Climate change is the biggest challenge of our generation, but some see opportunity in the crisis.
For Wavemaker Partners, addressing the situation offers trillion-dollar potential. According to Southeast Asia’s Green Economy 2021 Report, building up the region’s sustainable infrastructure will require at least $2 trillion of investment over the next decade.
The Southeast Asian venture capital company aims to make its contribution to the cause through the fundraise of an initial $25 million for Wavemaker Impact, its first climate tech venture builder in the region.
Catalysing change
The effort comes as the United Nations Climate Change Conference or COP26 participants approach the end of their assembly in Glasgow and global leaders vow to accelerate action towards slowing climate change.
Growing momentum to address the challenge is also evident in the global capital markets.
On October 27, former US vice-president Al Gore and financer, David Bloom launched an investment business, Just Climate. The climate change asset manager’s mission is to limit global temperature rises to 1.5 degrees Celsius, by investing in deeper and broader climate solutions.
Just a day before, green search engine Ecosia, launched the World Fund, which aims to raise €350 million ($405 million) for investment in tech start-ups that are focussed on building technology to help decarbonise the planet.
Since, media has reported Blackrock’s success in raising $673 million for a climate-focussed infrastructure fund that targets investments in emerging markets.
Wavemaker’s approach meanwhile, involves sourcing early-stage investments with the ability to contribute to the space. Since 2012, it has been investing in the region’s start-ups, backing over 140 companies and concluding 10 exits with a total value close to $700 million.
The team is experienced in executing a value-add strategy and capitalising on internal expertise. For example, operating partner Sui Ling Cheah, an experienced global banker, helped portfolio company Wavecell run a selection process for its banking team, guiding them on their exit of 8x8, a global cloud provider.
With 70% of its active portfolio of start-ups already aligned with at least one UNDP Sustainable Development Goal, the Wavemaker team has been able to develop track record in the environmental space. In Singapore, ecoSPIRITS has worked to eliminate 70-90% of the carbon emissions associated with its packaging and distribution of premium spirits, and aims to end its application of single-use glass.
Meanwhile, the team’s Indonesia-based digital fishing cooperative start-up, eFishery, employs sensory technology to provide food to fish and shrimp across its 60,000 ponds based on real-time appetite, in order to avoid waste and over-supply.
But the firm does not consider their activity so far sufficient enough to reduce the world’s carbon emissions by 10%.
Starting from scratch
“We're doing venture building because we don't believe that enough entrepreneurs are paying attention to the places where we can abate 100 million metric tons of carbon. We don't believe that they don't want to, it's just that they're not aware (of how to go about this). They don't have the insight around it,” Paul Santos, managing partner of Wavemaker Partners told FinanceAsia in an interview.
The Wavemaker Impact founding team consists of veterans who have significant experience in investment, as well as in scaling up start-ups. They include PropertyGuru co-founder Steve Melhuish, former Nutonomy COO Doug Parker, Quentin Vaquette and Marie Cheong who have built more than 10 climate tech start-ups during their time at ENGIE Factory, as well as Santos, who started his career as a product manager at Procter & Gamble.
The team hopes to spend the next two to three years identifying and recruiting 20 entrepreneurs, who want to partner with them to build businesses.
When it comes to sourcing opportunity, Wavemaker takes a ‘100 x 100’ approach. They have identified over 50 opportunities with the potential to reach $100 million in annual recurring revenue, which in turn, are expected to abate 100 million metric tons of carbon.
The strategy builds on the classic VC notion of first making $1, then $100, and then stimulating further growth to target $1 million and beyond. But the difference with the Wavemaker team is their application of a ‘carbon lens’ to this approach. The key for them, is in exploring how to abate the first ton of Co2, then the next 100 tons, followed by the first hundred million.
“If you follow that same trajectory, you have the potential to make these incredibly impactful, profitable, scalable companies,” said Cheong.
Southeast Asia’s opportunity
Cheong cited a recent report by the Intergovernmental Panel on Climate Change, which details how the world is on track to exhaust its carbon budget in 10 years, at the current emissions levels of 40 to 50 gigatonnes a year.
But on a regional level, Wavemaker found that there were not enough adequate statistics available on Southeast Asia, so they decided to take on the task of mapping them out, earlier this year.
What they found was surprising. Based on the latest available data, land use and carbon sinks accounted for 26% of the region’s greenhouse gas emissions, electricity for buildings and industry accounted for 22%, agriculture and food along with industrial process sat at 20% and finally, transport at 12%.
Cheong noted how the transport figure was unexpectedly low. “When you look at the emissions that come from transport in the region, it’s at 12% - hardly anything! Yet 60% of climate tech funding targets mobility solutions. So, when we started to map where the emissions were coming from, we realised there was just a tremendous gap,” said Cheong.
One area for exploration that the team identified was rice cultivation. Cheong pointed out that 90% of the world’s rice is grown in Asia, and that this is a big contributor to carbon emissions. The team sought to develop relationships with businesses whose founders were interested in discovering the real barriers to low-emission rice cultivation and to partner with them to solve this challenge.
Cheong added that while the technology exists to transform this agricultural sub-sector, it is not being adopted, as farmers for example, may not have the financing, awareness, seed distribution nor purchasing commitments to make this happen.
Speaking to FA about Wavemaker’s pathfinding stance, Frank Troise, managing director and CEO of SoHo Advisers, a merchant bank that is transitioning its focus in 2022 from fintech to carbon reduction, said, “approaching the climate change problem from venture building is a unique approach and time will tell if it works in light of incumbent (Glencore, Exxon, etc) efforts in the same space. On our end, we have concluded that what is critical to the success of any approach in climate change is price discovery.”
Planting the seeds for success
When it comes to success, Santos expressed that his aim is simply to build 50 companies that can effectively reduce 10% of global emissions within the space of a decade.
How Wavemaker is doing that is by accelerating the process, by giving entrepreneurs access to the Wavemaker founding team from day one, in order to help with the initial process of building capability.
"We see this as being the start of a minimum two-year relationship with Wavemaker Impact. Our goal is to get an entrepreneur through to the next round, at the highest possible valuation… and at that point, we’ll dial down our involvement,” said Santos.
Five years since the Paris agreement, climate tech investment globally has surged, with five times more VC funding in 2021 than 2016, according to a new report by Dealroom and London & Partners. So far this year, a record $32 billion has been raised for climate tech investment.
