F. Nalin Agarwal of Climate Collective Interview

VeChain Foundation Climate Research - Justin Goldston Interviews Nalin Agarwal of Climate Collective
Video Link - https://youtu.be/9cCBNgfyboI

Sure, thanks. Thanks, man. Thanks for having having me, you will on this on the stock. So I'm a partner, the climate collective in India, where not for profit that runs climate tech accelerator programs, largely in the South Asian region so far. So India, Sri Lanka, Maldives. In the past, as well, in Nepal, we started off actually as solar and wind project developers between 2010 and 2015, that from 2016 onwards, we've grown the climate tech startup ecosystem in South Asia through accelerators, I now oversee a lot of the work we do on the capital side. So we are fundraising platform, just setting up a VC fund. All of that. Yeah. And, and we've supported about 160, climate tech startups, so it has become the largest platform in South Asia. This year, we're gonna expand to Southeast Asia as well. And next year, to Africa, and hereafter to Latin. So we have a global south ambition after having kind of proven the model and supported startups in South Asia over the last seven years.

01:44
Stop. Yeah. Excellent. I appreciate that. So, so in terms of in terms of the work that you do, what, in terms of the work you do, and the current technology and current and the current technology offerings that you that are in currently in a space, what are some of the shortcomings, you know, are challenges that you've seen.

02:11
Alright, so, we work with a wide kind of swath of domains, right. So across clean energy, energy optimization, mobility, carbon tech, plastic waste, climate smart agri, and industry, advanced industry, right. So anything which has a either decarbonisation focus or circular economy focus, sorry, all adaptation and resilience, focus, you know, all of them are different stages of maturity as sectors in India, right. So the markets are different stages of development technologies within them are also 10 different stages of development, and then some kind of drilling down. So we have sectoral development, we have technology development, and then we have the product level development, so everyone has their own challenges. But, broadly, if you look at general challenges that, that, that startups or founders face, and just stop me just enough, I'm answering the wrong question. But we want to understand what startups faces challenges right. In, in our environment. So, one, yeah, so one is, of course, typically, startups in this space, have longer product development cycles, and also sales cycles. Right? Now, product development cycles being a result of oftentimes these beings, sometimes hardware or hardware plus software, so digital plus hardware software, so naturally, and this is more true for deep tech startups. And more and more, we're seeing deep tech startups if your business model innovation is different, but that's one. The other is, as I mentioned, the sales cycle is also longer, because many, I mean, the majority are at the start, as we see a b2b. Some are big, and some are b2c. But b2b sales cycle in general, are longer, right. The other thing for the for the sector as a whole. You know, both founders, and investors need to have some understanding of technology, and they need to have some domain expertise is not as simple as creating a, for example, such an app, you know, relatively simple thing to do, but of course, hard to scale. But you need domain expertise, both on the founders and the investor. So that's a general challenge for the ecosystem, you know, but increasingly, we're seeing higher quality entrepreneurs coming into the space, we're seeing more specialized pools of capital being raised on the investment side. So that's a positive we need much more of it. It goes without saying there's a little, little bit much more I mean, a little bit as compared to perhaps, you know, some of the other parts of the world. There is a little bit more scattered. Do of early stage risk capital. So when you're starting out non dilute of capital, that's not as as valuable. So that's the other thing that we are trying to solve. Let's see where that goes. Things are changing. So we have, I will say, On the positive side, I think in terms of rural startups, India's three number three in the world, in terms of climate status, we are number nine, I guess. But if you consider Europe has already probably number four. So it's it's green shoots. It's interesting, where we're managing to attract more capital and the right kind of entrepreneurs, but much more needs to be done.

05:41
Okay. Yeah. So whenever, whenever you're looking for, whenever these startups are looking for investments, we spoke briefly about this. And they're doing pitches, you know, what, what value do you see in in the increased transparency of the things they're doing within the within the sustainability space within the climate action space within all of these different spaces for kind of validation?

06:11
Yeah, I mean, that's a good question. That's, I mean, that it's kind of at the root of what we do. When we do evaluation and due diligence, right of startups, you don't know, the claims that startup makes, can we validate it? Whether the technology claims whether their business claims, either, right, so what do I mean by that? So if there's it's a new technology, and they say this can help improve efficiency by x, we need to validate that right. Now, do we validate that either we go to a third party validation service, we go to a lab that can certify it? We could all regulator that can certified right? We go to also customers? There's nothing like that, right? That's the best. Even even before any of this, if the customers tell us that, yes, this technology has helped me save money, or it'll improve my bottom line. That's validation. Right. So that's something we focus on very strongly is customer validation or market validation, right. Something more granular is, when we evaluate startups, we want to make sure that the things they're telling us on the business side, their growth rates, their whether it's on revenue, profitability, right, or, sorry, or customer conversion, all of those things. They're genuine, they're valid, right? And this is dynamic data, it gets updated all the time, right, you're growing as a company. So that's the other thing that we want is the ability to update data on a regular basis. Right. So we need transparency and validation of claims. That the status may we need regular updation of data. And that has to be again, revalidated, right. So it's a ongoing and dynamic process. And imagine this happening across hundreds and eventually 1000s of, you know, complex businesses. So one example that we spoke about was the idea of creating this data sharing platform where, for example, a startup needs to apply for grants, it needs to apply for investment, equity, or it needs to apply for that capital to a bank. Or it needs to apply to an accelerator, or it needs to, for example, do a sales pitch, get impaneled by a corporate, for example, right. All of this requires them to share data, about their business, about the technology, share information on cost benefit analysis, they've done all the customer value revenue, all of this. And oftentimes, this is a repeated game, you know, because it has to be done over and over again, right. It's almost like the administrative part of anyone's job that no one likes to do, you know, if you can automate some of that, and we have the world has automated a lot of this in the last decade. But it hasn't happened so much in this data space. So we're trying to we're trying to build a data sharing platform that allows startups to create a blog profile, and then start to apply through that almost like what LinkedIn does for recruitment. You know, so that's a good analogy. And that's, that's something that would benefit by increased transparency and to some extent also in Yeah, the the inability to fudge. Yeah, numbers and data. So I think that's, that's one. Yeah, I hope kind of this. This is one use case that I can think of. Yeah,

09:49
yeah. Cuz you brought up you brought up three different things that I kind of want to go down. So So whenever you say that you have third party validation and validation of regulators So, within the blockchain space, we have something referred to as Oracle's. So Oracle's essentially pretty much third party. So you're familiar with Oracle's,

10:11
I mean, in the matrix context or something else.

10:14
So within within blockchain, they have Oracle's where you have, you can actually, you can actually take off chain data and validate it and bring it on chain. So you can have a third party that goes in and actually validates validate certain things. Now, if you were to have, if you so I'm asking, Do you think that you could have a group of these third party validators to come in and be Oracle's and to kind of be incentivized to validate the data on chain or certain organizations, let's just hypothetically, these organizations were putting this information on chain, you know, we are trying to get funding and then you have Oracle's that are coming from from a third party like a group and they're incentivized to say, Okay, we'll give you $5,000 to go in and validate this for this $10 million deal. Right. Sure. Do you think that's Do you think that's gonna be that would be like, feasible?

11:11
Um, I mean, of the bad I think so it's the same. I mean, just to understand just to get my mental framework, right, it's similar work, what you're doing off chain, the differences. You're doing it on chain? Correct?

11:26
Yeah, so yeah, the information, there's no, it's like, let's just say, hypothetically, we have we have we're doing a carbon offset, a carbon offset tracking, you know, solution own chain, right, a refi or refi. Platform on chain, right, with a pitch, right? And they're pitching, and they're going in, and they're and they're validating, you know, with a third party, whether or not their claims are indeed accurate. But some of that is off chain, for example. Right, right. So those third party validators actually go would go on chain and say, Yes, this information is indeed valid. And there's just two startups claiming,

12:09
yeah, got it? No, I think Yeah. I mean, I don't see why. It wouldn't it couldn't happen. So. Okay. Yeah. I think maybe a transition period where people get used to the idea of it, but this is big business, as you know, validation, and certification. Right. So if if the same business continues on chain, as more streamline offers greater transparency, right. Yeah, I think so.

12:39
Okay. Then another thing, another thing we're talking about? Because because this whole, this whole funding thing is very interesting, you know, because, you know, usually, and this comes from my previous experience, where you have the social impact investors, and social impact investors are still they're still looking for they're still looking forward, they're still looking for a return on investment. Right. So, yeah, so have you seen Do you do you have, because there are some, there are some tools in different countries, where you can actually do crowdfunding type type type options, right? Do you see do you one do you? Do you deal with any kind of crowdfunding type type solutions within this space? And do you see that you see that type of option growing within within the social impact? area?

13:29
Yeah, no, absolutely. In fact, this is a this is an area of great interest to us. We have a platform ourselves, where we pull in capital from what we call what we call retail investors, right? So these are typically salaried people, they could be angels, etc, who invest much more, they're also interested in investing small amounts. So the equivalent of let's say, 4000 us up to 10,000. Us 12,000. Us? Yeah. So they put in these kind of check sizes, we pull that capital in, in alternative investment fund, vehicle, and then deploy onwards. So there's only one entry on the cap table. It's not like before 40 people come into the it's very difficult for startups. By the way, if 40 People who crowdfund come on to the cap table, at least this is the situation in India, right? Because I'm sure it's the same in most places. Because the reason is, later stage funders and later stage investors don't like too many people on the cap table, even capitalization table of a startup. It's better to use a pooling vehicle. And that's what we're doing. We're using pulling vehicle, getting funds from the crowd. Of course, you still have to meet certain criteria of being an ineligible investor. And then deploying, right so I'm aware that this can be done through the blockchain. I'm not aware whether the regulatory framework is that amenable using you know, da O's or blockchain based Kryptos as a way to raise money off, because then, you know, the markets regulator will step in? If. So, I know what's happening, for example, and it may happen elsewhere. There's there's some jurisdiction, which do allow pooling enough capital like this using the blockchain. And once this pool, then it can kind of flow into another country, because then it's coming from, let's say, a private limited or LLP or something. So that's, that is that's that's possible. But in India to do to kind of summarize, yes, crowdfunding does happen. We pull into a no specialized vehicle and deploy into startups. Okay. Not so easy on the blockchain yet.

15:45
Excellent. So I know, I know, we, you know, I actually brought up the actually brought up the concept of refi regenerative finance, and you said that you were you were familiar with that, you know, can you share your Can you share your thoughts on that? And, and and talk about whether or not do you think it has any legs in the future?

16:08
Yeah, I mean, again, it's not something that I've, you know, that I've delved into too deeply. However, I do believe that this is this is an interesting kind of financial mechanism specially for what we call nature based projects, right? So whether it's a forestation, right? Or it's regenerative agriculture, right. So, these I mean, of course, it's being used for several things. And I do know that for example, d phi is also used with NF T's, but specifically, sorry, Rifai, I do believe that NBS, I mean, what we call nature based solutions. That's the that's the kind of low hanging fruit here. Again, this is not something that we have seen too many use cases or examples of in India, we are exploring it with some people. Were kind of leading the effort in this space in India. But yeah, that's my limited understanding of this. We currently very much on the traditional finance space, we go to LPS HN eyes and family offices and all of that, you know?

17:26
Mm hmm. Excellent. Excellent. So, so whenever you whenever you're talking about so in terms of family offices, this is this is an interesting topic, too. So when you're talking about family offices, do you see a lot of family offices trying to get in trying to enter into this into this space? Or your trial? Or is it more of like an education piece? And then you're trying Aquaman to getting into this space? Like which way? Which way? Which way? Is it?

17:53
Yeah, that's a good question. And then you said this space, you are done with climate, right? Not the blockchain space, right. Climate Plan, right. Yeah. Okay, good. So mixed bag, right. There's in like, everything you have, you have the progressive guys, your early adopters, you're the progressive guys. By and large, there's a huge interest in climate, that, that that's something I can say pretty categorically right. Now, whether people actually putting money on the table. That's, that's why I say it's a mixed bag. Right. But everyone is interested. So we work with family offices in, in a number of ways, exactly what you said. So one is on the awareness building. Second is on education. And the third is on the actual fundraising, you know, so depending on which kind of stage they are in the learning curve, and, and in the risk appetite. Especially because at least in our case, we're we're playing in the early early stage, you know, please see these a stage. Right. So some family offices who do play in the same stage are looking at climate seriously. In fact, for the first fundraiser, I think most of Yeah, most of our LPS will be Indian domestic family offices, and Chennai is, you know, so there's sufficient interest here. And sufficient capital, I think, and keep in mind, Justin, that there's, like, in the US, and in the EU, there's a similar kind of intergenerational wealth transfer happening, right. The younger generation is oftentimes kind of more aligned. You know, perhaps I don't want to use that word, but let me anyway, but like values and profit, right, of course, the good business stewards, but they want to make sure that they're doing the right thing and oftentimes these guys like the environment, as a sector, you know, in Klamath Falls squarely in that. So yeah, mixed bag, definite interest all around, some people already acting. Some people are waiting and watching but Yeah, most most people we speak to say, no, no one says no. Short answer. Okay. All right.

20:07
So so because I know, I know, the United I know, the US, the US is putting more regulation in terms of adding adding transparency for public companies when it comes to climate. And so I haven't really, because that just happened last March. So I did not I haven't done any research in terms of India. So my question is, you know, what type of regulation is is happening is happening in India, where they're kind of requiring organizations to, to make their make their data and you know, their greenhouse gas emission? I like that making that transparent to investor. Yeah.

20:47
Public? No, no, no, that's a good question. So we have something that's the market regulator in court is called Sebby, the security and Securities and Exchange Board of India, they have introduced the business Responsibility and Sustainable reporting framework. Right. And that is India's ESG reporting framework ESG auditing and rating framework for listed companies right. Now, very recently, in fact, I was reading, I think it's Feb. So yeah, maybe end of November, something is when there was news that they were. We were planning to simplify it because, you know, I mean, I think this is sometimes a challenge with ESG. That reporting is not that simple, to put in baselining, methodologies and data collection and all of that, and sometimes that becomes its own beast. So I think it's a good step. But yeah, I mean, to, to kind of share, the BR SR is our ESG reporting framework, all listed companies need to comply. The second thing is, I think we were doing this research, there's about 139, Indian corporates. And this is this couldn't be better at data. Because this is four months ago, I did this research. So about 139 corporates, Indian corporates have signed up to some public commitment to decarbonize, right. Perhaps the CDP has BT e v 100, or 100. Any one of these? Right? So that's also a nice kind of critical threshold of slightly listed companies that perhaps a few unlisted that are made public pledges, you know? Yeah, so this is happening. We have the Indian railway, which is the largest employer of people in the world. That's made a net zero pledge by 2030. So there are things which are happening on the Net Zero side, on the ESG, reporting and auditing side, which are linked of course and on on decarbonisation in general, and decarbonisation across scope, one, two, and three, scope three, the hardest. We're doing, for example, just to share, we're doing a program, which we call climate challenges that's working with, you know, a subset of these large 139 corporates. And the idea is to start working with them send signals over time to throughout the supply chain. Right. And along the supply chain, of course, as you know, is is comprised of, like SMEs, small or medium enterprises. So that sends signals over time. I mean, this is a medium to long term goal. But, you know, these signals are powerful enough for hopefully they'll lead to SME decarbonisation is what we mean.

23:38
Okay, excellent, excellent. Yeah, this this conversation was very, very, very interesting. I have a lot of notes that I need to, I need a value to follow up on a lot of things that I didn't I didn't know about. So that's the that's the power of this. That's the that's the power this of this technology, this technology, where we just hop will hop on a zoom call and just zoom in and share our thoughts. So thank you for your time. And we'll do next time.