Sunday, June 16, 2024
HomeAsiaDiscovering, Supporting, and Leading Climate-Resilient Ventures in Southeast Asia: The Radical Fund's...

Discovering, Supporting, and Leading Climate-Resilient Ventures in Southeast Asia: The Radical Fund’s Approach

Alina Truhina, CEO and Managing Partner, The Radical Fund

Global climate change presents one of the most pressing challenges of our time, impacting ecosystems, economies, and communities worldwide. The rise in greenhouse gas emissions, primarily from human activities such as burning fossil fuels and deforestation, has led to unprecedented changes in Earth’s climate system. The world over, many tech entrepreneurs are working to mitigate the impact of climate change, and they need support and capital to achieve their mission. The Radical Fund is an investor helping climate-tech companies with capital and guidance in Southeast Asia (SEA). The fund invests in early-stage disruptors. In an interview with e27, The Radical Fund Managing Partner and CEO Alina Truhina delves into the fund’s unique approach to identifying and nurturing ventures aligned with the climate resilience needs of SEA. With a focus on scaling businesses for impactful climate solutions, Truhina outlines the rigorous criteria used to select founders and ventures, emphasising a tailored, hands-on approach post-investment. Edited excerpts:

What specific criteria do you use to identify founders and ventures that are aligned with the climate resilience needs of Southeast Asia?

The Radical Fund invests in entrepreneurs and business models that can scale. A scaling business is the best engine for impact; it delivers a self-financing economic model with capacity and inclination towards innovation and adaptation. To achieve this, we seek and identify local entrepreneurs with a personal connection to the opportunity and the drive and ambition to conquer a scaled addressable market. We measure this in three ways:

  1. The entrepreneur’s prior experience in and openness and commitment to the issue,
  2. The setting of clear and defensible metrics that estimate and validate the venture’s potential to drive climate mitigation/adaptation,
  3. The designing of tactical solutions to reach those metrics by aligning the business model and value chain to the climate goals.

Specifically, we focus on/look for:

  1. Founders/founding team: Early-stage investing requires a heavy reliance on identifying founders as there is often a lack of historical performance data:
    • Personal motivation and connection to the solution are critical. Being a founder is hard, and personal motivation is key in providing drive in the hardest moments.
    • Domain and sector expertise: we seek deep experts, not all-rounders, who can deliver unique solutions to exceptional problems.
    • Empathic strong leaders: we believe in entrepreneurs who can understand the needs of all their stakeholders (customers, employees, investors, etc.) and chart a direct and efficient path to success.
    • We seek founding teams who approach building a business with a user-centric, not technology-first, approach (iteration, agility, customer centricity, etc.)
    • Coachability: we seek entrepreneurs who are lifetime learners and open to radically transparent feedback.
  2. Scaled commercial opportunity: In evaluating a business’s potential, we look at the total addressable market (TAM), unit economics and margins, MOAT, and cap table for incentivisation. We also seek and validate user demand and product-to-market fit.
  3. Climate potential: We unpack whether the venture already has—or has the potential to have—climate impact in SEA. We look at the specific applicability of opportunities to SEA through 3 main lenses:
    • Is SEA the primary or significant strategic geography where the venture’s climate impact occurs or could occur in the future?
    • How important is it to SEA based on the sectors with the most emissions and/or adaptation potential?
    • Is the solution contributing to an inclusive climate transition (affordability, accessibility)?

How do you ensure that the ventures you invest in address the unique challenges communities face in Vietnam, Thailand, Indonesia, the Philippines, Singapore, and Malaysia?

The Radical Fund starts with selecting the founders and ventures that can show their understanding of the unique challenges faced by communities across SEA:

  • SEA investment focus: we are uniquely focused on founders building and scaling ventures in Southeast Asia. This means that, unlike other funds, we do not invest in US or European companies and expect them to expand to SEA.
  • Evaluation of the problem-solution fit: in our due diligence, we evaluate the extent to which the founding team understands the specific challenges of their market and customer. This is critical to us, and one of the most important aspects that we review is whether the founding team has done enough validation and can prove that the problem they are trying to solve is real (this is called “problem-solution fit”).
  • Local founders: We also have a significant bias toward local founders – this means that the entrepreneur was either born and raised in the SEA market or has spent a significant amount of time here and understands the specific geographic, social and sector nuances.

Post-investment, we ensure we support our companies in a very tailored and hands-on manner:

  • Our hyper-localised approach is strategic: our team is embedded into the local ecosystems of each market to source and originate deals, as well as to support the ventures post-investment across all aspects of the ventures’ needs:
    • Climate management; product, growth, and talent; commercial and business model design; commercial partnerships; investment; governance and financials; operations.

Can you provide examples of successful ventures in your portfolio that have demonstrated a strong understanding of their target market’s needs and behaviours?

One of The Radical Fund’s recent investments is Arkadiah Technology: A seed-stage nature technology company that uses AI to fuse lidar and remote sensing to bring transparency and traceability to unlock nature as an investment asset in Asia, delivering high-quality carbon/nature credits, community impact and investment returns.

How do you evaluate the scalability potential of the solutions proposed by the ventures you invest in?

We analyse the following elements:

  • Differentiation of the product/service – the moat of the business
  • Unit economics/commercial model
  • Business model (e.g. B2B/asset light/capex heavy, etc.)
  • Current and prospective primary and secondary customers/users
  • Current and future market expansion opportunities (market size)
  • Regulatory tailwinds (in SEA).

Could you elaborate on the types of new business models that your ventures are exploring to address climate resilience in Southeast Asia?

Deeptech/IP-led businesses

Business model innovation

Examples of business models:

  • Marketplaces
  • Software and data
  • Manufacturing
  • Retailing
  • SaaS
  • Distribution-based business model
  • Project management
  • Resource Management

What strategies do you employ to support ventures in achieving mass adoption of their solutions within the region?

The Radical Fund helps our entrepreneurs understand their market in direct ways that deliver unexpected insights and stimuli that create unique solutions and strategies. Through a combination of human-centred research, on-the-ground technical expertise, and creativity, we enable our portfolio to grow beyond just our capital investment. Specifically, we push our founders to think narrowly about achieving product-to-market fit while maintaining an eye on the scale (TAM, unit economics, distribution partnerships, etc.). We work in sprints, aligning outcomes with cash flow and funding, and only pivot when the data supports the need. We also work hard to help the entrepreneur see their pathways to scale. In general, after reaching product-to-market fit, we believe that businesses scale in one of two ways: product/service extension and new markets. This choice is often overlooked and mishandled. Perhaps the most important support The Radical Fund provides is in being the entrepreneur’s partner. Being a leader is a lonely role, and we work hard to remove that pressure. Beyond a sense of community, we try to give the entrepreneur the sense of controlling time rather than time controlling them. We do this through careful planning, prioritising outcomes to deliver sustained capital investment, and identifying and engaging unexpected risks.

Can you explain how you facilitate the entry of…

RELATED ARTICLES

Most Popular