Fostering a new era in the climate change space

Sangam Ventures provides seed and early-stage funding to start-ups in the cleantech sector

Karthik Chandrasekar, Founder, Sangam Ventures, a seed and early-stage venture capital firm focussed on the climate change space, had a keen interest on climate change and CleanTech from his B.Tech days at IIT-Bombay. He learnt about venture capital investing first at TVS Capital Funds, then at Ventureast and finally Acumen, an impact investment fund, before starting Sangam in 2016. “I spent about two years at Acumen. After that I really liked the idea of doing early-stage tech investing with a customer in front of me. That was the seed of what became Sangam Ventures,” he says.

The second bit, he says, he learnt in those years was that entrepreneurship in the early stages was extremely hard; money is always hard to come by, things are always blowing up and you need something beyond the money. While at Acumen, he spent a lot of the time with the portfolio companies assisting them, which continues with Sangam too.

Sangam initially did not raise a fund in the typical sense as all VCs do. Instead, it got some money from the DOEN Foundation, which it has invested in seven start-ups so far.

“We had small amounts of capital, so we have been doing small investments just to prove what we want to do. Because there wasn’t enough capital, we said assistance is important, let us do more entrepreneur assistance programme as well, as we design what we want to do as a fund,” says Karthik. So, Sangam runs an incubator exclusively for start-ups in the cleantech space in partnership with NITI Aayog’s Atal Innovation Mission. It also has LEXStart, a platform that provides legal and compliance services to start-ups. According to Karthik, Sangam is in the process of raising a fund, for which it has a commitment from the DOEN Foundation. “We are looking to raise $16.67 million. That is very specific because it is a third of $50 million,” he says. He explains that they want to start small and grow along with their portfolio companies. Initially, according to him, companies in the climate change and CleanTech space do not require huge amounts of money. They are looking at one product, one customer, a small engineering team. But as they grow, their requirement of funds will grow 5-10 times. “It is a little cheaper in the early stages, need more time, but little less money. But as they prove their model, they need a lot of money and really fast.”

Eyeing funds

“What we said is, we will be the same as the companies. We will take the first half of the investment cycle. So, a third of the overall fund that we might want to have,” explains Karthik. As the portfolio expands and the companies’ need for money increases, Sangam will raise more money from investors. Many of these companies start generating cash after a few years and Sangam’s aim is to invest as much money as it can to get its portfolio companies to the stage where they start earning revenues. Then the bigger players in the venture capital ecosystem will take over by providing them growth capital. “Lot of the companies that we have invested in, we are pretty hard-nosed commercial investors. We are pretty hands-on investors,” says Karthik.

Initially, Sangam had only $1.2 million to play around with. Then it raised $500,000. Sangam’s largest investment was in Promethean Energy, where it put in $350,000. The first three investments were about that ticket size, after which it put in $100,000 in the other companies initially and followed on with about $75,000. This capital, Karthik says, is not enough to take the companies anywhere, but just to prove some of the validation points that they want to. The first three portfolio companies of Sangam are in the market raising money, some have raised follow-on rounds or bridge rounds. “They are raising money and we are raising money. The idea is if we had the money today, we will deploy $2-3 million in each of the companies that are raising,” says Karthik.

Sangam will pick up a stake in its portfolio companies that is in high single digits or low double digits. Most VCs will want a much higher stake. Karthik believes that the founders should be left with enough stake for them to have skin in the game, should continue to want to build these companies.

Tapping talent

Once Sangam raises its fund, it will start off with cheque sizes of $300,000 and would also like to go up to $5 million. “We want to write the $300K cheque and we also want to write the $5 million cheque. The company doesn’t change that much. Think of it as a toddler to a pre-adolescent. You need to be there. Ticket size is bigger but that doesn’t change the role you need to play,” he points out. In three years of seed and early-stage investing, Karthik has realised that the biggest challenges that the start-ups face is access to really good talent, especially on the engineering and technical sales side.

Building teams is hard. You need people who are a little more flexible, you got to get the right mix of experience and passion to want to do this work, he says. The second challenge is founder fatigue.

“The bigger thing I worry about from that capital conundrum is that, if you look at cleantech investing, everybody talks about this graveyard of companies, everybody dabbled in it, that didn’t pan out. What we want is good successful companies. We also want to be wary of failures for the worst possible reasons. The onus is on us to make sure that doesn’t happen,” says Karthik.

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