Our previous blog posts have covered broad themes that resonate with the overall startup ecosystem. This time, we will delve deeper and focus on a specific vertical – Cleantech startups.
Pakistan’s climate challenge, signified by the floods in 2022, has prompted a need for innovation. To provide some context, the country has set a target of reducing carbon emissions by 50% from 2015 to 2030, with 15% from domestic resources and 35% from international financial support.
Achieving this goal requires implementing climate mitigation and adaptation actions across sectors like energy, transportation, waste, and agriculture. To complement these efforts, innovative domestic business models are essential, and cleantech startups can pave the way. Cleantech encompasses a variety of technologies and innovations that aim to lessen the environmental impact of human activities.
Domestic Landscape
In Pakistan, a limited number of businesses engage in this space. The nascency of the vertical has a lot to do with investor focus and consumer perception.
The vertical features niche green deals, with most green SMEs categorized as lifestyle businesses or grant recipients from impact funds. While innovative startups are limited, local companies mainly offer solutions and integration services.
Encouragingly, recent years have seen investments from VCs in EV and agri-tech domains and we’ve also seen a few dedicated green funds popping up. However, the dominant early-stage funding in Ecommerce, Fintech, and Logistics has led to a limited pipeline for clean startups.
Limited avenues for financing
Globally, investments in climate technology ventures have borne the brunt of funding contraction disproportionately. The slowdown in grant funding, however, has been relatively gradual, underscoring the necessity for concessional financing to sustain these business models.
Source: PwC
The local ecosystem faces similar challenges. Due to the funding crunch, investors are now less inclined to compromise strong business fundamentals to support green startups. Additionally, investor concerns revolve around the need for substantial capital once initial funding is injected, posing a significant challenge for further scaling. Many segments within cleantech require considerable funding to achieve scalability, whether for building factories or expanding infrastructure.
Back to Basics
Validating market demand and understanding customer needs is paramount for any startup’s success. This is particularly critical for cleantech startups, as they typically function in nascent or specialized markets where established customer segments, distribution channels, or regulatory frameworks may be lacking. To ensure their viability, cleantech startups must engage in thorough market research, customer interviews, and pilot testing to confirm their value proposition, product-market fit, and competitive edge.
Furthermore, they need to be flexible in adjusting to evolving customer preferences, market dynamics, and environmental regulations. Ongoing advocacy on the regulatory front is also crucial, as tailored policy frameworks can stimulate customer demand and assist cleantech startups in attaining cost efficiencies that contribute to the sustainability of their business model.