Hello! Halo! Kumusta! Xin chào! สวัสดี! မင်္ဂလာပါ! ជំរាបសួរ! ສະບາຍດີ!

🗣️ “Pitching” can mean different things based on who you ask…

3️⃣ If you answered the 3rd option, then you—like us—have been steeped in Silicon Valley lingo long enough and are perhaps in need of a camping trip + baseball game recreational activity combo!

📜 Throughout the previous 25 issues, we have demonstrated how dozens of innovators are tackling the climate crisis in Southeast Asia (SEA); most of these innovators have been founders of climate-focused startups who need venture capital (VC) funding to launch and scale their businesses.

💰 In this issue—as part of our climate finance series—we are going to explore the role that VC has in catalyzing such climate solutions; and we couldn’t have imagined a better partner for articulating this! We are co-authoring this with The Radical Fund, an early-stage VC fund investing in founders who are delivering climate solutions for SEA.

🤔 What’s the deal with climate VC?

Regarding the VC asset class overall, in 2022 SEA saw only $10.4B in tech startup investment compared to $196.2B in the United States—a difference of ~20x! (Cento Ventures, 2023).

Zooming in on climate-focused investments in particular, such VC investments surpassed $70B globally. While the US received $32B of this (HolonIQ, 2023), SEA received only $1.1B or ~3.5% of the US amount (DealStreetAsia, 2022); this means that climate-focused investments made up a larger proportion of all VC flows in the US compared to SEA. That being said, the share of climate-focused to total VC investments in SEA has grown over the past 5 years from a low of 3% in 2019 to nearly 10% last year (DealStreetAsia, 2023).

🧐 But how do we even think about investing in climate tech investing to begin with?

Well, as readers from the region might already be aware of, SEA faces the dual challenges of rising carbon emissions to fuel economic growth and extreme vulnerability to climate change…

Thus, investing in climate as a theme cuts across multiple sectors within climate mitigation (reducing greenhouse gas emissions) ⬇️ and adaptation (building resilience to the effects of climate change) 🛡️.

Those who invest in climate VC tend to favour climate mitigation and decarbonisation; this in fact corresponds with the steady rise in decarbonisation commitments from governments and corporates in the region:

1. 🏛️ Governments have raised their unconditional emissions reduction target to >33% to 2030 versus BAU levels! Already, eight countries have net zero pledges, four governments have raised their nationally-determined commitments (NDCs) commitments from 2021 to 2022, and seven are considering carbon pricing measures.

2. 🏢 Corporates have seen a four-fold increase from 2021 to 2022 in corporate science-based targets (SBT) commitments. Many corporates have outlined ambitious multi-billion-dollar investment programs to decarbonise their businesses (Bain, Temasek, GenZero, & AWS, 2023).

From a mitigation perspective, ASEAN has immense potential to accelerate decarbonisation, through both the energy transition and nature-based solutions:

1. ⚡ Energy solutions can deliver 44% (1.1 GtCO2e) of reductions towards SEA’s NDC with an investment of $1.5T to 2030. Renewables deployment and energy efficiency and conservation measures target >50% (0.6 GtCO2e) of energy-related emission reductions. Fortunately, 8 out of 10 SEA countries already have sufficient renewable energy potential to meet electricity demand. Improvements in access and affordability of solar and wind energy have enabled growth at an unprecedented rate in countries like Vietnam, Thailand, and the Philippines. We will be exploring energy solutions in a bit more depth in next month’s series on energy transition.

2. 🌱 Nature-based solutions have the potential to deliver 41% (1 GtCO2e) of reductions towards SEA’s NDCs with a cumulative investment of $0.4T to 2030 . The low hanging fruit? Halting deforestation through greater protection of land is capable of addressing >25% of emissions reduction to 2030, which is precisely what we covered during our land use issue (Bain, Temasek, GenZero, & AWS, 2023).

While reducing current emissions remains crucial, we need more emphasis on adaptation solutions to effectively address both present and future impacts of climate change!

As we discussed in our climate disaster issue, climate change is increasing in frequency and intensity of extreme weather events, such as storms, droughts and floods. The average annual losses for Southeast Asia from the current disaster riskscape is estimated to be $91B (UNESCAP, 2022). However, less than 10% of all climate finance globally goes to adaptation efforts, with global adaptation finance needs currently 10 to 18 times greater than actual public adaptation finance flows (UNEP, 2022).

❗ This calls for more investment in adaptation solutions!

The focus of adaptation efforts vary. Some are obvious, such as climate-smart agriculture, water, coastal zones, and infrastructure. However, equally important are aspects of health and education which centre individuals' experiences of the climate crisis. These include coping with the health impacts of climate change such as increased incidence of air pollution, vector-borne diseases, and pandemics; and gearing up education to increase awareness and skill-up workforces for climate adaptation and mitigation solutions.

📐 Investing early in climate adaptation not only avoids losses, but further yields “triple dividends” of high economic returns along with multiple societal and environmental benefits. From now to 2030, investing $200B to protect forests, seas, and biodiversity in SEA could deliver benefits of over $2T a year, through 232 million jobs created, and nature-linked socioeconomic opportunities (GCA, 2019).

⚖️ No longer is Climate Tech seen as impact-only, or impact-first, but rather as an investment strategy that delivers profits with purpose. If you are wondering how VCs assess climate tech opportunities, take a look at The Radical Fund’s evaluation approach codified below:

⏭️ To make their investment thesis more tangible, in the next section we’ll be showcasing an example of a ClimateTech startup that The Radical Fund recently invested in (also, do check out our interview with Arkadiah in our land use issue last month, which is also another Radical Fund portfolio company).

📚 Want to learn more about this topic?

1. “Towards Green Growth: Climate Venture Capitalism in Southeast Asia” from The Radical Fund

📢 Shout-outs to Alternō & Circle Capital!

Firstly, we wanted to give a shout-out to Alternō, a Vietnamese startup that the Radical Fund recently invested in.

In a significant leap forward for agricultural climate solutions, Alternō has successfully secured over USD 1.5 million in an oversubscribed round co-led by leading VC funds The Radical Fund (Singapore) and Touchstone Partners (Vietnam), with participation from Antler (Vietnam), Impact Square (Korea), and Glocalink (Singapore) along with grants from international organizations, surpassing its initial seed funding target.

We will be interviewing them more in-depth in a future energy storage issue of our newsletter, so stay tuned!

Next up we wanted to give a shout-out to our friends at Circle Capital, who you might remember from the podcast series that we produced with them a few months ago…

🗞️ Recent News

🎙️ Interview with Alina of The Radical Fund

💡 Why were you initially inspired to launch a VC fund that’s focused on climate investing in Southeast Asia?

✌🏻 The inspiration behind launching a VC fund focused on climate investing in Southeast Asia is twofold for me. 

🫂 First of all, I deeply care about early stage entrepreneurs who are solving complex and complicated challenges. We need disruptive solutions in the world and we need more entrepreneurs solving for those. And yes, the private sector is doing work in that area. The public sector and the governments are focused on changing policies and initiating agreements globally. But, I think it's the early-stage entrepreneurs or entrepreneurs in general that are going to come up with and leverage technologies that will scale climate solutions specifically in this region. Being local and having local entrepreneurs solving local problems is going to be critical to finding those solutions.

🌍 Second, before Southeast Asia and before the Radical Fund, I co-founded funds and investment vehicles in Africa. So I'm a cofounder of Founders Factory Africa, which is a VC and a venture studio on the continent with over 60 companies in the portfolio. Before that, my business partner and I also led an impact vehicle across South Asia and East Africa, and we scaled and supported over 76 early-stage companies across nine markets. With early-stage portfolio companies across health tech, ag tech, logistics, mobility, etc. what I have seen is every single one of those sectors that I've just mentioned have some form of a climate influence or outcome. For example, if you look at agtech or logistics which are largely saturated sectors in Africa, there is an incredible amount of either value or cost that is attributable to climate. And so for me, climate has always been something that has been part of my life, coupled with my own encounters with climate-related events from bushfires in Australia to daily experiences of extreme weather in Bangkok, have reinforced the urgency for truly Radical solutions. 

🌏 Southeast Asia as a region is one of the world's largest emitters of emissions, and also incredibly vulnerable to disasters and the impacts of climate change. I saw the greatest need and opportunity for scaled climate solutions in Southeast Asia — and so, our investment thesis is therefore focused on both mitigation and adaptation solutions. How do we decarbonize the region and help prevent further emissions? But also how do we help millions of people adapt to the realities of climate change? We're already seeing the effects of it. We don't have to go far to know this is now the reality we live in — if you go just outside your building, you experience the effects of air pollution, heat waves, flooding, storms, etc. 

🤩 Lastly, countries in emerging markets that are most affected by climate change have needs that are not the same as Western economies — we need more scaled products and services, which are aligned to the needs of people living in Vietnam, Indonesia, Philippines, Singapore, Thailand and Malaysia. With that, I firmly believe that local entrepreneurs, equipped with an intimate understanding of local and regional challenges, will win in this space.

📈 By backing early-stage founders with scalable solutions tailored to Southeast Asia's needs, we aim to catalyze tangible progress towards decarbonization and climate resilience.

🛠️ How exactly is Radical Fund tackling early stage ClimateTech investing?

🚀 The Radical Fund invests in entrepreneurs and business models that can scale. A scaling business is the best engine for impact; it delivers a self-financing economic model with capacity and inclination towards innovation and adaptation.

🔭 To achieve this, we seek and identify local entrepreneurs with a personal connection to the opportunity and the drive and ambition to conquer a scaled addressable market.  

3️⃣ Every business in our portfolio is evaluated for its potential to drive climate resilience in Southeast Asia. We measure this in three ways: 

1. 📜 The entrepreneur's prior experience in, openness and commitment to the issue

2. 🔢 The setting of clear and defensible metrics that estimate and validate the venture’s potential to drive climate mitigation/adaptation

3. 📐 The designing of tactical solutions to reach those metrics by aligning the business model and value chain to the climate goals

Specifically, we focus on / look for:

1. Founders/founding team – Early-stage investing requires a heavy reliance on identifying founders as there is often a lack of historical performance data:

   • Personal Motivation and connection to the solution are critical. Being a founder is hard, and personal motivation is key in providing drive in the hardest moments. 

   • Domain and sector expertise: we seek deep experts, not all-rounders, who can deliver unique solutions to exceptional problems.   

   • Empathic Strong Leaders: we believe in entrepreneurs who can understand the needs of all their stakeholders (customers, employees, investors, etc), and chart a direct and efficient path to success. We seek founding teams who approach building a business with a user-centric, not technology-first, approach (iteration, agility, customer centricity etc.)

   • Coachability: We seek entrepreneurs who are lifetime learners and open to radically transparent feedback. 

2. Scaled commercial opportunity: In evaluating a business’ potential, we look at the TAM, unit economics and margins, MOAT, and cap-table for incentivization.  We also seek and validate user demand and product-to-market fit.

3. Climate potential: we unpack whether the venture already has—or has the potential to have—climate impact in SEA. We look at the specific applicability of opportunities to SEA through 3 main lenses:

   • Is SEA the primary or significant and strategic geography where the venture’s climate impact occurs or could occur in the future?

   • How important is it to SEA based on the sectors with the most emissions and/or adaptation potential?

   • Is the solution contributing to an inclusive climate transition (affordability, accessibility)?

In the first section, you will have found the diagram for The Radical Fund’s Criteria for Investment.

We just released our new report earlier this year, “Towards Green Growth: Climate Venture Capitalism in Southeast Asia,” which outlines the context for climate investing in SEA, as well as our climate thesis. You can read the report here.

😲 What is a misconception or surprising fact about VC in ClimateTech?

⬅️ There is a shift in understanding and evaluating the Climate Tech investment space by investors in SEA. No longer is Climate Tech seen as impact-only, or impact-first, but rather as an investment strategy that delivers profits with purpose.

💡 Unlike other asset classes, VC delivers financial returns on Climate Tech investments, and also offers the opportunity for family offices, impact investors, development finance institutions, corporates, and other types of investors to access innovation and disruptive new climate technologies, whilst contributing to building better societies and ecosystems through scaled climate impact.

🎬 How can readers support The Radical Fund?

• 📲 Follow us on LinkedIn as we share our journey and learnings in ClimateTech, Southeast Asia, Venture Capital, Early-Stage Investing.

• 📨 If you are a climate-oriented startup, see our criteria above and send in an application for funding opportunities here: www.theradicalfund.com

• 🤝 If you would like to be a strategic partner with The Radical Fund, please contact [email protected]:

  • For investors – family offices, foundations, corporates and HNWIs – in accessing a de-risked portfolio of climate-oriented ventures across Southeast Asia delivering scaled returns and climate impact.

  • For corporates – for our Corporate Partnership Program, accessing our proprietary deal flow of early-stage, climate-oriented ventures, collaboration in sourcing for specific technologies within your mandate, and sharing knowledge/IP/insights into climate sectors in Southeast Asia.

  • For our technical expert network, co-investor, data / thought leadership partner.

🦸🏻 What do you do when you’re not saving the world?

🌐 I’d like to think of it as not that we are “saving the world” but “growing and enabling the world to be a more accessible, fair, sustainable, socially responsible, economically viable place to live for all…”

✈️ Traveling and seeing different cultures, interacting with local communities and understanding the business context of each country is ‘food for the soul’ for me. That, and eating lots of Pho 🍜. 

⏭️ Next week, we’ll be covering the role of insurance in climate finance, a crucial part of climate adaptation.

❓ Did you enjoy this week’s issue? If yes, please do forward to your friends who would enjoy the read as well. Also, feel free to let us know what you thought by giving us feedback at [email protected].

🌊 SEA you next week!

Karina & Massimiliano