Why Funding India’s Green Startups is Crucial for an Equitable, Low-Carbon Energy Transition

On May 6, Bengaluru-based electric mobility company Ather Energy made its stock market debut, listing its shares at a 1.57% premium on the Bombay Stock Exchange (BSE). The shares opened at Rs 326.05, compared to the IPO issue price of Rs 321. On the National Stock Exchange (NSE), meanwhile, the stock opened at Rs 328.

From a plucky IIT-Madras-incubated startup pioneering the development and manufacturing of electric scooters, it has become a publicly listed company. Ather Energy not only serves as an inspiration for the countless innovators in India’s burgeoning climate tech space, but also exemplifies the importance of long-term funding and support for startups that have an important role to play in ensuring an equitable energy transition for this country.  

In his statement on X, Swapnil Jain, co-founder of Ather Energy, thanked amongst others, "those early investors who thought beyond short-term gains." But it remains the exception rather than the rule for climate tech startups seeking consistent long-term funding.

A December 2024 report by the Observer Research Foundation (ORF) stated that of over 2,600 registered climate tech startups in the past decade, only about 800 are active. Of these 800 startups, only 25% have secured funding, mainly in the seed stage, with only 2.5% reaching growth-stage capital, mostly in electric mobility. 

But why is it important for India to fund climate tech startups? Speaking to The Better India, Gopalika Arora, an Associate Fellow at the Centre for Economy and Growth at ORF, notes that climate tech plays a critical role in India’s bid to transition away from fossil fuels. 

“Climate tech plays a very critical role, not just in reducing emissions, but also in reshaping how these energy systems work. We are seeing a surge in climate tech startups and the growing ecosystem around them, which is very encouraging. This has the potential to foster innovation, promote market competition, and create jobs while addressing deeper societal challenges. In a developing economy like ours, this makes the energy transition not just greener but also more inclusive and people-positive,” she adds. 

Mismatch in investor expectations and startup needs

Given these circumstances, it begs the question of why climate tech startups aren’t receiving adequate and long-term funding. For starters, climate tech startups are tough businesses to build. They are very capital-intensive, and they also take time to show results. Most of them engage in serious investment in research and development and hardware just to get out of the laboratory and into the real world, whether it's electric vehicles or batteries. 

Gopalika argues that these solutions demand heavy upfront spending, and in recent years, early-stage funding, especially at the seed and pre-Series A levels, has become more accessible thanks to a group of early investors who are willing to take a bet. 

“The real crunch hits when these companies try to scale. So, raising money on Series A is still a steep climb, and without that capital, many promising ventures struggle to grow or prove their commercial worth. The problem is that big investors want safe bets and proven tech like solar or wind. But startups engaged in next-gen climate technologies like green steel often struggle to attract investment due to these high risks and long gestation periods.

Unlike software or any other asset-light businesses, these climate tech ventures require substantial capital at very early stages in their life cycle and need more time to break even and scale up. This is one part of the challenge,” she notes. 

Speaking to The Better India, Gautam Das, the CEO of Oorjan Cleantech, a Mumbai-based renewable energy startup working on solar solutions, talked about the challenges his venture experienced in the early stages while seeking funding. 

“Initially, we approached a few VCs, held some healthy discussions, but everybody was just in a hurry to make money, except for one. By mid-2018, we also leaned into our network of family and friends for early-stage funding and raised about Rs 3-4 crore (less than $500,000). We have not raised any funding after the initial seed round, but we have gone on to cross Rs 120 crore in revenue and achieved a very healthy $1.5 million EBITDA. I understand that you may not last without money, you may not scale up without money, but we had a different belief that we will work on impact. But what you see today is a lack of patient capital, which will align with a startup’s goal of impact and purpose,” says Gautam. 

Bolstering Gautam’s point, Gopalika argues, “There's a clear mismatch between investor expectations and the capital needs of these climate tech ventures. Investors in India often demand that startups build comprehensive end-to-end value chains. For example, they expect e-mobility companies to manage everything from battery production to vehicle manufacturing. In contrast, China's tech ecosystem is much more developed, where specialised players often dominate different segments of the value chain, which also enables a company to focus on these specific niches and innovate within those areas.” 

“The expectation of broad scope innovation in India often hinders the more targeted and specialised progress that we see in other countries. Bridging these kinds of gaps requires very enhanced collaboration between the investors, the founders, and policy makers to sort of identify certain regulatory and policy barriers that hinder green capital flow and also foster a more conducive environment for scaling these sustainable innovations in India,” she adds.

Gautam also notes that the supply of domestic capital for climate tech startups is much less than what it should be. It's what motivated Oorjan to invest in such startups. 

"There’s a shortage of patient capital for climate tech startups, and it’s a gap that needs to be bridged if we want to accelerate innovation in this space. Given our experience and the consistent profits over the last six years, we felt it was time to support the ecosystem. We’re in talks with a few startups led by incredibly bright minds working on impactful ideas. Our approach is clear—we’re offering capital from a portion of our profits, encouraging them to focus on refining their proof of concept rather than chasing quick returns. We’re more interested in the long-term impact of their innovation. If the impact is real, the income will follow,” he says.

Building supporting infrastructure

The second issue concerning the lack of funding for climate tech startups lies in the availability of robust manufacturing infrastructures. Climate tech innovation isn't only about breakthroughs in science. It also depends heavily on process innovation and the ability to scale efficiently. In India, ventures, especially in climate-critical sectors, often face limitations due to infrastructure bottlenecks and a manufacturing ecosystem that is still evolving. 

“Logistics costs are in another area which has room for optimisation. Currently, 13 to 14 percent of our GDP goes into logistics compared to the global average of 8 to 9 percent. Logistics costs can impact the competitiveness of domestic manufacturers. Factors such as supply chain inefficiencies and delays in transport and port handling add to this burden. Addressing these gaps presents a major opportunity because just a 1 percent reduction in logistic costs could translate into savings of about $5 billion annually, which benefits manufacturers and also enhances India's global competitiveness,” argues Gopalika. 

Apart from this, the most significant challenge lies in the transition from innovation to implementation. While India has no shortage of promising ideas ranging from EV infrastructure to AI-powered agriculture and carbon capture technologies, what’s often missing is the support system to test these solutions at scale. 

As she explains, “The gap between lab-ready prototypes and market-ready products remains one of the toughest parts of the innovation journey because the ecosystem for piloting and demonstrating new technologies in India is still developing. Many climate-tech ventures with innovative ideas struggle to find the infrastructure and partnerships needed to validate their solutions in real-world conditions, which is very crucial for building investor confidence and scaling their technologies effectively.” 

Thankfully, India has institutions like the IIT Madras Research Park, where Ather Energy was incubated, and the Bangalore Bioinnovation Centre that offer valuable models for how this can be done well. But such platforms are still very limited in number. “I think a more coordinated national effort to expand these kinds of testing grounds could go a long way in accelerating India's climate tech pipeline and also unlocking its full potential,” she notes. 

IP and innovation

Lastly, it’s imperative to touch on the issue of filing and defending intellectual property (IP)—a complex process that many innovators struggle with. While the legal framework is in place, the system still needs to evolve to meet the pace of innovation, especially in high-tech and emerging sectors. India currently ranks 40th out of 53 countries in the International IP Index. This indicates that there is a lot of room for improvement. 

As Gopalika argues, “Strong IP protection is not just about legal rights. It's a key enabler for innovation and also investments. When startups are confident that their ideas are protected, they're more willing to take bold risks. Meanwhile, for investors, a clear and enforceable IP strategy is often a sign of credibility and long-term value.”

Unfortunately, the state of IP laws in India is fraught with friction. “Weak IP protection and enforcement mechanisms continue to impede innovation and technology transfer within this entire ecosystem. In the tech industry, companies with strong patent portfolios are often more attractive because patents can be leveraged for licensing agreements or strategic partnerships or even as defensive assets against competitors,” she notes.  

What can the government do to fill this gap in funding?

To overcome the challenges in climate tech investment, there are specific risks and financial gaps that are holding capital back. Here’s what the government can do to address them. 

“Public finance institutions and government-backed funds have a key role in addressing these issues. They can provide vital funding for early-stage research and development and testing new technologies, and also taking on the risky paths that private investors often avoid. Governments can also help startups during their commercialisation phase by offering financial incentives and reducing certain investment risk,” notes Gopalika. 

“In addition to that, I think creating a strong climate tech innovation framework that includes clear policies, support for pricing mechanisms, and also integration of climate tech into national economic planning is very essential. These actions can build a supportive ecosystem that will drive faster adoption of these low-carbon solutions,” she adds. 

Anjali Bansal, Founding Partner at Avaana Capital, a venture capital firm that focuses on investing in climate tech startups, notes, “The most powerful role the government can play is that of market enabler. Early-stage climate tech doesn’t just need funding—it needs demand signals, regulatory clarity, and outcome-linked incentives that make markets viable.” 

She adds, “We’ve seen this work with EPR (extended producer responsibility) helping consolidate the circularity sector and the PLI (production-linked incentive) scheme helping accelerate renewable energy and EV adoption. We now need similar frameworks for new sectors—like green hydrogen, alternate materials, or circular economy infrastructure. Long-term procurement policies, interoperable infrastructure, and performance benchmarking can dramatically lower perceived risk and attract private capital.”

Another step governments can also take is to lift the roadblocks standing in the way of global capital. One of the biggest roadblocks here is the lack of standardised frameworks that allow international investors to assess and trust the climate impact of these technologies.

“This is why I think it's critical to develop a robust climate-aligned taxonomy, one that clearly defines what qualifies as a green or climate investment across various industries. It will be very important to ensure that this particular taxonomy is not just aligned with international standards, but is also tailored to the very unique needs of India's climate tech ecosystem. In India, we have green finance, climate finance, adaptation finance, mitigation and transition finance, and there is also something called loss and damage finance,” notes Gopalika. 

She adds, “There are so many terms with no clear definition of what constitutes green investment or climate investments. When there is no standardised taxonomy, it’s difficult for global investors to navigate our ecosystem and ensure that these flows are truly going towards impactful solutions. A robust climate-aligned taxonomy is very important for all the sectors that are there in climate mitigation and adaptation.”

Building grant capital infrastructure

Another important tool in unlocking funding for climate tech startups is developing a robust grant capital infrastructure. In layman's terms, grant capital infrastructure refers to public or philanthropic funding used to build the foundational systems that support innovation, particularly in sectors like climate tech, where private investments may be slow or cautious. 

“Grant capital infrastructure is about using non-commercial funds to create physical and institutional support systems that help innovations grow. The government might use certain grant funding to set up a battery lab or an EV charge prototype zone. This is a way of de-risking the ecosystem so private investors feel more confident backing startups later. While India has seen a rise in venture capital and private equity funding, many early-stage climate innovators lack access to non-dilutive grant capital essential for research and development, testing initial proof of concept and supply chain development,” notes Gopalika.  

Building this grant capital infrastructure would provide much-needed support for climate projects in their initial stages. It will also help startups to de-risk their technologies before they are ready for private investments. 

Countries like Japan and South Korea stand out for their structured, non-dilutive grant support to climate innovation. In Japan, the Ministry of Economy, Trade and Industry (METI) has launched the Green Innovation Fund, worth ¥2 trillion, administered by the New Energy and Industrial Technology Development Organization (NEDO). 

“This fund is designed to provide sustained, long-term support—over a 10-year horizon—for companies pursuing ambitious climate innovation goals. It supports the entire spectrum from R&D to demonstration and eventual deployment. Such initiatives reflect the role of grant capital not merely as funding, but as a tool for creating the physical and institutional ecosystems that early-stage technologies need to thrive. Japan’s approach is a compelling example of how non-commercial capital can be used to de-risk innovation and accelerate the commercialisation of deep-tech solutions,” she argues. 

Part of the broader grant capital infrastructure is the concept of ‘blended finance’, which specifically addresses a startup’s need for consistent funding and investor anxiety. Blended finance refers to using public money from government donors alongside private money from investors, reducing the risk, and encouraging more funding into climate tech. 

For example, if the government covers part of the risk, a private investor might be more willing to fund a solar project. For this to work well, the government needs to take steps like simplifying taxes on green investments and creating clear rules for what counts as green finance. 

“Kenya's Renewable Energy Fund is a good model for blended finance. It's a great example of how blended finance can work, especially for projects like solar energy. Kenya's Renewable Energy Fund combines donor contributions with private investment to support solar projects, thus highlighting the potential of blended finance as a tool for catalysing climate innovation and scaling impactful solutions,” explains Gopalika. 

“One promising example from India is IFC’s recent commitment to the Omnivore Agritech & Climate Sustainability Fund 3 (“Omnivore III”), where it is investing up to $12 million in equity. This venture capital fund focuses on AgriTech and FoodTech startups in India, including companies with operations across Southeast Asia. The initiative demonstrates how blended finance can help unlock greater private sector capital for climate-smart agriculture—an area critical to both climate adaptation and economic resilience,” she adds.

Securing affordable venture debt 

Affordable venture debt provides a helpful way to boost the growth of climate tech companies, especially those that need a lot of money to operate, like renewable energy, electric vehicles, and battery recycling. Think of affordable venture debt as a way for startups to raise money without giving up ownership. It's tailored for young companies that may not yet have steady profit streams or assets to show to traditional banks. 

“Unlike traditional bank loans, venture debt features flexible terms on repayments and less emphasis on traditional collateral/assets. The path to profits is very long, and many investors get nervous about the wait. Venture debt can step in to fill this critical gap and offer non-dilutive capital to startups. This allows startups to build, test and grow without constantly chasing equity funding or giving away parts of their company. Affordable debt can be a smart bridge between early innovation and long-term commercial success, helping startups survive the Valley of Death and become strong enough to attract bigger investments later,” she says. 

Unlocking demand 

Large customers such as hospitals, Fast Moving Consumer Goods (FMCG) companies, and manufacturers are hesitant to adopt climate solutions due to the perceived cost premiums and operational uncertainties. How can we unlock their demand for these solutions? 

Unlocking demand from large companies is very critical to scale in these climate tech startups. The hesitation from FMCG companies and large entities often boils down to two things: perceived high cost and the fear of operational disruption. 

To address this, according to Gopalika, we need a multi-pronged approach: 

1) De-risk the adoption: The government and private financial institutions can step in with guarantees and pilot programmes, and adoption subsidies that offset these initial costs.

2) Standardised evaluation frameworks: We need clear and transparent systems to measure a startup's technology or technical feasibility, their cost efficiency, scalability and environmental impact, and this helps larger players make confident and informed decisions. 

3) Recognise value beyond revenue: Many climate tech solutions, especially hardware-based ones, won't show quick profits. They bring long-term value in terms of R&D, IP and environmental compliance. So, if we create systems that account for this value, both corporations and investors would start looking at these companies a bit differently. 

4) We need to establish stronger B2B partnerships. We need mechanisms that bring startups and large corporations into structured dialogues or co-development spaces, where new technologies can be piloted safely and iteratively. 

Once large companies begin adopting and validating the solution, it builds trust, and it also shows investors that there is real market demand and scalability, which in turn increases funding and funding opportunities for these startups.

To ensure long-term funding for climate tech startups, these are some of the steps that need to be taken. It will require extensive collaboration and cooperation between startups, private investors and the government, but as economies like Japan and South Korea have shown, this is possible. Once we unlock greater funding for climatech startups, India will be in a much stronger place to mitigate the risks and challenges associated with climate change. 

Edited by Leila Badyari and Tanaya Singh