Building an institution where Decision-making is institutional, not personality-driven

For over a decade, I had the opportunity to help build an institution (Caspian Debt) with a simple but demanding idea at its core: decision-making should be insitutionalised and not dependent upon the “boss”. Over the past year or so after I left Caspian Debt, multiple people reached out asking about the “mechanics” of how Caspian Debt was able to maintain good quality credit portfolio and create so many pioneering financing models while sticking to the core impact thesis. So, here it is. This is a two part series and this is part 1. Read part 2 here.

In lending, the quality of credit decisions defines the quality of the institution. Over time, I came to believe that the real challenge is not just making good credit decisions – but ensuring that decisions are made consistently, transparently and independently of leadership.

The goal, therefore, was clear: build an architecture where decision-making is institutional, not personality-driven.

It began with intent. Caspian Debt’s Founder Prasad’s willingness to decentralise authority created the conditions for such a system to emerge. Prasad was comfortable not being the decision maker. So, much so that he handed over the day to running of the organisation to me for several years before ultimately letting me run it as a CEO for 3 years till the merger.

At the core of the decision making architecture at Caspian Debt sat the credit committee and the design of how it functioned was deliberate. Every member of the committee had veto power. While the CEO was the Chair, s/he couldn’t overrule a veto. And, we have had a few instances of single members vetoing transactions.

This was not about slowing decisions down; it was about recognising reality. In lending to early/growth stage companies no single individual can fully understand every dimension of a deal. Financials, industry dynamics, promoter behaviour, structuring nuances – each brings its own complexity. Beyond that, many decisions involve subjective judgment, often shaped by individual worldviews and experiences. By allowing any single member to veto a decision, we ensured that concerns – especially those that may not be easily quantifiable – could not be overridden by majority consensus or hierarchy. It prevented artificial alignment and created space for dissent. In doing so, decision-making became both decentralised and deeply accountable. The credit performance of the portfolio spoke for itself.

The credit committe was open to everybody to attend. The juniormost and the newest employees irrespective of their function could attend. The credit committee evolved beyond a formal step in the credit evaluation process. It became a space where people learned how to evaluate risk, articulate concerns, and engage with differing perspectives. It was not just where decisions were made – it was where training was given and judgment was developed.

However, structure alone is insufficient without visibility.

One of the early changes we made was to move deal-related conversations away from fragmented email threads into centralised platforms. This ensured that discussions, assumptions, and trade-offs were recorded and accessible in a centralised deal pipeline software. Anyone in the organisation could trace (to a reasonable degree) how and why a particular outcome was reached.

To reinforce this, we invested in data systems that captured not just outcomes, but context. Dashboards surfaced key metrics alongside the history of discussions, enabling individuals to understand patterns over time. We built a deal structuring system on the software with a recommendation layer that further strengthened this by highlighting comparable past deals – bringing institutional memory into everyday decision-making even for new employees. In parallel, standardisation was introduced through selectable deal clauses, allowing even new team mebers to structure transactions within a consistent framework while retaining flexibility where needed.

Another important principle was the removal of gatekeeping. Access to decision-makers was not mediated. If somebody needed to meet a senior team member they didn’t need to go through a secretary. Calendars were open, and conversations were easy to initiate – just block time. This reduced hierarchy in practice, not just in theory, and encouraged faster resolution of issues. It also signalled that participation in decision-making was not restricted to a few.

Equally important was how people were introduced into this system.

New hires were given time to observe how things were done and were expected to challenge them. They were encouraged to notice inefficiencies – the “fences” that seemed unnecessary but also to understand that some constraints exist for valid reasons and hence to notice for 2-3 months and understand why they exist before challenging them. This balance helped prevent both blind acceptance and premature disruption.

We made several investments in creating a trust based culture. That strengthened this institutionalised decision making architecture. (I will write more about that in a separate post. Read part 2 here.)

The result was not a perfect system, but a resilient one.

Decisions were more consistent. Knowledge was more widely distributed. And most importantly, the institution became less dependent on any single individual. So, when senior people left, the “system” continued to perform. That, ultimately, is the test of institutional decision-making – whether it continues to function with the same clarity and integrity, regardless of who is in the room.

Trust, Culture, and the Human Side of Decision-Making

This is part 2 of a two part series on institutionalising decision-making. Read part 1 here.

While systems and structures define how decisions are made, culture determines whether those systems actually work.

One of the more counterintuitive choices we made was around trust.

The conventional approach in most organisations is to ask individuals to prove themselves over time before giving them meaningful responsibility. Honestly, I believe this is dumb and feel sorry for organisations that have such leadership. In such organisations, Trust is something to be earned gradually. While this sounds reasonable, it often results in concentration of authority.

We chose to invert that model.

After a relatively short training period, individuals were given real responsibility – not shadow roles, but ownership of decisions and client relationships. The belief was simple: people grow faster when they know they are already trusted. This belief grew out of my experience at IFMR Trust and IFMR Capital (now called Dvara Trust and Northern Arc respectively) where I was given responsibilities beyond my years. I saw a similar approach when I joined Caspian. I wanted employees in Caspian Debt to have the same exposure and learning opportunities.

Trusting first with responsibilities did not mean absence of oversight. People were given space to act, but not left alone. Support was always close at hand. Trust without support would have been abandonment; support without trust would have been control. The message to the team members was simple – “Decide what is best for the company. In case of doubt, please feel free to ask.”

But trust cannot remain an abstract principle – it has to be reinforced through everyday actions.

We embedded it in small but meaningful ways. Casual leave for up to two days did not require managerial approval. Work-from-home was allowed up to eight days a month. No prior approvals required. (We experimented with more, but found that beyond a point it slowed collaboration and decision-making). Time in and out was not tracked. For new parents, additional work from home was allowed upto 3 years of the child’s age, along with support for childcare. The core belief was that we can’t expect employees to be delivering 100% all the time, we need to have their back when they are dealing with complications in their non-work life. True, some people misused the trust. We dealt with that as soon as we could.

We also created regular rhythms of engagement – monthly check-ins and more formal half-yearly appraisals with incentive payouts. These were not just evaluative mechanisms, but opportunities for alignment and reflection. This meant more time for managers for people management. We tried supporting them by making professional expert coaches available to them for them to find a safe space to discuss and approach better approaches at work.

The real test of these beliefs came during the COVID period.

At a time when many organisations responded with layoffs and cost reductions, our focus shifted almost entirely to make sure employees were taken care of. We reimbursed home office costs. We made thereapists available who could be consulted without anybody in the organisation knowing about it. We paid for the sessions. The focus of the entire organisation shifted to risk management. Profits were low that year, but not because of poor performance – rather, because of deliberate caution. The team worked intensely to avoid credit losses in an uncertain environment. As you would know, traditional performance frameworks tend to reward incremental profitability. But this was a period defined by losses avoided, not profits earned. We chose to recognise that effort. Except for a few senior members (who volunteered), increments and incentives continued for the rest of the team. It was a signal that judgment, discipline, and collective effort mattered, even when they did not immediately translate into higher profits.

Alongside internal culture, we were equally deliberate about how we engaged with our clients.

Our customers were building organisations to solve difficult problems. They did not need a another financial partner that appeared arrogant or overly transactional. We aimed to be measured, thoughtful, and respectful – grounded in understanding their businesses. Ultimately, our success was tied to theirs. This approach gradually shifted ownership outward. Clients built relationships with teams rather than individuals at the top. The organisation, not any single person, became the anchor.

Internally, we reinforced a simple belief: there is no competition inside the organisation. The competition exists outside. Helping others succeed was not optional – it was expected. Asking for help was equally normal.

When I eventually left Caspian Debt, what stayed with me were the messages from past and existing employees, customers and competitors.

Several past and current team members reached out to say that being trusted early had changed how they saw themselves. Some said it helped them believe in their own capabilities. Others felt their careers had been meaningfully shaped by their time at the organisation.

Several clients who knew me reached out saying that they were always pleasantly surprised how thoughtful and grounded Caspian employees were. They always felt heard.

Competitors reached out saying versions of how their credit decision processes became faster if they learnt that a company was funded by Caspian Debt. Some also cheekily said “We have always been trying to poach Caspian Debt employees.”

This is not a recipe for a perfect organisation. Caspian Debt was far from perfect. We were a work in progress. We always held ourselves accountable on two key parameters that should be core for any impact credit institution: credit quality of our portfolio and the social/environmental impact we were enabling through our investments. We did well on both the parameters. The messages I received more than anything else, felt like validation.

The Two-Coloured Bicycle

I learned to ride a bicycle on my father’s large bicycle – one that I could only ride “half-paddle,” since I couldn’t sit on the seat. The bicycle was heavy and tall. My father had bought it second-hand in excellent condition from a Border Security Force (BSF) staff member who had just been transferred out of town. The “weight” of its paramilitary origins made it difficult for a young me to manage, but it also meant the bicycle survived the many falls it had to endure as I learned to ride.

My father accompanied me on the first day and explained how to learn cycling. After that, he let me figure things out on my own. That was his way letting me figure out if I really wanted something.

Whenever the bicycle was lying unused at home, I would take it out and walk it across to the playground diagonally opposite our quarters. For several days, possibly weeks, I kept trying to learn how to ride that big, heavy bicycle from the side, pedalling half-paddle, without being able to sit on the seat.

One day, after I had finally learned to ride it, my father saw me cycling half-paddle. I think he felt I had earned a bicycle of my own. He told me he would buy me a smaller one – brand new. We planned a trip to the only bicycle shop in our town. I was excited about having my own bicycle.

But, around that time, the first Gulf War had begun, when the United States went to war to free Kuwait from Iraq. Missiles were being fired several thousand miles away. And, much like today, long-distance transportation had slowed and stopped. When we visited the bicycle shop, the shopkeeper told us he had no bicycles in stock and that new deliveries had stopped. He placed the order anyway and asked us to return after a few days.

After two futile visits, he must have felt some sympathy for me. He told us that he wasn’t sure when the deliveries would start. He decided to assemble a bicycle for me using spare parts from two differently coloured bicycles that were lying in his shop.

And, so I ended up with a brand-new bicycle, with a frame made up of two different colours. I was simply thrilled to have my own bicycle. To me, the two colours looked like a special new design. I rode that bicycle for 9 years and sold it off in working condition when I moved out of town.

I was reminded of this recently because of the ongoing tensions involving the United States, Israel and Iran. Just like back then, there is a discussion about long-distance transportation and deliveries for non-essential goods being slowed down or stopped in some places. That war lasted around forty days but had a noticeable impact even in small towns like ours. Wars are not good. No matter where it happens. But, in the middle of adversity, odd incidents like the birth of my two-coloured bicycle happen.

Somewhere, perhaps, another child is waiting for a bicycle that might arrive in two colours. He just doesn’t know it yet.

The Wrong Charlie Chaplin Won

As a child, I was part of a local child/youth organization that brought together children from diverse financial backgrounds. It regularly organized cultural and recreational activities that we all looked forward to. One year, we had a fancy dress competition.

One of my senior friends, Sumit (name changed), was well known for his brilliant impersonation of Charlie Chaplin. In those days, Charlie Chaplin short films were starting to be shown on television and was widely loved. So, when the competition was announced, it surprised no one that Sumit declared he would dress as Charlie Chaplin. We all knew that if he did, he would almost certainly win.

As he began preparing, however, he ran into a problem: he didn’t have a coat like Chaplin’s. He checked with neighbors and friends, but no one had one to lend. In those days, in small towns like ours, owning a suit or coat was uncommon. After an exhausting search, he had to give up on the idea.

On the day of the event, one of the wealthier boys, Pritam (name changed), arrived dressed as Charlie Chaplin. Sumit, who was far better at performing Chaplin’s mannerisms, came instead in a torn jute sack, portraying a “mad” man. While Pritam tried his best, his performance as Charlie Chaplin was underwhelming. But, he won the first prize. Possibly because everyone loved Charlie Chaplin. Many of us quietly felt that Sumit would have done far better had he been able to dress the part.

I often think about that incident when I observe the impact finance ecosystem today.

Sometimes, those with financial resources can win recognition as “impact focussed” by investing heavily in marketing, public relations and expensive third-party auditors who effectively place an impact “coat” over otherwise ordinary work. And, people love it because people love impactful organisations. Meanwhile, organizations doing deeply meaningful, transformative work, but lacking the funds for branding, PR, or third party audits, often go unnoticed. 

Just as we missed out on witnessing Sumit’s true talent that day, the world sometimes misses out on recognizing genuine impact because it lacks the right costume.

The B2C Mirage: When Higher Gross Margins lead to Lower Net Profits

Many B2B companies, feeling the squeeze of thin gross margins or concentrated buyer power(and these days due to Venture Capital’s focus on “large markets”) look toward the retail consumer. The B2C promise is seductive – better gross margins, a massive addressable market and “control” over your own brand. But, there is a hidden tax that often makes the B2C journey a value-destroying one, particularly for those relying on digital channels.

The “Digital Platform Tax” is the New Cost of Goods:
In the digital world, Facebook ads and e-commerce placement fees have replaced the traditional distribution costs. My (limited) observation, particularly in sectors like food, hardware products and education, is that sales often become a direct function of daily spend on these platforms. You stop spending, the sales vanish. These digital platforms are incredibly efficient at using your own data to price their services. The moment your product starts doing well, the algorithm finds a way to capture that extra margin, or worse, the platform launches a private label to undercut you. (Luckily, Facebook doesn’t sell products! Or we would have Facebook Trail Mix Bar?)

The Myth of “Brand Building” as an Investment:
We are often told that high marketing spend on online platforms is an “investment” in brand building that will eventually lower customer acquisition costs. In practice, this is rarely the case for physical products or non software products. Instead of building a brand, many companies find themselves in a loop: spending more than their margins just to maintain volume. As volumes grow, platforms quietly raise rents. Algorithms optimise for volume, not seller profitability. Direct demand never really shows up. Sellers become dependent on the platform and, if a product does well enough, the platform may launch its own competing version.

Rocky Way Back to the Past:
When the B2C experiment fails, returning to B2B becomes a struggle because the cost structures and core expertise of the team have fundamentally shifted.

The Narrative Gap:
Most of the online literature on profitable online growth is dominated by SaaS and software where marginal costs are near zero. Or the narrative is dominated by VC backed companies who are yet to see profits.

But for those selling physical products or services without the cushion of VC-funded “burn,” the path and the conversation is scarce.
-Are there successful, profitable models for B2C growth that don’t involve becoming a slave to the platform’s algorithm?
-How are companies successfully controlling their distribution channels rather than being controlled by them?
– Beyond the “splurge and pray” approach, what combination of marketing and distribution actually builds a sustainable bottom line?

I’d love to hear from people (or sources) who have seen (or built) “B2C machines” that prioritize unit economics over vanity metrics.

Will relaxing ECB regulations lead to more robust NBFCs and better inclusive finance?

Over the past decade or so, NBFCs have increasingly adopted a “growth at all costs” strategy, particularly in newer as well as in relatively riskier credit segments such as microfinance and unsecured MSME lending, EV financing, and rooftop solar financing. These are segments that are still evolving, have limited historical data, and inherently higher execution and credit risks.

A key driver of this behaviour is the funding constraint faced by early-stage and smaller NBFCs. Bank debt is typically unavailable to NBFCs operating at a small scale or with lower credit ratings. As a result, such NBFCs are forced to rely on a narrow set of high-cost NBFC or alternative lenders. This, in turn, pushes them toward credit segments that can absorb higher lending rates, reinforcing concentration in riskier asset classes.

To access lower-cost funding from banks or from development finance institutions, NBFCs generally need to reach a minimum scale of around INR 1,000–1,500 crore in assets or alternatively maintain very low leverage supported by substantial equity (often INR 500 crore or more). Credit rating upgrades, which are critical for funding access, are themselves contingent on achieving this scale or equity depth.

Consequently, NBFCs are incentivised to raise large amounts of equity early in their lifecycle to reach a “fundable” size quickly. However, higher equity raises come with heightened growth expectations. Equity investors require attractive IRRs, which translates into pressure on management to deploy capital rapidly. This creates a structural bias toward rapid balance sheet expansion. This has led to situations where NBFCs publicly articulate aggressive growth targets-such as scaling to INR 500 crore in assets within six months-backed primarily by equity capital.

History shows that such premature scaling has repeatedly resulted in asset quality stress and significant portfolio delinquencies. Look around. In newer credit models and while lending to weaker borrower segments, sustainable outcomes require cautious, measured growth, strong underwriting feedback loops, and time to learn from portfolio behaviour. The current funding environment, however, makes such measured growth difficult: early-stage debt is scarce and expensive, while equity funding implicitly demands speed.

This raises a fundamental question: how can prudent, phased growth be achieved in new and riskier lending segments when access to borrowings is constrained in the early stages and equity capital pushes NBFCs toward premature scale?

Recently proposed draft changes in ECB guidelines – particularly the removal of interest rate caps- could help address this mismatch. These changes may enable a greater inflow of foreign capital with “mezzanine-like” characteristics, sitting between pure equity and senior debt. Such capital can partially substitute for equity, reduce immediate growth pressure, and allow NBFCs to scale more gradually while building robust credit models.

Will the Indian financial services industry now learn to adopt a changed mindset to look at mezzanine as a replacement of equity and not for debt?

The traditional Indian financing hierarchy is still very binary:

  • Equity = permanent capital, growth risk, IRR expectations
  • Debt = fixed obligations, ratings-driven, asset-backed

Mezzanine capital sits uncomfortably in between and is treated as “expensive debt. But in reality, especially for early- to mid-stage NBFCs, mezzanine behaves far more like equity than debt:

  • It absorbs risk before senior lenders
  • It allows time for seasoning of portfolios
  • It reduces pressure for premature balance sheet expansion
  • It aligns better with measured growth in new credit models

Without recognising this, the industry will keep repeating the same boom–bust cycle driven by equity-fuelled hypergrowth.

So, what do you think? Will relaxing ECB regulations lead to more robust NBFCs and better inclusive finance?

A Milestone in Rooftop Solar Financing: Ecofy’s Securitisation Deal

Ecofy has recently completed what appears to be a pioneering securitisation transaction in the residential rooftop solar space. Based on publicly available information, the deal involved the securitisation of 2,400 non-overdue residential rooftop solar loans. This is as per rating document on the ICRA webiste. Tata Capital is reported to have invested in the senior tranche of pass-through certificates (PTCs). This is as per an announcement by Wadia Ghandy who seem to have acted as the legal advisor for the transaction. While modest in size, this deal is significant -possibly the first of its kind in India’s distributed renewable energy landscape.

This is a promising development. If such transactions become more common, they could open the doors to lower-cost capital for financing small-scale rooftop solar projects – an essential step toward accelerating clean energy adoption at a deeper level. Hopefully, we’ll see similar financial innovation extend to other distributed renewable energy assets or energy efficiency assets in the future. So, congratulations to the Ecofy team on this milestone!

Key Features of the Transaction

The structure appears to follow a typical two-tranche securitisation model, supported by cash collateral. The senior Series A PTCs are backed by about 30% credit enhancement leading to an A+ [So] rating:

  • 10% from cash collateral
  • 10% from a subordinated tranche, which Ecofy seems to have retained
  • ~9% from excess interest spread

ICRA has estimated the loss rate for this asset class at around 5%, which adds some context to the credit enhancement cushion. It’s worth noting that residential rooftop solar is still a relatively new lending product in India, lacking a long-term performance track record. Moreover, Ecofy itself is a young institution but has scaled quickly-reaching INR 1,000 crore in assets, backed by strong equity support.

What Stood Out to Me

One particularly interesting aspect is the choice of asset: residential rooftop solar loans, rather than commercial ones. I had assumed the commercial segment, especially among MSMEs, would be larger available pool. This deal suggests one of three things:

  1. My assumption about market size may be off;
  2. Residential loans are performing better than commercial ones;
  3. Greater granularity in the residential segment may have made the asset pool more attractive to investors.

I don’t know what is behind the choice of the pool. It might be that they will soon do another transaction with a commercial rooftop only pool.

Given that residential power tariffs are typically subsidised and lower than commercial rates, I had assumed stronger solar adoption in the commercial space. Additionally, metering and other policy frameworks tend to favor commercial installations.

Focus on Borrower Quality

The borrowers in this transaction reportedly had credit bureau scores above 700, indicating that repayment behaviour was a key underwriting criterion. This makes sense, given the lack of asset-specific performance data for residential solar loans.

It would be valuable to know whether the asset pool is being monitored by factors such as:

  • Rating or size of the rooftop solar unit
  • Brand or make of components

If such monitoring is in place, it could provide early signals of risk, although practical constraints may limit feasibility.

Recovery Considerations

Another angle worth exploring is whether Ecofy has buyback or performance contracts with EPC (Engineering, Procurement, and Construction) partners. In case of default, especially due to equipment failure, such contracts could significantly improve recoveries. It’s unclear whether this factor was considered during the credit rating process, but it could be a meaningful lever for de-risking.

A Familiar Credit Enhancement Pattern

The 30% credit enhancement, for senior Series A PTCs, feels familiar. It is similar to the structure of early microfinance and small business loan securitisation transactions that I encountered during my time at IFMR Capital. Does this suggest that the market sees similar risk profiles across these asset classes? Or, is it simply a market norm for first-of-a-kind (FOAK) transactions? (Yes, I said FOAK – aligning with the climate finance lingo!)

The Investor

The Investor in the transaction is Tata Capital and not a bank. Tata Capital wouldnt have priority sector considerations like a bank to invest in such a transaction. Their yield expectations would be higher than a bank as well. So, the transaction may not be commercially very lucrative for Ecofy but they would have done it to establish a track record. In fact, back in time, when Microfinance and Small Business Loan PTC transactions were introduced, NBFCs were the first to invest followed by small private banks. In all possibility, we will see a similar trend here. Access to priority sector funding from banks, in future, will improve the pricing of such transactions significantly reducing costs.

Legal and Structural Considerations

The other question I had was: are residential rooftop solar units considered movable or immovable assets? This matters because securitisation involves transferring both the loan and its underlying security to the Special Purpose Vehicle (SPV). Fixed assets (like homes) incur high stamp duties during such transfers, often making deals unviable unless the originator retains the security interest – something we’ve seen in HDFC-to-HDFC Bank or LIC Housing-to-LIC transactions. This is an iffy transaction structure but works in practice. I am not a legal expert to comment on the validity.

However, given the nature of solar installations, they might be classified as movable. Even if not, the transfer of solar equipment may not trigger significant stamp duties, which helps the viability of such structures.

A Note on Asset Quality Trends

Not directly related to this transaction, but worth mentioning: Ecofy’s gross Stage 3 (non-performing) assets have shot up from 0.03% in FY24 to 1.3% in FY25, even as the portfolio doubled. This suggests that as growth stabilises, the Stage 3 aseets % could be significantly higher than 1.3%. Of course, Ecofy’s portfolio is a mix of electric vehicle loans and rooftop solar loans and I am not sure where the increase in defaults is.

If ICRA’s 5% loss assumption is accurate, and if loan yields are in the 16–18% range, a sustained increase in defaults could create problems for the balance sheet, especially in a steady-state growth environment.

Final Thoughts

This deal marks a small but important step in bringing structured finance to India’s green finance sector. It offers lessons in credit structuring, asset selection, and investor appetite for climate-aligned financial instruments. As the ecosystem evolves, better data, smarter structures, and more diversified funding sources will be key to scaling sustainable finance.

Are there Series B climate tech companies in India?

As India’s climate tech ecosystem matures, a new kind of funding gap is becoming evident – lack of series B and later stage funding for climate technology companies outside the electric vehicles and solar sector. While equity investments are actively flowing into early-stage climate startups (accept this with a pinch of salt), there’s noticeably less traction for companies that have moved beyond proof of concept and are generating revenues, say above INR 150 Mn. This is particularly true for companies outside EV and solar.

This table below shows the data of funds raised by climate technology companies. Source: Indian Impact Investors Council’s Climate Bulletin. You will notice the number of deals drop dramatically between Series A and B.

Apr-Jun FY25Jul-Sep FY25Oct – Mar FY25
#USD Mn#USD Mn#USD Mn
Seed224317203955
Series A1061119118111
Series B5843544100
Later stages472316271157
191729

This situation presents a puzzle: many investors report that there simply aren’t enough mid-sized climate companies in the market do series B. At the same time, entrepreneurs and intermediaries highlight many professionally run businesses in areas like waste management, circular economy, energy efficiency, sustainable cooling, materials innovation, and climate-smart agriculture.  In fact, multiple people operating in the space have confirmed that across all non-EV and non-solar sectors, there are likely over 80+ such enterprises with revenues above INR 150 Mn that are suitable for series A+/B equivalent equity funding.

So why aren’t they getting funded?

Variety fatigue:

In my view, one contributing factor is variety fatigue. Climate solutions outside of EV and solar are extremely diverse in terms of technology, business models, and end markets. For investors, particularly impact funds or those with tight sector theses, this diversity creates a steep diligence curve. Many funds are optimized for pattern recognition: they prefer to back models they understand and can replicate across 10–15 deals, as seen in sectors like microfinance, MSME lending, or EV fleet businesses. The cognitive and operational load of evaluating multiple different models often becomes a practical barrier.

This also leads to another odd problem. As the ticket sizes of series A have ballooned, early stage investments in non-EV sectors also seemed to have starting to suffer. For those wanting to raise between USD 1-5 Mn, there seems to be few interested investors. I hope to write about this in another post.

Need for financing beyond equity and debt:

Another critical issue is structural. I have discussed this in my previous article as well. The financing needs of climate technology companies fall into a grey area between equity and debt. They are asset heavy and their growth prospects might not yet justify high-valuation equity raises but they may lack proven/established assets for conventional debt. But they do have hard assets in most cases which makes debt type financing a better option that equity. As a result,  both standard VC or bank financing unsuitable.

What these companies often need are mezzanine or structured capital solutions – instruments that combine features of both debt and equity. This could include revenue-based financing, convertible notes with performance-linked upside, or hybrid instruments. In some sectors, innovative models such as sale-and-leaseback, build-own-operate, or pay-as-you-go financing (popular in distributed solar and energy services) may offer more appropriate risk/return profiles for investors, while also supporting scale.

What is clear is that the financing ecosystem must evolve to match the heterogeneity and complexity of climate solutions. One possible approach is to develop investment cohorts – grouping companies not by sub-sector, but by business model type (e.g., recurring revenue models, service-based platforms, asset deployment businesses). This could reduce friction in due diligence and underwriting, while also allowing funds to specialize in operating model structures and financial structures rather than narrowly defined sectors.

Supporting the climate companies with the right instruments and frameworks would create a strong pipeline of scalable solutions, ready to contribute meaningfully to our climate goals.