Climate tech is a challenge and an opportunity: Shoeb Ali, Co-founder, Transition VC

Shoeb spoke to indianexpress.com on the challenges and opportunities faced by climate tech in India, his bets on new trends in climate tech, and the need for a focused policy for the sector. Edited excerpts:

Venkatesh Kannaiah: What are the challenges facing climate tech startups in India?

Shoeb Ali: The biggest challenge is finding the right research and development talent. It is perhaps because our corporates do not have substantial research and development budgets, and the innovation culture is a bit lacking in our university system. Talent is not easy to come by.

The second challenge relates to infrastructure and the ecosystem. For example, if there is a hydrogen-focused startup and they are building cylinders for storing hydrogen, they don’t have the requisite testing infrastructure in India.

There is a good amount of capital available in the form of grants during the early stages of the startup. And there are also some early-stage investors like us. But there is a huge gap between Series A to Series C. So, if a startup is looking to raise $10 million to $20 million, that kind of capital is unfortunately not available in India for climate tech. But as soon as they reach a mark of let’s say Rs 100 crore to Rs 300 crore turnover, funding is available. A lot of PE funds and a lot of global funds are interested in investing in such startups.

All deep tech has a long gestation. Climate tech is part of deep tech. There are large institutional investors in the segment, but they are all looking to invest in solar and wind energy, as these are fairly mature technologies and can scale faster. They can also absorb more capital, but if someone is building an electric vehicle, or a battery startup, or components like motors or controllers, capital is a bit scarce.

The Government is doing a decent job of providing grants and has invested in incubators and technology accelerators. But now there is a growing realisation in government on the need to focus on deep tech. But we need to put sufficient funds behind such ideas.

Venkatesh Kannaiah: If climate tech startups are building products for the whole world, what is the issue with raising funds?

Shoeb Ali: Startups need to be close to the problem they are solving. Sitting out of India and getting a product for the US market is tough. It is not just technology, you need to understand how the product works in different environments and keep an eye on the market dynamics too. It is not like a software product, where we can build for the whole world.

If you get a battery pack made in the USA and simply ship it to India and put it in a vehicle, it will not work. Temperature, vehicle condition, and even driver behaviour is different.

Multinationals build their products for global markets, and if they think there is an Indian market, they will customise their products. It is very difficult for a startup to build a global-level product from the word go.

Venkatesh Kannaiah: What are the opportunities for climate tech startups in India?

Shoeb Ali: There are immense opportunities. The biggest is industrial decarbonisation. Industry in India consumes around 40-42 per cent of the energy produced and their emissions too are of a similar range.

These carbon emissions from the industrial sector are very tough to abate. Assume you are a steel manufacturer or a cement producer, you need to use fossil fuels to generate high temperatures. There is no escape from carbon emissions or fossil fuel usage. So, industrial decarbonisation is a big challenge and a huge opportunity. Unfortunately, in India there are only a very few startups working in this segment.

Electric mobility is a low-hanging fruit. There are a lot of good startups like Ather and OLA. There are also quite a few startups which build battery systems.

Waste heat recovery solutions is one segment ripe for change, which works on capturing the heat that goes to waste during industrial activity and reusing the same for other needs. We need to decarbonise the segment and perhaps produce alternate fuels like green hydrogen and reuse them instead of fossil fuels.

Industrial heat pumps are a big opportunity, but in India, there are only one or two startups. It is a huge market in Europe and the US, but we have not taken advantage of the same.

Solar and wind have been growing fast, but they are what are called intermittent technologies, meaning that their availability is limited by solar power or wind speeds. You need huge energy storage systems which can store power and give it back to the grid. That’s a huge opportunity as solar and wind energy projects leapfrog. In our view, energy storage systems are a $30- 40 billion opportunity by 2030.

Green data centres are a growth segment with growing AI computing requirements. These would be green data centres using renewable power and battery energy storage systems to power them.

We also see huge opportunities in cooling solutions, especially HVAC optimisation. With heat waves becoming a daily occurrence, energy-efficient cooling solutions are a great opportunity.

Venkatesh Kannaiah: Why focus on climate tech for your venture fund?

Shoeb Ali: For small VC funds, it’s very tough to be diversified. It is better to focus on one sector, gather a lot of insight, study the market, and work on it. All successful funds have started with one sector, and they will diversify later. Climate is one of the toughest issues to solve, and such challenges provide a lot of opportunities. We estimate that the energy transition domain would be a $200 billion opportunity by 2030.

What we are good at in India is taking fundamental technologies and building solutions. So, our goal is to fund good application engineering companies that are taking the fundamental science and building good applications to start with in India and then eventually compete globally.

There are some funds in the climate tech space, focused on sustainability and various consumer applications. They are more into business model innovation, recycling, sustainability, strengthening the existing supply chain, etc. Our focus is on core tech.

Our objective is to invest in 25 good technology startups from the Rs 400 crore fund. There are a lot of startups in the West which are working on ground-breaking tech, but the economics are such that they cannot manufacture at scale, with land, labour, and regulatory costs. We think of bringing them to India, setting up their units here, and for them to service a larger global market with their products. We are now looking at a Rs 2000 crore fund for the same. Unfortunately, there are some areas in which R&D is not happening in India, and we don’t want to wait and build it out of India. We will go there, invest in those companies, get them to come to India, and manufacture here.

Venkatesh Kannaiah: Tell us about your startups and the problems they are solving.

Shoeb Ali: There is EMO Energy, which has advanced battery solutions and is changing the face of the Indian electric vehicle industry. It is developing safe, powerful battery packs that can be charged within minutes, helping the widespread adoption of electric vehicles in India. With their Battery Management System (BMS) and cutting-edge battery technology, EMO Energy is a pioneer. With their liquid-cooled immersion batteries, they are reducing the chances of a fire to near zero and are preventing these batteries from exploding.

There is MATEL, which is developing advanced electric powertrain solutions for vehicles and industry and is at the forefront of electric powertrain innovation. If you look at an electric vehicle, the second biggest component after a battery pack is a motor and controller. They are, in fact, India’s first company to build a motor and controller together. The controller is a kind of the brain of the motor. Typically, these controllers are imported from Israel, China, and the US. They are also building a motor and controller for buses, which is an interesting engineering problem to solve.

We have invested in Protonas, a Chennai-based company building fuel cells in India. It is promoted by a founder who has experience in building fuel cell startups. It is changing the hydrogen economy with affordable fuel cell products. We will be exporting these fuel cells to other markets. They find use in two applications. One is as a power backup, a kind of diesel genset replacement, and the second is for drones.

We have invested in a company called Dynolt Technologies, which builds power converters for electric chargers. Unfortunately, all the power converters, which are the core of a charger, are being imported from China. None of the companies in India are building it in India. Though the Chinese have a first mover advantage, we have made it affordable.

Fitsol is another startup of ours. They have built a software platform for corporates to track their carbon emissions. But their specialty is their focus on Scope 3 emissions. A lot of companies do Scope 1 and Scope 2, which are relatively easy. Scope 3 tracks your supply chain’s emissions, too. They also give recommendations on optimising supply chains and decreasing costs, apart from reducing carbon emissions.

We are also funding a company which is into waste heat recovery solution and one building heat pumps. If you have to reach 200 degree centigrade, for an industrial process, you normally burn some fossil fuel like coal or oil or gas. You can eliminate that with a heat pump, which works on electricity.

We are also investing in a company that builds sensors for hydrogen leak detection. The problem with hydrogen is that it is a very light gas, it escapes quickly, and if it leaks, it could explode. So, you need a very good sensor to detect a hydrogen leak and shut off your system. We are excited about this investment.

Venkatesh Kannaiah: Can you name some climate tech startups other than your investments that caught your eye and which you think are solving interesting problems?

Shoeb Ali: The first company that comes to my mind is Ather Energy. I think they have built a superior product. I would call it a Tesla on two wheels. I would rate the quality of their engineering, their product, and their systems very high. I regret that we were not among their investors.

There is Rondo Energy from US which builds thermal batteries. They take thermal energy, store it, and give it back to the industry whenever they need it. I am looking at someone who could build at least 10-20 per cent of what Rondo is doing in India. We cannot transplant Rondo to India, it would be too expensive. We need to build it here.

There is AtmosZero, from the US, which electrifies boilers. Boilers are huge, take in a lot of energy, and burn a lot of fossil fuels. This startup solves the issue. It is in the theme of decarbonising steam and is a big opportunity.

Electric Hydrogen has built an extremely efficient electrolysis system. With such a solution, one can provide green hydrogen at a cheap price. If someone can make hydrogen affordable, then it is quite an achievement.

There is Bedrock Energy from the US, working on a geothermal drilling technology. If you go deep into the earth, there is a lot of heat which is available. This company is working on a novel drilling technology so you can drill holes into the earth and then extract that heat and use the same. We have geothermal hotspots in India, and it could be a technology relevant to India.

Venkatesh Kannaiah: As a climate tech investor, what are your three big asks from the government?

Shoeb Ali: Our government policies are pro-innovation, pro-industry and well thought out. But we need to focus on infrastructure and the ecosystem. Take hydrogen, for instance. We can produce it in India, but transportation is difficult. So mere production will not help, we need the ecosystem for distribution and storage. We also would need labs for end-to-end testing too. There is the Hydrogen Valley idea, but it is moving at a slow pace.

If you look at solar, we have done some things in an intelligent manner, but we were a bit late. Take lithium-ion cells or semiconductors, and if we do not act fast, we are going to lose out. China had built educational institutes focused on battery tech and they are seven to eight years ahead.

India is uniquely positioned to capture the hydrogen export market because we can convert our solar energy into hydrogen and export the same to countries like South Korea, Japan, and other Southeast Asian countries. We need some policy initiatives on this front. There will also be collaboration between Europe and India in the hydrogen sector. We need to be ready with policies and the ecosystem for utilizing the opportunity.

Venkatesh Kannaiah: What is the impact of the new Trump administration on the climate tech industry?

Shoeb Ali: The Trump administration does not believe that climate change is happening, and their policies might stop the flow of funds to green tech. Many startups have begun to feel the pinch, and the good work they are doing will go to waste. It will do a lot of harm to the US and allow China to dominate in technologies like solar cell manufacturing, wind turbines, lithium batteries, hydrogen, carbon capture, and perhaps even semiconductors, too, down the line. China might end up dominating the clean tech sector.

However, with the US withdrawal from the theme, it gives an opportunity for Europe, India, Korea, Japan to collaborate. It is an opportunity for India.