Shruti Srivastava, Investment Director, Avaana Capital, speaks about how Avaana is driving climate-smart investments and sustainability across diverse sectors, highlighting their focus on innovation, inclusivity, and addressing climate adaptation challenges in India.

Q1: Avaana Capital has always focused upon supporting technology led climate-tech innovations with some very unique enterprises in your portfolio, with Terra.do, Sentra.world, and Eeki Foods being a few.

What has been the guiding principle for the investments that Avaana makes?

At Avaana, our focus is to support companies that are innovatively solving for climate risk mitigation, adaptation, and resilience across critical sectors of the economy to catalyze a sustainable, low carbon pathway for development. We look for companies that have the potential to become market leaders in their domain and are guided by two broad levers – the market potential and the climate impact of the solution. With regards to the former, we primarily look at market opportunity – in terms of breadth as well as depth – and the potential to scale with attractive unit economics. We look for differentiation and use of technology to drive scale and tend to stay away from business models that have a high cash burn approach to scale. Above all, we like founding teams that combine audacity in vision with strong understanding of execution and ability to learn as they progress.

Q2: The intersection of climate impact and focusing on inclusive development has been an important theme for Avaana.

How do you see technology led innovation being able to create this impact?

Any examples that you would like to highlight from Avaana’s portfolio that you see being able to successfully achieve this dual impact of sustainability and inclusivity?

In the context of climate action, technology led innovation can power inclusive development along with climate justice. Avaana’s portfolio companies are supporting economic resilience building for climate-vulnerable segments such as smallholder farmers, MSMEs and women while also creating affordable access to sustainable consumption. Avaana’s portfolio companies reach more than 3 million smallholder farmers and 200,000+ small businesses with 65% of the portfolio having operations in Tier 3 cities and rural India, creating economic opportunities inclusively. Avaana’s portfolio company Farmart, is helping drive food procurement directly from farmers, through agricultural input retailers, creating more inclusive market access and income opportunities to a large number of farmers and small retailers while also contributing to food security, climate adaptation, and resilience building. Turno is helping small driver-operators transition from diesel vehicles to electric vehicles with affordable financing and sales support. On gender, we follow the 2x approach and we also support our companies in building policies and mechanisms for creating more inclusive workplaces, including but not limited to, widening of recruitment funnels to cover diverse socio-economic backgrounds, instituting supportive parental leave policies, and sensitization programs to address bias.

Q3: In India, climate adaptation-based solutions have been relatively underfunded as compared to mitigation based solutions.

Given that Avaana has been investing in both aspects of climate action, what are your perspectives on how private capital could support climate adaptation?

Are there any specific business models or solutions that you see holding potential for scale as well as achieve climate adaptation impact?

There is certainly a significant deficit in funding for climate adaptation. So far, over 80% of the funding in climate tech went towards mitigation solutions, which itself has been skewed towards companies building solutions for renewable energy and electric mobility. Private capital is crucial in supporting climate adaptation solutions. The Climate Policy Initiative estimates that for India to achieve its Nationally Determined Contributions (NDCs), it will require USD 2.5 trillion from 2015 to 2030. In FY 2019-2020, India obtained only USD 44 billion, which is approximately a fourth of India’s needs, out of which a mere USD 5 billion, or 11.4% went towards adaptation.

This wide gap in financing for India to achieve its targets cannot come from public funds alone and private capital plays a critical role in supporting climate adaptation solutions and deploying them at scale. Catalyzing adaptation to balance people and planet objectives, without sacrificing one for the other, will require innovation in technology and in business models. We have seen the role that private capital has played in scaling inclusive innovation in other themes, such as financial inclusion, and we believe the same holds potential for climate as well.

Q4: One of Avaana Capital’s focus areas has been that of sustainable mobility. The recent funding by Avaana of Kazam’s electric mobility software platform demonstrates the level of innovation that this sector is seeing.

Given the high level of investments that 2-wheeler and 3-wheeler electric vehicles have been receiving, what is your outlook on the clean mobility space?

Are there any areas within the electric vehicle value chain that you see holding great investment opportunities which are relatively untapped?

Transportation is one of the largest contributors to GHG emissions while also a crucial component for economic development. Currently, in the clean mobility space, penetration is still very low and we expect to see rapid growth in the coming months and years, bolstered by policy changes on both the production and consumption side. For enterprises, moving their logistical requirements to greener forms of mobility is a low-hanging fruit in decarbonizing their supply chain and we expect to see more activity here.

Scaling up of financing solutions to support upfront buying costs as well as solving for range anxiety would help increase adoption. Fast charging solutions, new and affordable battery technologies for varying use cases, and improved charging infrastructure at a city-wide level are all avenues to tackle this problem and hold immense potential. We believe that the shift towards EV adoption is in a very nascent stage and has only just started taking off, and we look forward to innovative technology and policy levers to drive adoption further.

Q5: With the recent completion of the first close of Avaana’s Climate and Sustainability fund, are there any specific segments that the Fund is looking to focus upon?

Going ahead, what would be the investment strategy for Avaana?

We have three sectors that we look at with regards to climate and sustainability – Energy and Resource Management, Mobility and Supply Chains, and Sustainable Agriculture and Food Systems. These three spaces together contribute to 70% of India’s GDP, while also giving rise to 90% of our emissions, making them critical areas to focus on. Apart from this, our investment strategy remains the same as before – we assess companies on the innovativeness and impact of their climate solutions while also gauging the readiness of opportunity and size of the market for them. At the end of the day, we seek creative and smart businesses tackling the biggest problem of our times in a prescient, astute, and effective manner.

Background of Avaana Capital

Avaana Capital is an early-stage venture capital platform, investing across climate and sustainability thematic areas including energy, resource management, mobility, supply chains, food security and sustainable consumption. It takes an ecosystem approach to help provide full-stack building building support to the entrepreneurs it supports. Avaana also focuses on building strong industry linkages with large corporates as well as deep relationships with critical members on the policy and academia front, to drive thought leadership, thereby linking catalytic capital to support capacity building for its entrepreneurs.