India should be among the first nations to industrialize without carbonizing the world — Amitabh Kant, Former CEO of the NITI Aayog

More than 70% of the technologies required for the net-zero transition by 2070 are currently at the prototype, demonstration, or early adoption stages, according to the International Energy Agency.

The contribution of technologies at the prototype or demonstration stages is even higher in heavy industry and long-distance transport. The IEA estimation points to the gargantuan efforts required in technology development and deployment to facilitate global climate and energy transition. However, this also presents an opportunity for private capital, especially venture capital, to play a defining role in funding such innovative technologies.

As the fastest-growing economy in the world, India needs to pull millions of people out of poverty while ensuring decarbonized growth. The need for new tech innovations and securing India’s pathways to sustainable development underscores the need for investing in deep science and engineering-based technologies built from India.

At Speciale, we invest in futuristic technologies built in India that could revolutionize the course of human development. We are a deep-tech fund that invests in deep technology innovations rooted in fundamental science and engineering.

Climate transition is at the heart of Speciale’s investment thesis!

Our Climate Thesis: India-Centric Sustainable Development

Industrialized India, not Carbonized!

We are mission-driven individuals passionate about science and technology and how it can solve some of humanity’s biggest challenges. Solving these challenges provides the dual opportunity to create societal impact and financial value for our limited partners and stakeholders. We ensure societal impact by picking sectors with the highest potential. Thus, climate and energy transition becomes a natural choice for our investment themes.

Climate tech is a thematic area that cuts across several sectors. These sectors have the highest scope of mitigating and adapting to the effects of climate change. The core climate sectors that we pick based on the criteria are:

Energy (1561 MtCO2e (41.3%))
Industry (1119 MtCO2e (29.6%))
Agriculture (734.8 MtCO2e (19.5%))
Mobility (392 MtCO2e (5.2%))
Infrastructure and Buildings (197.6 MtCO2e (4.4%))

These sectors collectively contribute to over 90% of India’s GHG emissions and roughly constitute nearly 65% of its GDP. Decarbonization is the primary driver bringing disruption through technological and business innovations to these sectors — some have not seen any fundamental changes for decades if not centuries. The sheer size of the opportunity alone should make it attractive to any investor — financial or otherwise.

We look for deep tech opportunities in the sectors mentioned above, but also in cross-cutting climate innovations in carbon capture and utilization, nature-based solutions, carbon markets, climate data, and so on. Securing India’s energy future and economic development form the backbone of our climate thesis. Our investments in deep science and engineering startups will directly contribute to Indian plans for decarbonized industrialization while creating advanced manufacturing jobs.

In addition to the core climate sectors, we invest in climate-adjacent ones — those crucial in developing the core sectors. Examples include investments in semiconductor innovations crucial for a digitalized and connected economy or satellite-based data startups, which can provide valuable inputs for climate change mitigation.

Trends that Shape ‌Climate-Tech Innovations in India

As one of the few deep tech funds investing in the climate-tech space in India, we have observed a few trends shaping the course of climate-tech innovations in India. These emerging trends might be latent and invisible to the vast majority as they are still at their nascency.

Deep tech innovators are building global climate solutions from India:

A decade ago, the Indian startup ecosystem could barely think beyond consumer and internet startups. However, over the last decade, Indian SAAS startups have made their mark on a global platform, and now, global SAAS startups are being built in India.

A similar playbook is being developed for deep tech startups as well. Indian deep tech startups are developing solutions for global challenges like climate change. We have observed Indian-origin scientists and engineers are returning to build startups from India — possibly the aftermath of the India growth story. However, India stands to gain from the immense manufacturing and research talent through this reverse brain drain.

Rochan and Prasanta of Newtrace are examples of Indian talent returning to build — for and from India. Both have advanced doctorate degrees from Europe and had lucrative options to pursue their skills and passions there. However, they chose to come back to India. They met at ‌Entrepreneur First and pivoted at least twice before pursuing an opportunity they are both passionate about and involves deep scientific research.

Academia supporting the commercialization of their researchers’ innovations:

IITM and IITB have devised sabbatical programs to enable professors to build technology startups. All major IITs have incubation centers with deep tech-focused programs.

A few weeks ago, I got an email from a professor at IISc expressing his interest in commercializing an applied electronics product developed in one of his labs. This email demonstrates a welcome change amongst Indian researchers inclined to commercialize their innovations. At Speciale, we are in touch with at least a dozen and a half professors who either build their deep tech startups or are actively involved with one.

Government support in commercializing deep science research:

The Indian government has been instrumental in supporting researchers in commercializing scientific innovations. Many successful lab-to-market innovations in the West have been possible only due to non-dilutive grants and low-cost debt provided by the governments in those countries.

While India has a long way to go in securing and largening the quantum of funding, the government support over the last few years has been very encouraging — through grant funding agencies such as BIRAC and FLCTD as well as incubators such as C-CAMP Bangalore, Venture Center, and institutes of excellence.

Private capital in India is taking more risks to invest in climate:

India has a nascent venture capital ecosystem, is still in its teens, and is yet to witness more than one complete exit cycle. However, the last few years have been phenomenal for the sector, with many funds returning money to their investors. Such returns have emboldened our investing community to take more risks and adopt a more mature investment approach.

In the last two to three years, we have seen Indian investors looking beyond software, consumer, and internet startups. The last year has been phenomenal for the climate-tech space. While various subsectors under the broader climatic theme are maturing at varying rates, we have seen more and more investors, including large ones such as Peak XV (earlier Sequoia India), taking climate tech bets such as cell manufacturing (Log9) and Li-ion battery recycling (Metastable Materials).

Corporates realizing the potential of deep tech startups:

Larger corporations have more experience understanding market needs, intellectual property law, and fundraising. They could be key in sponsoring earlier R&D efforts, partnering with deep-tech startups for commercial demos, being first customers, providing capital through their corporate venture capital arms, and being successful exit options for founders through acquisitions.

Indian public energy utility companies have partnered with NewTrace to demonstrate their first electrolyzer prototypes commercially. The corporate venture arm of Global MNCs such as Shell has invested in Indian startups like Off Grid Energy Labs (Zn-Gel battery). While we are yet to see a large exit for an Indian deep tech startup, we have examples of Indian corporates acquiring deep tech startups, such as Reliance acquiring UK-based Sodium-ion battery company — Faradion.

An Ecosystem for Deep Science Innovations in Climate

Building an ecosystem of various stakeholders is essential to foster deep science innovations that could abate climate change. These innovations can never be built or commercialized in isolation but only with the active participation of various actors in the value chain. It is crucial to have the proper facilities to spark research and innovations, capital and resources to facilitate lab-to-market transitions, market conditions to scale up wide-scale adoption, and the right regulatory environment to facilitate all those steps.

Our climate journey started even before we became a formal VC fund. Our Founding Partner, Vishesh Rajaram, made his first climate investment in Ultraviolette, an electric superbike company, in 2015. Over the last five years, we became the first institutional fund in India to have invested in an eVTOL company, a green hydrogen company, and many such early TRL-rated startups in climate tech. While we are yet to see an exit for our climate companies, some of our most successful portfolio companies are in climate-tech startups.

With short caselets, we would demonstrate the power of the ecosystem in scaling and commercializing deep tech solutions.

Technology Research to Product Development — the ePlane Company

Our portfolio startup, the ePlane Company, is India’s answer to electric air mobility solutions that are being developed in the West (e.g., Joby, Lilium, etc.). It is an electric vertical takeoff and landing (eVTOL) plane company that allows aerial movement of people and cargo. They are developing the most compact eVTOL in its category, allowing the plane to do short intra-city hops at the best unit economics.

The ePlane company was founded by Dr. Satya Chakravarthy, a professor of aerospace engineering at IITM. Incubated at IITM, the institute has provided ePlane with research infrastructure for initial technology and product development research facilities. Currently, it houses the team at the Discovery Campus on the outskirts of Chennai City. Speciale Invest has provided the seed and early capital required for commercialization. They are the country’s only DGCA, the regulatory body for Civil Aviation, approved eVTOL plane.

At emission levels of 50 gm of CO2e per person per km annually, an ePlane could save emissions equivalent to 30 taxis.

Technology Research to Go-to-market — Newtrace

The Newtrace team has designed a green hydrogen electrolyzer from scratch. The electrolyzer uses no rare earth metals and no membranes, less expensive power conditioning/ water filtration equipment, and 70% fewer components than traditional electrolyzers.

NewTrace was a basic lab setup in one of the IITM labs. They have raised early capital from Speciale Invest and follow-on funding from Peak XV (earlier Sequoia India). The Department of Science and Technology, GOI, also offered low-cost debt. They have formed paid partnerships with Indian corporations and public-sector companies to demonstrate the commercial viability of their technology.

Newtrace is all set for exponential scale-up by bringing ‌CAPEX costs down and achieving the holy grail of producing green hydrogen at $1–1.5/kg in less than five years. With the proper set of Green Hydrogen policies and regulations, this growth would enable them to become a globally competitive hydrogen company from India.

Our portfolio companies, such as e-TRNL Energy (novel Li-ion battery architecture) and Metastable Materials (novel battery recycling), are similar examples of startups at this stage.

Technology Research to Scaling — Ultraviolette

Ultraviolette, an electric superbike company, started as an idea to develop a cutting-edge electric two-wheeler technology company from India. Their F77 has received over 70,000 pre-launch booking interest from over 100 countries. They have brought ‌best practices from aerospace, aviation, and consumer electronics to create India’s most advanced electric motorcycles.

The company was started by Narayan Subramaniam and Niraj Rajmohan, a designer-engineer duo, and initially supported by Speciale Founder Vishesh Rajaram and other prominent angels in 2015. It was an investment ahead of its time before the EV revolution kickstarted in India. The company has raised $55 million in funding since then from corporate and PE investors, including TVS Motor Company, EXOR Capital (investor in Ferrari), Qualcomm Ventures, and Zoho Corporation.

The above examples demonstrate trends pointing towards a radical evolution shaping the Indian climate transition and energy security. Technology disruption is happening at a swift pace — not just in software but also in hardware. It is transforming how innovation and commercialization of science and technology happen in India.

What can the stakeholders do in building a deep tech ecosystem for India’s energy transition?

Various stakeholders must unite and build the ecosystem to facilitate the transition towards an energy-secure and climate-resilient India. Promoting deep tech innovations can significantly facilitate this transition while catapulting India into a global industrial powerhouse.

Government:

The Indian government has taken a great first step in this direction with the National Deep Tech Startup policy. It encourages nurturing innovation at the research centers and finding the path to commercialization of such innovations. It also lays out incentives for investors and corporates to support the ecosystem.

As a next step, it would be great for the government to work on climate-tech-focused policies and encourage the climate ecosystem to embrace multiple forms of capital that could truly unlock the sector’s potential.

Investors and Financiers:

To truly embrace the benefits of the deep tech ecosystem, private capital needs to warm up to the opportunity in the climate space. Indian venture ecosystem and capital at various subsequent stages — growth and PE — are yet to realize the large under-explored opportunity in the deep technologies.

Investor confidence depends on the creation of winners. India hasn’t yet seen a deep tech winner (at a very large scale). It is only a matter of time before that happens — extrapolating from the impressive lineup of deep tech soonicorns in India (Ather, StringBio, Log9, Greyorange, Agnikul, etc., to name a few).

As technology readiness improves, deep tech startups need non-dilutive grants during their initial stages to address the science risk, a mix of equity and grants as the prototypes are built, and a mix of equity and debt when scaling up.

For example, the early stages of research for Li-ion batteries used in our mobile phones and electric vehicles were completely funded by governments through grants. However, today, most companies that are making Li-ion technology innovations are funded through equity and debt capital. More proven technologies are less risky, and go for debt capital as it is cheaper than equity.

Academia and Research:

Research facilities in India need more collaboration with the industry. A greater push is required to create technologies in these research facilities that could cater to the demands of not just the Indian industry but also global ones. Partnerships with global corporates to promote innovation and commercialize those technologies are the most important step in this direction. Global steel giant ArcelorMittal’s collaboration with IIT Madras to decarbonize the steel industry is a great example of moving in this direction.

Indian deep tech is a fast-growing opportunity, and climate is likely the largest opportunity within this theme. Blackrock CEO Larry Fink recently said the next 1,000 unicorn startups would be in climate tech. As someone long on the climate opportunity in India, I am optimistic that at least 100 of them could be from India.

The Observer Research Foundation (ORF) has published a version of this article earlier — link here.

We at Speciale Invest are committed to supporting India’s industrialization and energy-secure future while paving pathways for decarbonized and sustainable growth. We are building an ecosystem to support the most cutting-edge deep science and engineering companies built in India for the world.

As early-stage investors, we like to get our hands dirty early on and support founders in their zero-to-one journey with patient capital, business development opportunities, and hiring. We enjoy and thrive in the risk that comes with backing deep-tech startups at the pre-product stage and help through product-market fit, early customers, and scale-up.

Climate Tech is a major investment theme across our $40M fund as we look to support the ‌‌global decarbonization effort. Having invested in Water, Green Hydrogen, and Batteries, we constantly seek stellar founders building solutions for Carbon Capture, HVAC, Motors, Sustainable Materials, Synthetic Biology, and many more.

If you are building something exciting in deep tech, please email us at info@specialeinvest.com.

Please check our portfolio to know more about Speciale’s investments in disruptive technologies.