that is where the funding is missing in a lot of deep tech space, we see R&D funding at the university level or at the research institute levels. And then we don’t see any funding, up until, the entrepreneurial route to it, whether it’s a startup or a company undertaking it up until that crystallizes, we don’t see a funding. That’s a big valley of threat for deep-tech startups.

MA: Smita believes that companies get enough money for pilots and trials, but funding for large-scale deployment of solutions is minor.

SR: Large-scale deployments are often risky, are often not understood. Many times one stage of product development is not even looking at something like that. Many innovations in India, and globally stay at the patent and peer reviewed journal stage. And they have not factored in the whole commercialisation at scale.

And innovation, again, can be tech-based innovation, or non-tech innovation, in the business model, in the financing. And the what we’re seeing as the light at the end of the tunnel, or the silver lining as of now is that more and more private sector and government funding is at least acknowledging this as a gap.

So, right now it’s the funnel gets very tight here because a very few projects, which are either picked up by the bigger private sector players or by the government, meet the criteria, fit into the bill correctly and get the kind of scale they requires.

One example is, we work closely with Tata Power. We’ve been seeing how they are looking at innovation from coming from our pipeline, and actually looking at they’ve recently set up this micro grids company, rural micro grids company, and they’re looking at providing that platform of the micro grids company. So, all the micro grids that they’re setting up in the villages, they’re looking at — ‘how is it that some of our innovations can just plug on onto this platform if they’re proven successful, and scale up?’. So this is a win-win for all. This is a scale-up platform for say the startups or the solutions. But it’s also a win-win for, say, the micro girds company, because they will not have to innovate in every direction on their own, given how we are all always running behind time.

MA: Social Alpha set up an incubation lab for clean energy entrepreneurs and startups to promote innovation in the energy space.

SR: So, we’ve set up an international incubation center called the Clean Energy International Incubation Center in Delhi in 2018.

This was set up as a joint initiative of the Government of India and Tata Trusts. So altogether, there we’ve incubated and accelerated 40 startups since then, invested in 10 of them, and have created market market access opportunities for eight of them.

SR: We also provide go to market strategy support, funding support, so seed funding, overall mentorship, seal investments, but also opportunity to syndicate investment from other investors in our network.

MA: With a focus on energy access and efficiency, the incubation lab has supported startups in energy storage, e-mobility, clean fuels and much more.

There’s a need for a sustainable energy sector, and entrepreneurs are finding opportunities.

MA: We spoke to Arpit Agarwal, Director at an investment firm, Blume Ventures, who scouts for science-led and hardware startups. He shared insights on how the stage is set or is getting set for certain ideas to become profitable.

Arpit Agarwal (AA): See, I come from the world of business where the most important thing is to be pragmatic about what is available to you. You are going to follow the path of least resistance. There is not much scope for being idealistic here. As much as you and I may care a lot about environment, on a personal basis, as a businessman, I have a duty to follow or all what my investors want me to do and what my investors want me to do is to generate returns for them.

AA: Overall, we have about 150 investments out of which maybe about 110 or 120 are active. Out of these about 10 are (and all of them are active), companies in the climate tech. Because it was the re-commerce and covers carbon sequestration and covers the rooftop and in ease. So yeah, I think about 10 companies in the climate tech portfolio.

MA: Blume has invested in companies developing carbon capture technology, energy analytics, and re-commerce companies that buy and sell used items like cars and phones. Electric vehicles are a crucial part of Arpit’s work too.

AA: So, we have been believers in the space broadly. However, we are also being capitalist at heart, and trying to temper our expectations. The electric vehicle opportunity, however, is the is the perfect fit situation to be in for a fund like ours where we have, we took very tentative bets with Zulu and Oiler. And over the last one year then invested in three more companies in that area, maybe we look, we’ll do a couple of more investments with broader area. We also invest in a company for solar rooftop, which is bringing the solar rooftop companies gonna be called ARAM, which is making solar rooftop more accessible to commercial and establishments.

There are parts of the entire spectrum, which have started to make sense, which has started to be or look like there are at the cusp of very fast growth. And that is when we want to take a bet.

MA: All our guests in the show agree that electric mobility has the lion’s share of investments. Regular industry discussions and updates on government policies keep the sector buzzing.

For the sustainability business, Arpit says that the gear has shifted with action by the government, regulatory bodies and private sector.

AA: Globally, there is a trend and last year, our prime minister committed that we will be carbon neutral in 2070. So, everything will have to be driven from that backwards. Some companies have gone ahead and even announced that they will be carbon neutral by, let’s say 2030. So, they are far ahead of the curve. They will have to make those investments and changes in their business models to achieve those goals. Most likely (and the experience suggests) the companies which have actually announced themselves to be carbon-negative, even oil companies have announced. Experience suggests that a large part of this carbon neutrality is going to is going to arrive at by doing carbon trading and not really by changing operations significantly. And therefore, there is a very large opportunity in carbon, carbon credit manufacturing, carbon credit trading and carbon credit burning. This is where you have the opportunity.

Apart from this, what is also happening very clearly is that there is a clear trend of regulators asking the larger companies to list their climate footprint or carbon footprint explicitly on a quarterly or a yearly basis, depending on which country you’re a part of. That is going to ensure that companies are at least sensitive to it. And those investors who really care about it can take that into consideration, even though it may or may not have an impact on the valuation of those companies. When these things happen there it creates a very large market for services and marketplaces. That is going to happen.

There’s also a very increasingly large demand of venture capitalists (VC) who are looking to invest. So, a lot of money is being raised in VC funds, to be invested into climate tech area. I don’t see there’s a saturation, I think this is only going to grow, at least in the next five years, maybe even 10 years. If someone has to do a startup, they should do private tech startup. The time has arrived.

MA: Pankaj from Log9 is optimistic for his company and others too.

PS: There are certain technologies which are matured out by now. Ten years back fuel cells were not at the stage at which they are, 10 years back lithium-ion cells, energy density was not there where we want it. But I think now the technology is stabilised to the point that, whether you have a lithium ion cell or a fuel cell, or even the pricing of let’s say solar panels, everything has come to a point where it’s financially viable — to have profitable, clean energy companies bring up a small startup. So I think yes, the environment is right. And we’re definitely benefiting from that excitement, because it’s about finding the human capital that’s going to build that dream for you, along with you.

So, finding those individuals who are coming from that engineering background, who are fired up to do something about the environment, and have the necessary training and skill set to have that human capital available is something that we are benefiting from in India at this point in time.

MA: Apart from the involvement of state and national governments and the country’s private sector, Arpit sees enormous potential in foreign collaborations. He says that technology can be created anywhere in the world and imported and adapted in India.

AA: Of course, when you can do tech transfer, those companies can also open shop in India and therefore become large businesses, which is bound to happen. This is one thing that foreign collaboration can do. Foreign organisations can also look at the Indian ecosystem as a place to invest in, not only via their businesses, but also via their capital, where they can take up stake into these companies, which I would recommend them to strongly look at. Because I think the big climate frontier outside of China is India, and a lot more will happen in the sector.

Apart from this, I would definitely believe that foreign companies should look at some of the early companies in India, which are about to launch technology, or have proven some kind of proof of concept — they are ready to be out licenced into their home countries, for example, Indian company can solve a problem in Israel, or in Italy, or in Chile, who knows?

What the government can also do, is to encourage more and more people to make sustainable and healthier choices. Therefore, there is a consumer pull, which eventually all companies will respond to. Sustainable should become ‘fashionable’, to be mainstream.

MA: It’s clear that there’s a lot to do to support the clean energy startup space. But, the funding?

SR: Is it enough right now? and that is what is tricky right now. Like I said, overall not enough, not not not in the quantity, not in its distribution.

So what we need is more finance, but also more blended finance because everything whether it’s grant, debt, equity, project finance, viability gap funding, FLDGs everything has its own unique purpose. What ends up happening is that when a startup only gets one kind of money, they end up taking the wrong kind of capital at the wrong time. And that is more damaging to their journey, that at the wrong time or equity dilution at a wrong time. Or say grant at a time when you should be profitable and looking at an equity-based commercial capital-based scale up operations. All of that can be really, really detrimental to the startups journey. So yes, more capital, more diverse and blended capital, but more importantly, a more patient capital.

MA: Please share this episode with your friends and family or on social media.

This show was produced and scripted by my colleague Kartik Chandramouli.

Edited and mixed by Tejas Dayananda Sagar. Copy edits by Priyanka Shankar. And the GigaWhat artwork is by Pooja Gupta.

We’ll be out with another episode of GigaWhat soon. Take care.

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Banner image: An electric rickshaw battery charging hub in Varanasi. Photo by Kartik Chandramouli/Mongabay.