The more disruptive, the better

Shyam Menon, currently Investment Director at Infuse Ventures, a ₹100-crore renewable energy-focused venture fund run by an arm of IIM Ahmedabad, has been evaluating investment proposals from startups in renewable energy and clean tech for 17 years now.

Menon is not surprised at the marked increase in the number of clean tech startups, which he attributes to the growth in renewable energy industry as well as what he calls “fad function” of clean tech. But, sigh, despite the increase in quantity of proposals, ‘quality proposals’ have remained stagnant.

Menon explains that Infuse Ventures is more picky in backing a startup “because we are a small fund”. The fund is run by IIM Ahmedabad’s Centre for Innovation, Incubation and Entrepreneurship, but it boasts of big partners — Government of India, IFC, Washington, SIDBI, Godrej group and a few Indian commercial banks. It has funded a clutch of startups — Ecolibrium, REConnect Energy, Fourth Partner Energy, Surya Power Magic and Proklean Technologies.

Roughly half the number of funding pitches floating around is from solar startups. Venture capitalists find many solar companies lacking in originality. The business of most solar startups is to build rooftop plants for others, though more recently the concept of ‘third party’ rooftop is catching up. “The problem is, a lot of people can do this,” observes Menon. Venture capital needs a “compelling idea”, not a run-of-the-mill one.

While all startups need a compelling idea to secure funding, it is more true of clean tech startups because, as Varun Sivaram, who works for the Council on Foreign Affairs in Washington and is also a strategic advisor to the Governor of New York, noted in a recent speech at IIT-Madras, clean tech startups give returns far less than, say, those in IT. Further, clean tech guys take a much longer time to deliver results.

Given that returns are modest and take time to arrive, venture funds are even keener to see some clinching argument in the investment pitches from clean tech start-ups—they can ill-afford a high failure rate. Menon cites examples of companies such as Surya Power Magic and Proklean Technologies.

Coimbatore-based Surya Power is primarily into providing solar water pumps to farmers, but its USP is saving in time. It has managed to get the farmers the pumps in around three weeks. Now, the company is moving into other areas of farm mechanisation, such as combine harvesters.

Chennai-based Proklean Technologies is an early mover into ‘industrial probiotics’.

Probiotics (as opposed to antibiotics) is the science of using microbes to do a function, and has been used in food and pharma. Proklean makes probiotic products for industrial applications such as fat removal in leather, de-greasing in textiles and de-clogging of drains in hotels — at prices cheaper than conventional chemicals. Mumbai-based GIBSS provides geo-thermal solutions to cool buildings, on pay-out-of-savings model, bringing geothermal technology to save power costs.

Unless startups come up with such disruptive ideas, backing them would be difficult, says Menon. He notes that most startups see the market for clean tech being very big, conclude there is a slice available for easy pickings, and “burn through a lot of money” in developing the market.

That an innovative, disruptive, scaleable idea is the core to securing venture funding is more true for clean tech start-ups. It helps to remember that MySpace came first, but what swallowed it up and dominated the market was a company born in a students’ dorm— Facebook.