‘It takes time for a founder to convince investors that climate solutions enable cost saving or reduction and/or additional value and profit’
Early this month, Bangkok-based climate-tech-focused The Radical Fund announced the first close of its US$40 million fund. The company’s key focus markets are Indonesia, Singapore, the Philippines, Thailand, Vietnam, and Malaysia.
Radical Fund’s CEO and Managing Partner, Alina Truhina spoke about the fund’s focus, target sectors, investment philosophy, and Southeast Asia’s climate-tech investment space.
What are The Radical Fund’s overarching goals? When do you expect to hit the final close?
Our major goals are to:
1- invest in and support early-stage portfolio companies to deliver more solutions that drive an inclusive climate transition in Southeast Asia (because SEA is adversely affected by climate change and is also responsible for a growing share of global GHG emissions).
2- contribute to a growing ecosystem of early-stage entrepreneurs at the forefront of developing innovative tech-enabled ventures appropriate for SEA populations.
3- deliver scaled commercial returns (ROI) and embedded impact (climate) across the region.
4- engage more LPs, partners, VCs, government and academia in driving the climate mitigation and adaptation agendas forward through entrepreneurship.
With the first close of your climate-tech fund, what types of climate startups are you specifically looking to invest in? Have you identified any companies yet?
The Radical Fund’s investment goes beyond traditional cleantech and climate tech verticals. The fund also backs scalable ventures that may not look like traditional climate businesses and have — or may potentially have — climate impact as part of their model and ethos.
Under climate adaptation (de-risking the impact of climate change for individuals, communities and economies) comes sectors such as fintech, data & analytics, insurtech, edtech, e-commerce, health & well-being, manufacturing, and supply chain.
Under climate mitigation (directly addressing the key drivers of climate change, including GHG emissions) are sectors such as agritech, mobility, waste management, forestry, and fisheries.
We have engaged with 100-plus founders over the last quarter, and a few in our pipeline that we’re looking closely at are within the circular economy, construction tech, nature-based solutions, and fintech, among others.
We hope to announce our first investment within the quarter.
Can you walk us through the investment process at The Radical Fund? What criteria do you use to evaluate potential investments? How do you differentiate yourself from other climate-focused funds?
Criteria
Our initial investments are at pre-seed, seed and pre-Series A, with further follow-on rounds. As we invest in the earliest stages of a venture’s journey, we focus on the founder/founding team. We need to know whether they can build and scale a venture that is commercially viable and has (or may) address a climate opportunity or need.
For us, evaluating the founder’s ability to build and execute in the right way is as equally — if not more — important as the analysis of the financial and investment opportunity.
We have an inclination for local founders or those who understand their market and, more importantly, the customers they are trying to serve. We also have a bias towards female entrepreneurs.
We also look for founders who show a specific domain or sector expertise — for example, if they spent years working in a particular industry and have been close to some of the challenges of that industry, which they may now be trying to address.
Other than the founders, we evaluate the market opportunity, product, commercial, and traction, to name a few, but with an added lens of climate. The latter means having the intention to implement climate goals and management.
Importantly, we take a very individualised approach to evaluating the ventures relative to the stage that they are at. We would not, for example, expect a pre-seed company to have a comprehensive data room with all commercial, product, governance and other aspects complete.
Differentiation
We are focused on inclusive climate transition, which includes climate adaptation and mitigation. This means we do not just focus on carbon emissions reduction or decarbonisation and look for solutions that help SEA adapt to the consequences and opportunities resulting from climate change.
We look for companies that demonstrate and can deliver scaled, sustainable commercial returns and embedded climate impact outcomes at scale.
We back founders as early as pre-seed and also seed and pre-Series A. We are an ‘operational’ VC, delivering hands-on technical expertise to founders in a tailored way. Our team consists of operators, former entrepreneurs, tech and climate specialists.
We bring experience from other emerging markets, notably Africa and South Asia, and are part of a group providing access to the UK, Europe, Africa, and the US.
In your opinion, what are some of the biggest challenges or barriers faced by climate-tech startups today? How does The Radical Fund address these challenges and help its portfolio companies overcome them?
One of the biggest challenges is access to technical expertise: either scientific and/or operational (for example, product development or data science). There are countries with more mature support ecosystems that act as a catalyst (financial and IP) for entrepreneurs to start and grow their ventures.
For example, Singapore has a very healthy supply of R&D grants, subsidies, and access to organisations that act as a scientific community.
This is not the case in other markets, and therefore it is harder for early-stage ventures to get access to vital materials, resources (like lab space), and funding to get to the next stage of their growth.
Another challenge is the risk culture and misperception of some of the stakeholders. It saddens us to hear that some potential clients, corporates, and investors (including LPs) still view climate as a purely philanthropic agenda, not a commercially viable investment.
Therefore, it takes time for a founder to convince the other party that climate solutions enable cost saving or reduction and/or additional value and profit.
The Radical Fund will support in two ways:
We have a venture-building approach to investing and supporting our portfolio companies. For us, ‘value creation’ is rooted in providing hands-on product, growth and technical support alongside climate impact management, governance and investment.
By investing locally (we do not invest in the US or Europe or bring ventures from the West to SEA), we contribute to building a healthy climate venture ecosystem and shifting stakeholders’ mindsets. This is embedded in our philosophy and model, and we plan to do much more of this in partnership with many other like-minded VCs and LPs.
What impact do you hope to achieve by investing in climate-tech startups? Are there any specific environmental or social outcomes you aim to contribute to?
The Radical Fund is powering an inclusive climate transition in SEA by enabling early-stage ventures to tap into opportunities and scale solutions along climate-resilient pathways. That is the outcome we are focused on.
The other important outcome we look to drive in the region is to catalyse and develop more early-stage founders for a thriving startup economy in SEA.
Last but not least, as a fund, we are very focused on diversity and inclusion, in addition to being environmentally conscious. As a team, we are currently 66 per cent female, and we have embedded metrics we track to ensure we keep ourselves accountable as a fund and in whom we invest.
How do you measure the success of your climate-tech investments? Do you use specific metrics or indicators to evaluate financial returns and impact?
We collect and help founders develop commercial data and metrics that underpin their business growth: we are very focused on business performance and traction to help the ventures get to product-market fit faster. For example, we look at the retention and engagement rate of users; we are very customer and user-centric, as that is a key signal of whether the founders are building a product that people want to pay for. Of course, we also collect financial and investment data such as valuation growth and fundraising.
We take a precise approach to determining each company’s KPIs (or impact metrics). So a circular economy business may have emission-based KPIs, but they may also create jobs and influence how their local communities understand climate change.
Every founder and business is different; our role is to see what is possible and how to support them on their climate and commercial success journey.
A recent news report said there is a reluctance among LPs to back debut funds. Are you facing any such challenges? How keen are LPs on climate tech funds in SEA?
While the market is challenging, we are seeing the benefits of marketing a fund with a differentiated investment thesis, a robust local commitment, a proven global track record, and, dare I say, a female leader. It also helps that we are attractive to diverse investors.
There is an increased appetite and appreciation for climate- or sustainability-focused funds, especially an interest from second generations of family offices, foundations and impact investors.
Corporates are approaching us as they see the value of diversifying their investments beyond their own VC funds and backing fund managers like ourselves, as we have the on-the-ground and long-term operational experience and extensive knowledge of picking the right founders.
More development finance institutions and governments are deploying strategic funds: e.g., we are in conversations with a few that see the opportunity to co-design vehicles with us to deploy grants and debt to complement our VC investments for our portfolio.
Source: e27
