Inexperienced Frontier Capital marks first shut of maiden India fund amid cooldown in climate-tech sector

In 2024, early-stage enterprise capital agency Inexperienced Frontier Capital launched a Rs 1,500-crore (~$178 million) fund to again startups growing options within the space of sustainability. At the moment, because it marks the primary shut of its maiden India fund, the agency has minimize down the overall fund measurement to $75 million–$100 million. It has already raised 20-25% of the fund. 

Managing Accomplice Sandiip Bhammer tells YourStory that the choice to downsize had nothing to do with the demand for the fund but it surely was as a result of restricted variety of high-quality funding alternatives in India and the general macroeconomic situations. 

“The pipeline in India simply isn’t deep sufficient proper now to deploy capital at that scale (Rs 1,500 crore) responsibly. We’d somewhat elevate a smaller fund and generate robust returns than chase each firm that comes alongside and find yourself delivering subpar efficiency,” he says. 

His feedback come on the heels of a somewhat sluggish 12 months for climate-tech funding. Final 12 months, climate-tech corporations managed to lift simply $2.1 billion, the bottom since 2022, in keeping with information from market intelligence agency Tracxn. Solely 158 environmental-tech companies acquired funded, marking a seven-year low, The CapTable had reported. Nonetheless, regulatory insurance policies and a worldwide push for sustainability have been anticipated to spearhead an increase in investments within the sector this 12 months. 

However Bhammer says that is but to occur. The sector continues to be reeling from robust headwinds within the world market. Apart from, the highlight on AI is taking some sheen off climate-tech, which was thought of sizzling a while in the past. 

Added to that is the bottom actuality: climate-tech corporations have lengthy gestation durations and require affected person investments, and the returns are unstable in comparison with different sectors.

Having mentioned that, regardless of the cooldown within the climate-tech house, Inexperienced Frontier is happy about areas comparable to waste administration, sustainable shopper manufacturers, and asset-light software program/platform companies that assist climate-focused corporations scale. 

“With curiosity cooling and valuations correcting, we expect this can be a nice time to double down on the local weather thesis… with a longer-term view,” says Bhammer. 

Based in 2020, US-based Inexperienced Frontier Capital is an early-stage VC agency centered on Indian climate-tech, with places of work in New York and Mumbai. 

The agency has backed a spread of corporations together with battery swapping operator Battery Good (it exited the corporate in 2024), EV-financing agency Revfin, and EV manufacturing firm Euler Motors. It has additionally invested in agri-tech startups KisanKonnect and Nutrifresh, biodegradable footwear model Chupps, and natural magnificence model RAS Luxurious Oils.

Demonstrating a observe document of exits is vital for the VC agency as proof of progress and capital returns. Bhammer says the agency is eyeing exits in an agri-tech startup and an EV manufacturing firm. 

In an interview with YourStory, Bhammer particulars the VC agency’s funding technique in India and the macroeconomic situations which can be derailing climate-tech investments within the nation. 

Edited excerpts: 

YourStory [YS]: How do you assess the present state of the climate-tech ecosystem in India, and the way do you see it evolving?

Sandiip Bhammer [SB]:  In all honesty, climate-tech has taken a little bit of a backseat currently as a result of AI is extraordinarily sizzling proper now, and buyers are chasing fast features and exits there. 

On the identical time, there are a few headwinds. Oil costs are rising, which ought to make renewables extra enticing, however as a substitute buyers are piling into oil-related corporations as a result of that’s the place the near-term returns are.

The opposite problem is that local weather companies sometimes have lengthy gestation durations—they could take eight to 10 years to repay. In a market the place buyers are searching for faster returns and stronger coverage help, it makes it more durable to draw capital.

That mentioned, lots of the climate-tech corporations are nonetheless performing nicely. With curiosity cooling and valuations correcting, we really assume this can be a nice time to double down on the local weather thesis—offered you may have buyers keen to take a longer-term view.

YS: Throughout the broader climate-tech house, which sub-sectors are seeing essentially the most momentum right now? Which of those align with Inexperienced Frontier’s funding focus?

SB: One factor that makes India distinctive is that local weather challenges differ metropolis by metropolis. In Delhi, as an illustration, the massive difficulty is air high quality. In Bangalore, it’s water availability. In Mumbai, waste administration is a significant concern. The excellent news is that this creates a variety of alternatives past conventional local weather sectors like renewables. 

We’re significantly excited by consumer-focused sustainable way of life companies as a result of India is such a big shopper market and these companies don’t essentially depend on heavy regulation.

For instance, we’ve invested in Chupps, which makes biodegradable flip-flops and sliders. As an alternative of sitting in landfills for 400 years like rubber footwear, these break down in about 18 months.

One other firm we’ve backed is RAS Luxurious Oils, which makes natural magnificence merchandise with no microplastics and recyclable packaging, whereas sourcing from ladies farmers. 

So we’re taking a look at areas like waste administration, sustainable shopper manufacturers, and asset-light software program or platform companies that assist climate-focused corporations scale. In India, there’s no scarcity of alternatives in these areas.

YS: Electrical autos have obtained a big share of investments thus far. Do you see their dominance persevering with? Or might different subsectors begin attracting extra capital because the coverage and regulatory panorama evolves?

SB: Sentiment round EVs has modified a bit for a couple of causes. We’ve seen some high-profile setbacks—corporations like BlueSmart shutting store, Log9 Supplies dealing with challenges, and a few EV corporations not performing significantly nicely after going public. That has undoubtedly cooled investor curiosity.

Having mentioned that, the economics of EVs are nonetheless extraordinarily compelling. On an working value foundation, operating an electrical car—whether or not it’s a two-wheeler, three-wheeler or perhaps a automobile—will be as much as 95% cheaper in comparison with a conventional ICE car.

So the query is: does the complete thesis disintegrate as a result of a couple of corporations struggled? Probably not. If something, with valuations coming down, it could really be an excellent time to double down on robust EV corporations which have actual moats and scalability.

It’s additionally true that the sector isn’t getting the identical stage of subsidies and tax breaks it as soon as did, with coverage consideration shifting extra towards renewables. Even so, we nonetheless see EVs as one of many key pillars of climate-tech investing. 

YS: What timeline are you concentrating on for the ultimate shut of your fund?

SB: We now have about 12 months to shut the fund, and we’ve already accomplished the primary shut. Our goal is round $75 million–$100 million. The rationale it’s not bigger isn’t a scarcity of demand—capital isn’t actually the problem for us. The problem is definitely the supply of high-quality alternatives.

Once you elevate a fund, the scale has to match the standard and depth of the funding pipeline—and proper now, we’re merely not seeing sufficient corporations to justify a a lot bigger fund.

YS: How a lot is the primary shut anticipated to be?

SB: The primary shut can be in all probability 20-25% of the scale of the fund. 

YS: What does the LP (restricted associate) base appear like for the fund?

SB: We now have only a few overseas buyers for this fund, which is sort of attention-grabbing as a result of our earlier fund noticed solely overseas buyers taking part. So, these are the household places of work and institutional buyers based mostly out of India. 

YS: Will you reserve a portion of the fund for follow-on rounds? 

SB: Usually, about 30% of the fund goes into first cheques—investments in corporations between Sequence C and Sequence A. We usually don’t enter an organization for the primary time past Sequence A. In whole, we anticipate to again round 25 corporations.

The remaining 70% of the capital is reserved for follow-on investments. It’s basically a basic energy legislation strategy—you write smaller cheques throughout a bigger variety of corporations early on, determine the winners, after which double down on them in subsequent rounds.

YS: What’s your common cheque measurement?

SB: Our common cheque measurement depends upon the stage of the corporate elevating capital. For a Sequence An organization, we sometimes make investments round $2 million. For pre-Sequence A, it’s often $1 million to $1.5 million. For corporations sooner than that, it’s usually between $500,000 and $1 million.

YS: What’s your exit technique?

SB: When you have a look at the VC business in India, the actual query is: what number of funds have really delivered significant exits? I don’t assume the observe document is especially robust. Broadly talking, I don’t see many funds which have absolutely returned capital to buyers during the last decade.

Exit methods that rely closely on IPOs haven’t labored very nicely. For my part, commerce gross sales are the extra real looking path. Massive corporations typically want to accumulate startups which have already innovated somewhat than construct these capabilities internally—it saves them time and uncertainty.

So our focus is on exiting both by promoting to growth-stage buyers at Sequence C or D, or by way of strategic acquisitions by bigger corporations. IPOs can work if you happen to are available at a really late stage, however if you happen to’re investing at Sequence A or earlier, ready for an IPO can take 10–12 years. Most buyers merely aren’t keen to lock up capital for that lengthy with out clear visibility.

YS: Is the agency eyeing any exits from the present portfolio?

SB: We’re really taking a look at a few exits proper now, although I can’t go into an excessive amount of element. We’ve already exited Battery Good. In hindsight, we might in all probability have accomplished even higher as a result of the corporate has scaled considerably since then. We exited at about 14–15x, but when we had held on, it might need been nearer to 30x right now.

That mentioned, demonstrating exits was vital for us. One of many largest challenges for VCs in India has been proving that they’ll really return capital; so we felt it was obligatory to point out that observe document even when it meant exiting a bit early.

Proper now, we have now two extra corporations in our earlier portfolio that might doubtlessly see strategic buyouts from giant firms. One is within the power enterprise, and the opposite is within the EV manufacturing house.