Betting on the Future of Climate Tech | Abhi Desai, Investor @ Desai Ventures

Oh, today on the show we have Abhi Desai. Abi is a investor at Desai Ventures, a organization pioneered by his family. Uh recently, I guess relatively recently, within the last years or so, he's taken a specific interest uh translating his engineering experience in the energy industry to investing in innovative technologies in the energy industry. And

so, uh, it was really great for me to not only learn from his perspective, as I always like to ask investors, how can founders best position themselves, prepare themselves for uh, raising rounds of funding, uh, what he looks for before he deploys capital, but also his perspective, his take on what's happening in the energy market. Uh I I'm

always pleased to find that uh investors in this space, climate tech in general, are always extremely deep uh in the details and they take uh their investing seriously. So uh it's always fun to ask questions and have it go uh at a bunch of different places that uh I didn't even know existed. So we're all smarter

because of this episode. Uh thank you as always to our partnersh Lab. If you're looking to grow in clean tech, they're the people to do it with and the producers of this podcast, Craz and Friends. And with that, I give you a B.

Oh, welcome to another episode of The Grove. Shout out to our sponsors mentioned just before this, but without them, it would not be possible to interview awesome people doing awesome things like a bee. Welcome, >> Mike. Thanks for having me.

>> What's going on? Before we get into talking about climate tech, climate investing, all of these topics, if you give a brief introduction of yourself and what you're building. >> Sure. So, my name is Zabi Desai. I work for our own family office called Desai Ventures. We invest in early stage climate tech startups. Um, preede and

seed. So, a question that I've been saving because we've been in contact for a little bit now and I'm excited we we get to record an episode. But a question I've been saving is where did the passion uh in your [clears throat] I guess your your personal journey where did the passion for uh investing come

from and where did the passion for investing in such early stages come? >> Sure. Um so investing hasn't been what I've been doing. My family uh and the rest of the office is all based in India. We've been investing for over a decade in early stage startups both uh directly and through funds and that's

been sector agnostic. So everything from fintech and edge techch logistics different sorts of stuff. I haven't been doing it for that long. So my background is in energy and climate. Studied engineering, worked in renewables development, solar battery storage, recharging, did a masters in climate finance and worked at strategy consulting uh for banks and financial

institutions for a while. I joined the office in 2023 to direct some of our funds towards early stage climate tech. Um it wasn't so much as a new asset class as new or new risk appetite as a new sector. Um and so that passion in for investing as you put it has come

from an impact perspective. Um during my masters and a little while before I was investigating you know how could I be maximizing my climate impact. Um and I worked in a few different pockets of the industry of the climate space before then and I concluded you know in the short to medium term beyond what I do in

my corporate job where our money goes is very important. Um and since we're already investing in venture and you know taking that risk of developing early stage technologies is is super important and and I feel impactful and so that's where I decided uh we direct some of it towards novel technology development um from the perspective of

climate impact because whilst we have a lot of climate goals as as a you know as a country and as a as humanity um and a lot of those we can hit with current technologies there's fair bit of what we'll need to do um in the decades to come that we don't yet

have commercially viable at scale technology for and so that's something we need to developed in there where a venture can help. >> So when you were leading up to this this this shift this change this focus uh for your for your family office what was it about the space that you were getting

excited about? Did you see a particular uh opportunity in the market? Did you see a particular technology like you know with with your time in energy? What was and we'll talk about what the thesis is now or or or you know currently what you're excited about but you know when when you made the transition what what

are the things that uh excited you particularly? >> Sure. So climate I'll say is a lens more than a vertical because we the way we create greenhouse gas emissions is through economic activity. Uh we do it in every part of the sector, every part of our lives. I like how um Bill Gates's book on it a few years ago

framed it. It put it into simple categories of how we make things, how we go around, how we you know keep a world. So it's everything from transportation pretty using energy to thermal comfort. And so I guess we've invested quite a bit in energy and transport. So by that I mean you know solar battery storage,

EV charging and electric vehicles, not nearly as much in the other parts of things. So we still make steel largely the way we've been making it. you know, burning coal in the process where make cement um the fundamental process emits CO2. There's a lot of parts of industry um you know, air conditioning we haven't

touched all that much or gas boilers for that matter at scale. There's a lot of parts of other parts of the economy and how we live that we haven't touched nearly enough in terms of decarbonization. And so those are definitely exciting um places where there's more white space um and uncertainty in terms of what are the big

technologies that are going to um help us decarbonize those sectors. >> Cool. when when when when you've been uh when you have invested in uh either uh funds or directly and you've seen that capital been deployed uh to companies that you know you guys have believed in or or had you know opportunity to do

well are there is there any way so this is a two-part question the first one is is there any way that uh consistently founders um either come to you or the funds that that that you support that make that position themselves well for an investment at a preede or seed stage.

Is there anything specific that founders can do to do that? And uh and then afterwards after the capital's deployed, are there any particular ways that you've seen founders be successful in deploying capital? >> Sure. Um so the first one, I think there's several parts of it that are general for early stage companies and

some parts that are specific to the deep tech and climate space that I'm in. Um early stage is a lot about the founders and any early stage investor will tell you that it is not just about the technology or the idea or what they've executed executed on till then but about what the founders not only background is

but approaches commitment is and the cohesion of the team that is the founding team. So I think those are super important parts um specific to climate and what we're doing. We have two qual what I call qualifying criteria.

one is the emissions reduction potential of the technology. I'll define that in a second. Another is the technology novelty. So in terms of the first I'm looking for technology that is targeting a significant problem um and that at scale would reduce emissions or um take down emissions from the atmosphere uh depending on what kind of

technology that is at scale. Um there are many problems in sustainability that are important u and environment uh technology environmental technology that it's um you know plastics pollution or local air pollution or water for example but not all parts of it are as relevant for climate change at scale and you know that's a unique problem that that we are

dealing with as well. Um, so I'm pretty focused on hawk what they call a climate hawk in terms of very hawkish and on the that impact. So we're trying to quantify it, measure it and target uh technologies that make a significant impact on that. And kind of on a similar wing uh we want to be investing in

technologies that are novel that there aren't many different versions of. Part of that is just standard venture capital. We want there to be a moat as they say in terms of who can enter this market. We wanted the technology to be differentiated. Um but in climate tech there's many solutions that are going to

be very many software solutions, many marketplace solutions. Um we find feel that our capital is going to be most impactful in helping support novel technologies and uh you know that's not a purely impact based decision. That's also um an economic decision of those novel technologies have the biggest moat in in the market they're entering.

>> Are there are there at the stage uh at such an early stage do you have uh experience or have your founders had any experience dealing with uh things like patents or the the proprietary nature of their technology? I mean, if we're talking about novel technologies that you guys are interested in, then uh to

me that means that there's been an invention or or some kind of novel way to uh assemble existing technologies or a novel application of it. Um so or is is there any uh I guess is there any way that you've seen um IPs or or patents handled in a successful way at this

stage that you guys have worked with? >> Yeah. Um no, absolutely. Most of the companies we've invested in have novel IP. Um, and that's something that is, you know, part and parcel in leading this early stage company is having an IP strategy. Some of it means filing patents. Some of it means having trade

secrets that the company knows better how to do and it maybe may make more sense to keep it in house than to publish it. Um, handling it successfully I think looks different at different stages. um some of it the early stages for a completely novel invention I think makes sense to file IP you know there's

processes to that for your own country then you go to internationalize it and figure out where you want to protect it um and then some of it especially in the scale up of the technology as you're developing pilot plans and demonstration plans there's definitely a lots of uh tricks of the trade and ways doing

things that you identify for the company which um the company learns and you know there's definitely processes in which you record and make that repeatable. Uh but you may not want to publish that in a patent and keep that in house.

>> Okay. I I'm I I had a uh this is kind kind of a similar question um ju just about the level of preparedness that a founder should have at these stages when raising a preede or seed round. And so I was having a conversation yesterday uh with another uh VC investor and she was

talking about a trend in and I know you said you transitioned uh relatively recently to this but I mean your family's been in the space for a while so I'm curious if you have a perspective on this. She said there's been a trend towards uh I don't know I mean five or 10 years ago whatever you could raise a

preede round based on a really good idea like a really like here's a napkin and here's why I believe it so much and uh I guess a seed round in a similar way but but because of all the the the uh different states of the economy covid happening the whole thing in climate

tech bunch of available money and then money getting more expensive and and investing uh pulling back she's saying that there's uh an increasing requirement for uh higher levels of commercial traction at earlier stages than has than has existed and uh you know I don't have a perspective on that so I'm curious what your thoughts are

and also if there's any difference between I mean she you know they're very uh US focused so I'm curious if there's any differentiation between um uh the US or India or anywhere else that that companies live that you guys are investing in.

>> Sure. I mean, I could go on and on about this. I will say we're not investing. [laughter] >> Well, we're not investing in the climate tech space in India. Uh we're kind of from a bandwidth perspective for some other reasons focused on investing in Europe and the US. Um so I like you pointed out haven't been

in the sector that long, but in the fiveish years that I have been in it, there has been a change, especially within climate tech. um you know as the numbers speak in terms of investment amounts and companies 22 was kind of a peak in terms of how much money was going into it how many

companies and how much was being invested per company as well although that number is skewed a little bit right now because of big AI rounds yes there's definitely a difference in terms of how easy or difficult it is to close a round um my advice to founders right now even that our portfolio

companies that are raising following rounds is is to account for more time to to raise around valuations are suppressed compared to a couple years ago. Um commercial traction I think differs a lot with stage preede we're not trying to say you have contracts or even alloys but when it comes to seed stage

depending on the how the technology fundamentally is going to progress there are ones that you know need more contracts than lois so we have seen that I'll distinguish it between companies or yeah companies and technologies that are developing the kind of technology that needs a huge plant or a large plant to be proven

which in the sector is called first of a kind plant. So let's say it's a new technology transforming biomass into fuels. Well, you need to prove it at a certain big scale that lets you show the efficiencies of the process before you're going to get a commercial contract. But if your fundamental technology is a sensor that's going to

cost less than $10,000 per piece, your implementation of it can be faster. You don't need a big factory of your own. You can get contract manufacturing. Well, the pathway to that is easier. And so your expectation of commercial fraction is going to be sooner in the in the kind of fundraising process.

>> Man, I wish I wish I had that answer yesterday. I I just I just want to say I I I did a presentation about um uh commercialization at at at beginning stages of of companies yesterday and somebody asked me a beautiful question.

They said uh between these different founders, what is their definition of go to market? Because I was talking about go to market and customer discovery and all that. They said what is the definition of go to market? Is there a certain uh revenue number? Is there is there some other metric that defines

like okay I'm ready to go to market? And I was like, "Wow, that's a hard question." So, I did my best, but I think you you addressed it better uh there. So, I appreciate you for that. Um so, okay. So, so then you mentioned uh interesting categories beforehand about where these certain things can live. I

appreciate you bringing in the the Bill Gates um the the those different categories and how climate is more of a lens. So, if we're talking about um I don't know, steel, cement, air conditioning, you know, these different places that that you said innovation can live. Uh are are there any places that you're uh that you're following

currently? I mean, you could be that that you've that you've read or that you've invested in ju just a little bit deeper on that point. >> Sure. Happy to talk about some of our thesis. Um so just a board meeting I was at earlier today was one of the things that I just mentioned producing you know

transforming biomass into um fuel or chemicals. Um that's one of the pathways and sub thesis we're looking at you know in terms of biomass conversion we have as um society as humanity being pretty successful over the last few decades or longer in converting the most valuable forms of biomass into um something useful. um we do it through kind of

traditional processes but even in for example ethanol which is a useful bofuel that is blended into uh petrol or gasoline pretty often that's something that we use sugar cane or corn for and we convert it into ethanol and use it as bofuel um even oils such as cooking oil or or palm oil we convert into

biodeiesel and use for energy. What we haven't been as good at and or figured out is uh something called cellulose and lignen. Those are the harder parts of a plant the husky parts and converting that efficiently into fuel or even usable material hasn't been done at scale and so a lot of the crops in some

parts of the world are burnt or in the other parts of the world are used for different kind of lower value output. So something that we've been investing in is processes that can transform that into higher value products and in the process replace kind of hydrocarbon. So whether that's materials and converting into durable bioplastics or whether

that's um pathways that can convert into chemicals or fuels. Um that's one sector we one space we've been investing in. Another I'd say is >> sorry you wanted to add something. >> No, I was just going to say very cool. I I uh just just leading on to that and it can be something personal, it could be

something tangible, but um I've I've had a couple people on the show that have had uh similar approaches to I think the general concept of turning um something biologically from uh one of those materials into fuel. So I'm curious why this is uh of interest to you.

>> Sure. Um because of the opportunity. I think if you look at the math there's an awful lot of biomass that is available >> okay >> is a fair amount of it we use well um a fair a lot of it and if you look at the structure from a content of plant where

we grow perspective the sugars and the oils are often times a lot smaller amount of the plant's biomass than the husky part and it is because that is so hard been difficult to break down that we haven't used it as efficiently or we use it as cattle feed or something that that um but not um as fuel or chemicals

and there's other ways to get to that same output whether that's fuels or chemicals that replaces hydrocarbons that has been tried and is being tried at scale but so far has not proven as energy efficient. Um, what I mean by that is you can, you know, capture CO2 from the air, use renewable energy, and

convert all of that into a chemical or a fuel. And there's E- Fuels companies trying to do it at scale right now. Ultimately, we need to go get to a dollar per unit output that's comparable or cheaper than the fossil fuel products that we're using um right now. And that those are the status quo. And there's a

certain fundamental energy efficiency of the process that defines the number that you'll get to because plant matter does it naturally part of the process of converting air uh CO2 in the air and energy from the sun into something that is um useful chemically.

It gets you part of the way there. that energy efficiency per output h can potentially be significantly better in biomass conversion pathways than it will be in these carbon capture plus energy pathways. Um there's a lot that goes into that statement uh goes behind that statement. Can you gather it more efficiently? Can you actually transform

it uh with high purity? So there's a lot that can affect that math. Um, but there's opportunity there both in terms of supply and fundamental process efficiency that makes this space uh, attractive. >> I appreciate that. Thank you for Thank you for going into more detail because this is I'm going to listen back and

take notes on our own conversation. Uh, there there was a second um I don't know if you remember there was a second focus that you were going to mention. >> Yeah, there's a few. Um, we've invested in I'd say four or five companies in the biomass conversion space. We've invested among three companies in methane

monitoring. Methane is a potent greenhouse gas that kind of accelerates climate change and results in significant short-term warming. We release a lot of it. A lot of it we don't really intend to release. It leaks out. And so there's um advantages and to actually detecting those leaks, to quantifying those leaks um and ultimately stopping them. um that

gas is difficult to detect. Um and so we've we're developing sensors and methodologies to detect it. We have quite a few of those. There's opportunity there that we see to make it cheaper to make it easier to detect to detect it more frequently and quantify it. So we we've invested in some ways to

do that and and different ways to do that. We've invested in kind of drone based aerial sensor technology, groundbased technology that's continuous and most recently also in a satellite uh space tech company that is trying to do it from lower earth orbit. Um so methane monitoring is one. Uh we've also looking into maritime decarbonization.

Marine shipping is a significant source of emissions. Um and there's ways in which you can decarbonize that. Um I mentioned air conditioning. There's thermal comfort generally um is something that we've done in heating with um natural gas burning or gas burning. Gas boilers are the most common way. Um >> geothermal a part of that or is that

totally different? >> Uh we haven't invested in any geothermal technologies right now. So we're not investing as much in pure energy generation um because there isn't opportunity. there's a lot of opportunity but that space gets already gets a lot of investment. um a lot of the technologies that are being developed are later stage. So there's

less opportunity we see at the early stage >> and then um it there's also something about the appropriateness of capital where uh our checks are smaller and they're earlier stage and there's some of these technologies need a lot of capital to scale so we feel like it can matter um it's in some of the other spaces.

>> Well done that's a great point. Yeah, just I Yeah, the only thing I thought of when you said thermal comfort and there is geothermal deployed on residential scales. So, I just didn't know if that was uh fell into the categories.

>> So, uh geo when you say geothermal, I guess in terms of residential, it's more often heat pumps. And in heat pumps, um so air conditioners or heat pumps, heat pumps usually refer to it being able to run both ways and provide heating and cooling. And uh whether or not is geothermal in it I guess depends on what

kind of heat pump it is. A heat pump can be ground sourced and air sourced. So yes there are ground sourced heat pumps. Um and we are in we have invested in the heat pump space and um made a few investments in there. I would go to >> cool. Well, I think uh what what you

just reminded me of was as you were talking about these different spaces, you know, I was like, "Oh, look at all these people operating in these different really niche places and they all have their own stories and they're they're all their own." At some point, they had to uh go out and and and raise

and they had to go on this campaign and and got in touch with you and and fortunately, you know, received an investment. What are some misconceptions that you see uh people or founders, maybe even LPs, I don't know, have about investing in general that gets in a founders's way of successfully raising around?

>> Well, I'd say wouldn't say a misconception. Um, but impact as a lens, right? There are I think this is difficult to navigate for all parties and you pointed out whether it's LPs or investors or founders. Um I think there's impact is a significant motivator as to why all of the people the human beings in the space are in it.

You know I find my founders are very passionate about the climate impact they can make and the technology can make. um or this that significant motivator behind the general partners or the investors that have the funds that they is why they started the fund or or are investing in the space and a lot of the

LPs that are investing also have that lens. Um but these are still venture capital funds with return expectations with timelines. And so whether or not impact seeking capital means that it is willing to do that at the cost of returns depends a lot on what that capital wants or what kind of fund it is and what kind of return

expectation it has. on paper and so most of the time most of the money that I see in the space is in terms of equity capital is not impacttoriented at the cost of returns not at the outset at the very least. So that's I guess a misconception I'd say that a lot of

people looking outside in have saying you know these funds I'll invest not expecting as much returns. There's a lot of money that has gone into this space, billions and billions of dollars over the last few years as um you know, we can go into the history, but there's been a bit of a resurgence

in in climate investing. And so even though that isn't there right now where it was maybe in 22 23, it's sort of levelized into a pretty steady amount of money that's going into the space and most of it isn't looking to put in put that money in at the cost of returns.

they're expecting market rate returns and and maybe above and in some of the thesis they're putting it in. So yeah, I'd say that's one of the barriers. >> That's great. Seriously, I I I just want to give a second because I think that is in and the way you explain it, I also

appreciate that's uh I think that's a great point. I've heard that uh be said a few different ways and it's definitely important. So um so I'm glad you highlighted that. I have two uh two of my favorite questions left and the first one is you know you guys aren't like you're still growing you have goals you

have growth goals so it's not traditionally like hey I have a startup and I need to grow I need to go to market but relative to what you define as your goals at your investment firm um what are some hurdles that are in your way and how are they also opportunities so I I will say first off the we're at a

bit of a juncture at which what is growth for us is is kind of being defined over the last four years. We've deployed two um funds or other allocations from our office to the space. We've invested in 22 companies. I've recently moved continents. I was in London for the last 5 years. I've just moved to the US and

the West Coast. And so I'm in a bit of the period of defining what's next for us. Um but in terms of a hurdle for what you know things we've already taken a bet in it's about those companies not just succeeding technologically uh but financially. So we take a pretty active role in the investments we made.

I'm on half the boards either as director or observer and I'm going there from a point you know stand perspective humility saying I'm not coming from a certain authority. I haven't been a founder before, but I have a certain technical perspective and I've worked in a few different parts of this um industry. And so we try to help whether

that's you know being a sounding board for the technology development early on whether that's purely company strategy and go to market and scaling revenue or fundraising is one of the important ways that I feel like we've been able to help in terms of developing narrative and uh drafting pitch decks even or reveing

pitch decks for the next fund raise. That is going to be probably one of the significant challenges for our companies. When we invest in preede, we're helping them getting through their seed round. Now that we're sitting with are either we made investments in at the seed round or we made investments in preed and now we're supporting them

after the seed round. Well, it's raising that next bit of capital as you identified and we talked about earlier in this conversation. Um the funding environment is not quite the same now as it was a few years ago.

um that makes it a little challenging, but it definitely focuses and concentrates that capital into technologies that have shown they work at the stage um they're expected to. And so um the next challenge is going to be helping as many of them as we can and as many of them as have shown technological progress to raise

that next bit of capital and and go to that next stage. >> Oh, what a great opportunity that is too. So that's that's a that's well done. I'm excited to see how uh how that progresses, how you guys navigate that.

Well, with all this work that you have done, uh you know, all this uh uh reflection that you will do and and then the the work that will come after that. I'm curious what inspires you? >> What inspires me? I mean, it's probably a good answer for VC at any point, but it generally does is our founders. I

mean these are folks that have the technical expertise and many have the capacity to earn significantly more being in industries that they have often worked in previously before taking this jump. But they decided from either an impact perspective and some other perspectives but decided to jump in um you know head first into founding a new

company. Not just a new company that's building a software in a marketplace, but actually developing fundamental science and engineering and trying to transform a very usually behemoth industry with their novel tech. It takes a lot of courage. It takes a lot of resilience to do it. Um, and that is genuinely inspiring. um every time I'm

in conversation with them to see, you know, cuz cuz venture is often selling your vision and and to sell one, you need to have one, you need to believe in it. You can't just be faking it in meetings. Um and so those that vision that they see for their technology and how it can change the world is is is

very inspiring. >> Yeah. Well, if there's anyone else that was inspired uh by this conversation, what's the best way to reach out or follow along uh with your journey? >> Uh LinkedIn's best. I'm pretty active there. Um happy to receive messages them and then um I'm mostly posting about what we do there as

>> great. Well, great. Well, this is awesome. I Hey, that's how we got in touch. So, it's it's a it's it's a good validator. It's real. I can tell you he's not lying. Um but yeah, I'm excited. Uh I think this is great. It's a cool juncture to to catch you guys at

and uh I'm excited for the next one. Thank you for your time. >> Perfect. Well, thanks for having me. It was a pleasure talking.