Early-stage venture capital firm Avaana Capital, which operates the Avaana Climate and Sustainability Fund, anticipates liquidity soon, according to Anjali Bansal, founding partner.

Despite being a high-volatility fund, it has registered positive performance across portfolio companies, she tells businessline. She, however, declined to share any financial specifics. Edited excerpts from an interview:

Q

What is the fund’s core investment strategy?

The fund reviews 800-1,000 start-ups annually, seeking openings where a significant climate problem aligns with a sizeable market opportunity. Further, start-ups are evaluated on four parameters: differentiated technology or business model innovation; addressing a large problem or market; potential for building a sizeable business; and the right founding team with expertise. 

Q

Which are the sectors in focus in climate technology?

We concentrate on energy transition (renewable energy, energy storage, green hydrogen), mobility and supply chains (electric mobility, circular economy), and agriculture (climate-resilient agriculture, precision agriculture).

Q

Could you share an overview of your current portfolio?

We have made close to 15 investments, including funds like Kazam, eekifoods, FarMart, Praan, and Aerem. They typically take a significant ownership stake of 8–15 per cent in portfolio companies. Meanwhile, the first cheque is in the range of $1–3 million, while some of it is held in reserve capital for follow-on rounds in performing companies. The fund typically targets 5–6 new deals annually.

Q

What is the exit strategy for your portfolio companies?

Given that our fund is still young, we expect to start seeing liquidity soon. The exit strategy will be a mix of secondary sales, mergers and acquisitions, and, for strong performers, IPOs (initial public offering) in the long term. IPOs typically materialise in 7–10 years from early-stage investments.

Q

What is the status of Avaana Capital’s Fund 2 fundraising?

We have completed the first close of the second fund and aim for a total fund size of ₹1,000 crore. The fund focuses on mitigation, adaptation, and resilience in key areas, namely energy transition, mobility and supply chain, and climate-resilient agriculture. The final close is anticipated by the second half of 2024.

Q

How do you perceive the current start-up funding environment?

The funding environment has slowed globally with an emphasis on profitability and unit economics. While the early-stage remains active, there are corrections in valuations at the growth stage. In climate technology, mainstream sectors like renewable energy attract capital, but investor education is crucial for new areas of innovation.

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