SVB failure casts a chill across Asean’s climate startups landscape

CLIMATE venture capitalist Djoann Fal had one of the most stressful weeks of his career after news hit on Mar 10 that Silicon Valley Bank (SVB) in the US had collapsed.

The general partner at Atlas Capital, a South-east Asia-focused climate tech fund manager, told The Business Times (BT) that six out of its eight portfolio companies were US climate startups that had banked with the failed entity.

The decision by United States regulators to guarantee all deposit accounts has helped calmed the nerves of Fal – and almost every investor and financial institution across the globe.

Still, climate tech startup founders and investors based in South-east Asia are sitting up and keeping a close eye on the fallout from SVB’s collapse and how this could have other knock-on and indirect effects.

SVB was a pioneer in the space of climate financing, with billions in loans issued to more than 1,500 customers working on climate projects at the time of its collapse. Within the climate startup sector in the US, SVB was known as the climate bank.

Other climate tech startups and venture capitalists told BT they do not have direct exposure to SVB, but there are concerns about whether SVB’s failure could create potential liquidity problems in the near term.

Felipe Daguila, chief operating officer at Terrascope, a startup that measures carbon emissions for businesses, said SVB played a significant role in supporting green tech and sustainability innovation, and its collapse creates a gap in global climate tech financing.

“While South-east Asian startups appear to be largely insulated from Silicon Valley, there are concerns around tightening credit conditions that could constrain their access to affordable global capital, which has supported their rapid expansion in recent years,” he added.

Already, rising interest rates are making fundraising more difficult than usual.

The SVB episode is an unwanted addition to the already challenging situation, said Leon Farrant, founder of Green Li-ion, a battery recycling startup based in Singapore.

While only two of the company’s 15 investors had direct exposure to SVB, and it had closed its latest round of funding one week before SVB’s failure, Farrant said he still had to assure investors about the health of his startup’s balance sheets when they were deploying funds.

“The sentiment now is that it is not a good time to fundraise. If you do fundraise, you need it to last longer than if you were to fundraise 12 months ago,” said Farrant.

While this is true for startups developing technologies across all sectors, the problem is compounded for climate and green startups given that they are developing technologies that are capital-intensive with long investment periods. This is unlike consumer software, which has low adoption barriers and has been the primary driver of the recent venture capital boom in South-east Asia.

In a climate of expensive capital, startups without a quick path to profitability would be at the bottom of the pecking order when it comes to capital deployment – and South-east Asian climate startups could be at the bottom of that bottom.

Private funding for climate tech in South-east Asia for the first 11 months of 2022 hit US$1.1 billion, data from DealStreetAsia indicated. While this was the first time funding breached the US$1 billion mark, and the amount raised was a marked increase from the US$607 million funding in 2021, it is minuscule compared with the US$70.1 billion of venture capital funding that went into climate tech globally for the whole of 2022, data provider HolonIQ indicated.

Atlas Capital’s Fal, however, said that momentum for climate tech investing in South-east Asia and the world should not face any setback, even though the appetite for investing may not be huge across global markets in general.

He noted that climate tech investing and the net asset value of climate startups continued to grow in 2022, despite wider market concerns involving the Ukraine war and inflation.

Avina Sugiarto, partner at venture capital firm East Ventures, shared similar sentiments.

While she believes the era of aggressive expansion is on hold as investors are becoming more careful and prudent in making investments in high-risk companies, she said East Ventures would still “double down” on its investments in climate tech given the urgency of the global climate crisis.

Fal said climate tech investors are different from conventional tech investors, as their investment horizon tends to stretch for a longer time period. With investors paying more attention to sustainability issues, businesses developing solutions to target climate change concerns are also deemed to be more sustainable and have strong upside potential.

SVB’s collapse has nevertheless taught some precious lessons to climate tech players such as Farrant and Fal – about the need for deposit insurance and asset diversification.