Electrical grids are on the cusp of a paradigm shift in how they operate, presenting an opportunity for startups and early investments in the transition to a sustainable energy system. Ramsay Siegal, a partner at Earthshot Ventures, and Shyam Menon, co-founder at the Bharat Innovation Fund and Infuse Ventures will discuss where the smart money is going and how startups can get access to the funding they’ll need to revolutionize the grid sector in this new episode of Climatic.

Climatic is ADB Ventures’ series about the innovators decarbonizing Asia and the Pacific. It is produced by the Asian Development Bank and ADB Ventures with financial support from the Climate Investment Funds’ Clean Technology Fund program. The latest Climatic video series features interviews with innovators, investors, and infrastructure operators who are working to make electricity grids stronger, greener, and more resilient.

Transcript

Linh Thai  00:09

Hello, and thanks for joining me again on Climatic. All innovation needs to be backed by some serious money. That's even more true when trying to break into a slow-moving, risk-averse sector such as grid tech. But this is also an industry that's on the cusp of a paradigm shift in the way it operates, which sounds to me like a great opportunity to get in early on some exciting new investments.

Linh Thai  00:34

To discuss where the smart money is going, I'm joined by Ramsay Siegal, a partner at Earthshot Ventures, and Shyam Menon, co-founder at the Bharat Innovation Fund and Infuse Ventures. Thanks for joining me. Let's start with you, Shyam. What is the current level of grid tech innovation in India?

Shyam Menon  00:49

What I've seen so far in grid tech is primarily that you have startups that can do a lot of the sort of data science work to help integrate renewables into the grid. That's something that's happening. But a lot of the things like demand response and stuff like that is not yet there in India, because the smart metering infrastructure is still being rolled out. And energy storage is just in the early days of happening. The view is that give it another couple of years, once the massive smart meter rollout is complete, it will unlock a lot more potential. Being able to really have a lot of interactive assets with the grid that can increase resiliency of the grid. You're not there yet in India.

Linh Thai  01:35

So it's still early days in India, then. Ramsay, what's the North American perspective? I imagine the market's a lot more mature there.

Ramsay Siegal  01:42

Absolutely. So at Elemental, we've been investing in grid type solutions for over 10 years. And I would say the market is quite mature, there are quite a few VCs that are focused in the area sort of across the capital stack. One thing that's changed in the last 10 years is that the capital stack is much more mature, so helping companies from idea stage all the way through project finance and sort of growth equity, there are more players, more philanthropy, and more venture capital firms. In terms of the areas of focus in North America right now, it's about renewable integration, grid balancing, automation, sort of the digital layer over all of the Internet of Things that are being distributed across the grid.

Linh Thai  02:24

That's great to hear, Ramsay. Shyam, I have a question for you. Being in Viet Nam during my investment years, I looked at the US as kind of a time machine. You see what's happening there, and then you say, well, can this really work in Viet Nam? And a lot of times some of it can, with a twist. What innovations have you seen that you think would work in India, with a twist?

Shyam Menon  02:43

It's always that case. There is an Indianization of all of these models for it to work in the country. So, what we have seen is the most successful ones are the ones who are able to take an idea that would have originated somewhere else, and then build a ground-up product from India that is designed for the Indian market. And rather than actually taking a larger solution, and then stripping off a bunch of things and making it suit a local market, actually something built ground-up. And those are the ones that we've seen become very, very successful.

Linh Thai  03:19

It sounds like there's some movement towards grid tech solutions, but few people are ready or able to go all in. Why is that, Ramsay? What's making people hesitate when it comes to investing in this space?

Ramsay Siegal  03:30

I think that there's been a bit of a hangover since Clean Tech 1.0 in North America and people remember names like Solyndra and others that were failures. But I think we should be, you know, venture is the business of taking risk, and there will be failures. Only 10% of all startups are successful and operating, meaning that 90% don't work out. And that's okay. That's the business that we're in, and those are the risks that we take. So, I think that it's time that we move on and focus on the successes, like Tesla, which changed the entire global automotive industry. There was no electric vehicle available when they came out with their Roadster, and now every single major auto manufacturer has either an electric vehicle in the market or a roadmap to do that, and they cannot be competitive without it. But I think for folks who are hesitant to get in, it can be intimidating. There are regulated industries, there's large incumbents that are stuck in their ways that the startups have to bump up against. They either have to work with them, or try to beat them. And in that case, you know, investing in a fund-of-funds structure can be a workaround. So there are high-net worth individuals that want to be invested in climate, but they don't feel quite qualified yet. So they give it to us and then we invest it on their behalf.

Linh Thai  04:48

Talking of success stories, India's long been talked about by investors as a country full of potential. But now I think that potential is being realized. Sectors such as edtech and crypto are arguably being led by very, very big Indian companies. Shyam, do you see green technology as potentially being as successful as those sectors?

Shyam Menon  05:07

Whether it is or not, it needs to be. I mean, the reality is, this country with 1.3 billion people, if we don't innovate on the green tech side - and you have, say, for example, another couple of 100 million or 200 million, 300 million more people move towards the middle class - I mean, honestly, even if so many parts of the West may go to entire net zero, all of that will get offset. But venture capital early-stage for climate investing is still pretty bare-bones. I mean, it needs to be 10x of what it is today, and it is just starting. Because the returns requirements in India being so high, most of the capital still tends to go towards things like e-commerce, edtech, fintech, etc. A company can even become a unicorn in six months to a year. So, when it's such a pace of growth for the startups, unless climate tech shows kind of companies that can do that, what happens is the kind of high-net worth individuals, money, or banks, or insurer money doesn't tend to come into something which may be slower.

Linh Thai  06:13

This is the eternal battle with investments. When is the right moment to put your money in, and when can you hope to see a return? Let's hope that the conditions allow more people to get into the grid tech space and really help drive the change that's needed. Thank you, Ramsay and Shyam.

Linh Thai  06:32

Any investor has to use a mixture of their heart and their head when deciding where to put their money. However, much you know, investing in green grid tech is the right thing to do. You have to wait for the right conditions before pulling the trigger. For many of Asia Pacific's biggest markets, that time might be fast approaching, and once the starting gun is fired, the rate and range of change could be breathtaking. But what does the future hold for our grids in the longer run? Stay tuned to find out in our final installment of this series of Climatic.

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