'Five years ago, everyone wanted to be Elon Musk': Where is climate tech in Southeast Asia now?

Climate tech startups – companies that dream up solutions to cut greenhouse gas (GHG) emissions –  have enjoyed a heady rise over the last decade. But last year, hobbled by economic uncertainty and geopolitical conflict, investments in the sector plunged by 40 per cent, according to professional services firm PwC. 

Is this still-young sector worth the risk?

Thus far in 2024, climate tech has shown resilience, with startups raising US$8.1 billion in the first quarter, signalling the resurgence of a sector that looks like it is here to stay. But how can climate tech startups go the distance and avoid the pitfalls that bedevil so many young companies?

Joining the Eco-Business Podcast is Steve Melhuish, a serial entrepreneur and venture builder who has invested in and nurtured over 20 climate tech startups in Southeast Asia to date. Melhuish pivoted to climate tech in 2018, having built a career in the digital, mobile and social space. He is perhaps best known for co-founding real estate website PropertyGuru, which has 40 million users in five countries and 1,300 staff.

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Five years ago there was a big rush into EVs. Everyone wanted to be Elon Musk. Now we’re seeing a resurgence in focus on the food, agriculture and land-use space, which is where 50 per cent of Southeast Asia’s emissions are.

Steve Melhuish, co-founder, Wavemaker Impact

It was Melhuish’s children who inspired him to move into the climate space. “The more I researched climate, the more worried I got about the future for my kids,” he tells the Eco-Business Podcast. “I thought I could just retire and enjoy my life. Or I could look my kids in the eye in the future, and say I knew how bad it was going to be, and I played a small part in trying to make the world a better place.”

After stepping back from PropertyGuru, Melhuish cofounded Planet Rise, which invests in and supports companies tackling climate change and social inequality. Its portfolio includes Singapore-based clean dairy firm Turtle Tree Labs, Sama, which helps migrant workers in Singapore get a fair deal, and Asia-focused sustainability publication Eco-Business.

In 2021, Melhuish co-founded Wavemaker Impact, Asia’s first climate-tech venture build fund, which co-founds, builds and invests in scalable climate ventures. There is “an embarrassment of opportunities” in Southeast Asia to create what Melhuish calls “a hundred by a hundred” – companies that generate US$100 million in revenue by removing a hundred megatonnes (MT) of carbon emissions from the atmosphere.

So which sectors are hottest for climate tech startups in Southeast Asia, and what are the challenges faced by entrepreneurs who want to tackle climate change and also make money?

Tune in as we discuss: 

• Why PropertyGuru’s co-founder pivoted to climate tech
• Why bet on climate tech in Southeast Asia?
• What are the hottest trends in climate tech?
• How to tell which climate solutions actually work?
• Common pitfalls in climate tech
• Southeast Asia’s debt finance gap
• The “never-ending challenge” of time-management for entrepreneurs

Full transcript:

You’re a serial entrepreneur, starting out in property tech in the mid-2000s, when you co founded PropertyGuru. Why the pivot to sustainability startups?

You’ve very kindly dated me in the 2000s. But I go back a little earlier than that, to the 1990s, and internet, mobile and the digitisation of content. I’ve been building businesses in that space for most of my career.

PropertyGuru, however, consumed about 11 years of my life, 24/7. While growing it from zero to 1,500 across five markets, was extremely taxing and stressful, my kids came along. [Melhuish and his wife, Liz, had twins in 2012]

I missed their first three years, and got a wake-up call on the twins’ third birthday. I realised that if I carried on running the business seven days a week, this was not consistent with being a great dad, obviously.

But latterly was PropertyGuru, which consumed about 11 years of my life – seven days a week, 24/7. During the process of growing it from zero to 1,500 people across five markets, which is extremely taxing and stressful, my kids came along [Melhuish and his wife, Liz, had twins in 2012].

I missed seeing them for the first three years of their lives. And so I had a bit of a wake up call on their third birthday. I realised that if I carried on the way I was running the business –  seven days a week – this was not consistent with being a great dad, obviously.

So I made the commitment to my wife to put in place a succession plan and take a step back.

So 2018, I was very fortunate to be able to do that. I hired a CEO and handed over all the operations to spend time with my family. I went on vacation, spent some time with them, but I was also thinking about what to do next. Everywhere I looked, it felt like this whole climate thing was sending me a message.

The climate drum was beating louder and louder. And 2018 was a year when extreme weather broke records for costs incurred and damage caused – close to US$300 billion. Greta [Thunberg] held a climate strike that year. Larry Fink wrote his first letter [on the importance of ESG investing] that year. For the first time, scientists as a community reached consensus that climate change was man-made and accelerating.

The more I researched it, the more worried I got for my kids’ future. I had a choice – I could retire and enjoy my life, or I could look my kids in the eye in the future, say I knew how bad it would be and I played a very small part in trying to make the world a better place.

So that was when my journey started in climate tech. 

I wasn’t ready to return to the startup space, so I thought how do I play a role in this all encompassing topic? Climate is everything – everywhere you go is touched by climate change.

From 2018 onwards, I invested in about 20 different companies in the environmental and climate space, trying to improve food or food waste, construction, hospitality and manufacturing. I very quickly realised that doing this alone with just my own funds was not very sustainable. That’s when I started Wavemaker Impact.

Climate tech ventures require lots of capital at an early stage in the life cycle and more time to break even and scale up. Also, recently we’ve seen wild fluctuations in the market. So why would anyone who’s not a “tree hugger” and is risk averse go down this path, particularly in Asia?

I agree to a certain extent.

As with any sector or topic, things go hot and cold. But I think you’re right, climate tech requires a considerable amount of capital. Particularly in the US and Europe, there’s a strong regulatory environment driving investment into the sector. Hundreds of billions of dollars will then naturally flow into solving some of these problems – and the bulk of that is going into R&D and science, which is a long term bet.

Then you look at Asia, where we have relatively weak net zero commitments and consumers on the whole are more worried about eking out a living or increasing their standard of living, getting electricity and phones for the first time, maybe even airconditioning for the first time. There are a different set of pressures in Asia. So why would you even think about it [climate tech]?

When we started Wavemaker Impact we wanted to look at where the opportunities are. Our research showed we have all the technology we need today to reduce emissions by 50 per cent. So the challenge really is not so much around inventing new technology. Why don’t we have solar on all rooftops? Why isn’t wind deployed everywhere? Why aren’t we more energy efficient? Why are we not doing more of this sort of stuff?

It really boils down to having the right economic incentives. When you then start to look at economic incentives, you start to look at different stakeholders. You see that in Southeast Asia, where there are lots of SMEs and micro SMEs and small mom and pop shops, there’s a huge amount of opportunity to increase productivity.

There is an economic opportunity to, say, increase the yields of farmers, reduce the cost of inputs, financing, and harvesting. There are lots of economic pools and productivity opportunities, which if you add technology, digitisation and finance, can play a big role in driving change.

So we went away and identified where the emissions were, and found that 50 per cent of emissions were in the agri and food space. We then went deeper looking for opportunities to reduce emissions.

With rice, for example, it’s a one gigatonne methane-producing industry that feeds half the planet’s population and the sector is growing super fast. But, just by changing some practices, you can reduce methane release by 50 per cent, which is 500 megatonnes of emissions – about half of the emissions of the aviation industry.

We built a company which does that. How did we change behaviour? We created incentives for rice farmers by lowering the cost of the inputs – the seeds, fertiliser, pesticides – we reduced the cost of financing, and we increased their yields by changing to more productive practices.

So they get more revenue per hectare. We also got a small amount of offtake at a premium price. Long term, carbon credits can play a role as well – to increase the revenue we give to farmers to incentivise them even more. 

I would say to anybody thinking about Asia, particularly in emerging Asia, there’s an embarrassment of opportunities, both from an emissions point of view, and also from a business point of view to create what we call “a hundred by a hundred” – US$100 million revenue from reducing 100 MT of emissions. We’ve built 10 of those companies already. By this time next year, we’ll be close to 20.

You started Planet Rise in 2019 and Wavemaker Impact, Asia’s first climate tech venture build fund, in 2021. Tell us what has changed about the climate tech scene in Asia since you started out five years ago.

First of all, I’d say I’m a relative newbie. I’ve been talking to people who’ve been investing in this space for the last 10 or 15 years, they’ve already seen the boom and the bust. There was a big boom and bust in the early 2000s when everyone rushed into the clean tech space. It was the right idea, just the wrong timing.

Harvard Business Review did a study of 10,000 startups and asked entrepreneurs what’s the most important thing [to assure success]. Is it a business model? Is it the founders? Is it the market? It boiled down to one big thing – timing.

Then you start to think about why is the timing good now versus maybe five, 10, or 15 years ago. As I said previously, we have all the technology to deploy now, it’s both cleaner and cheaper. The cost of renewables has come down by 90 per cent and is cheaper in most cases than fossil fuel, particularly if you take away the trillions of dollars of subsidies.

So the timing is good now because the cost is lower now. So you’ve got the right ingredients to be able to deploy. Secondly, awareness [of climate change] is now considerably higher. We’re seeing a lot more evidence on a daily basis of record temperatures, record floods, record wildfires. We’re seeing an increasing frequency and ferocity of climate impacts on things like food security and migration. There’s an increasing awareness to act – and act quickly.

Now, there’s something like 93-94 per cent of the world’s GDP under net zero commitments. Yes, you can argue it’s not enough and not happening fast enough. But at least now there’s progress. Yes, we spent far too long analysing text at COP to keep the fossil fuel industry happy. But it’s moving in the right direction.

So now, the movement and timing feels right.

And if I stand back and think what else has changed since I started in 2018, there’s a lot more available talent in Asia. When we started Wavemaker Impact, we had people from Boston Consulting Group, McKinsey, corporate venture builders, corporate organisations, taking 30 to 50 per cent pay cuts to join us. Thankfully, now we’re able to pay them all at market rate.

So people are willing to put their money where their mouths are. Particularly the young generation, who are, in many cases, quite purpose-driven. They are saying: “I want to make a conscious decision, particularly post-Covid. I want to work for a company that has got purpose. I want to make a difference.”

After maybe 15 or 18 years of entrepreneurs building tech businesses in Southeast Asia, we’ve now got a landscape where there are founders who’ve built one, two or sometimes three companies already. They may have made billions, or maybe a few millions and they now want to do something in this [climate tech] space.

There are now more and more funds focused on nature, biodiversity and the environment… family offices like Silverstrand Capital [which invests in regenerative agriculture and nature-based solutions], climate funds like Radical Fund and Carbonless Asia, as well as existing venture capital firms (VCs) like Sequoia, Open Space and AC Ventures now putting more of their funds into green tech. There are now more accelerators like Entrepreneur First and Antler producing more climate companies, and companies like ours in venture building.

So there’s more awareness and visibility of where opportunities are. These companies are not just solving a climate problem, they are generating revenue. The companies I’ve invested are now generating anything from US$10,000 to US$50 million and everything in between. These are real companies, they’re generating revenues today and producing a cleaner outcome. Ten of my portfolio companies all raised last year – and that was in the middle of the funding winter. That tells me there’s more interest and desire to invest in this space. Now it feels a little bit more mainstream.

Tell us a bit about what the hot topics are now in climate tech.

I can start with what not to focus on. I think there’s been a lot of investment and focus on deep tech, new R&D and science – which will take multiple decades to come to fruition.

There’s also a natural inclination for investors and founders therefore to focus on low hanging fruit, which look like climate tech companies, but are actually pure software companies. For example, where a company is focused purely on measurement and data capture.

The natural inclination with more traditional VCs is that they’ve been investing in internet, digital and software companies. Now, they’re just taking that approach and applying it to climate.

For me, at least the way I look at it, I personally don’t care who does what, as long as it’s having an impact of reducing or capturing emissions in the short term. Because every second there’s 2,000 tonnes of CO2 equivalent going into the atmosphere.

But software on its own, I don’t think is going do it. Carbon credits on their own are not going to do it. It’s like a get out of jail free card for a lot of the big polluters in my opinion.

What we need to focus on, I think, is deploying what we already have as quickly as possible, and identify the incentives, whether it’s for farmers, or a factory or construction company, to adopt this technologies at scale as quickly as possible – and essentially that’s what we at Wavemaker Impact do.

The second lens to look at this though is where the emissions are. What we saw five or six years ago was this big rush into EVs. Everyone wanted to be Elon Musk. And so 70 per cent of all of the investment in Southeast Asia was going into the mobility space. But mobility was actually about 12 per cent of emissions; 88 per cent of the emissions is elsewhere – and 50 per cent is in the food, agriculture and land use space.

What we’re seeing in Southeast Asia, thankfully, is a resurgence in focus on the food, agri and land-use change space because ultimately food, agri and land-use and climate are inextricably linked for many reasons. One is obviously the stress climate change has on food security. Extreme heat and rising seas, for example, cause soil salination and reduce yields. Over-fertilisation produces lots of nitrous oxide, which is a greenhouse gas. It’s a vicious circle. As yields decline, more fertiliser is used, and yields decline further as soil quality declines. 

So I think the food, agri, land-use change is where [climate tech] is hottest and it’s been underserved for so long. There are many opportunities, not just from an emissions perspective, but also economic opportunities. If you can help a farmer go from an income of US$100 to US$130 or $150, not only does it have a transformational impact on their livelihoods, but also on community, education and healthcare.

But also, mitigation turns into adaptation and resilience. So not only reducing emissions, but you’re also strengthening the stakeholders to weather the impacts of climate change by making them financially stronger.

There’s also a huge amount of agri and food waste which is just burnt or left to rot. But if you can turn that into biochar, that can be fertiliser for farming, or used as biofuel to replace coal… these are all areas that we’ve built companies in the last two and a half, three years now.

How do you know which solutions work and which don’t, for instance carbon credits? Some of these are emerging technologies, right? And also what are the secrets to a climate tech startup that really goes the distance?

First, let’s just touch on carbon credits, I think they play a significant role in terms of funding things like high quality nature-based solutions. We need a sustainable source of finance to restore and conserve nature. So I’m not ‘dissing’ carbon credits completely.

What I dislike seeing though, is for example, startups working very hard to build, let’s say, electric stoves to replace wood fired stoves, which are safer, healthier and less polluting and generate high quality carbon credits. But you get a large oil company like Shell offering to buy these credits cheaply for say, US$10 million in advance.

A startup needing money might celebrate the US$10 million “win”. But of course that doesn’t happen immediately, and takes time. By the way, this locks in a really, really low carbon credit price today while the market grows. And also allows the polluter a cheap opportunity to offset the damage they’re causing [to the environment]. 

So that’s why I don’t like carbon credits.

But as a tool at the end of the [carbon reduction] process, or to accelerate adoption of a green technology, I think they can play a very important role. In our rice project, we reduce financing and input costs, improve yields, and offtake prices – and if we can get carbon credits as well, we can return that capital to the farmers, encourage more participation in the programme and grow rapidly from a hundred, to a thousand, then a million farmers.

The second part of that question was, what are the secrets to a climate tech startup that goes the distance, and also around untested technology.

On day one [at Wavemaker Impact], we started with a blank piece of paper and we look for experienced entrepreneurs, who have built two or three companies already. We’re not teaching people how to become an entrepreneur.

If we have a choice of working with a do-gooder – or tree-hugger in your words – and telling them we want to build a unicorn with you, versus someone who knows how to scale companies and do something in the climate space, we will err more on the side of the entrepreneur who has demonstrated the ability to scale.

What we are trying to do is help them identify the biggest opportunity. So we have a blank piece of paper and a team of three people who work alongside the entrepreneur for six months. Normally, we start off with understanding the founder’s ikigai – their passion, their interest. And we try to build on that.

We then go and research. And by researching, we start to uncover potential opportunities. We then start talking to potential stakeholders. They might be people with degraded land in Indonesia, or people running garment factories across Southeast Asia, and we understand what their economic pain points are. We don’t talk to them about climate, because with the best will in the world, they don’t really care because they’re trying to eke out a living based on what they’re doing in a micro-SME or SME.

Then we try to work out, how a solution can play a role in delivering economic opportunity and also a green outcome. And believe it or not, there’s a huge amount of research in many cases on climate impacts on deploying of some of these technologies.

For example, if you replace a diesel water pump for irrigating a field with a solar pump, you know you’re going to save four tonnes of emissions. Then you realise if we can deploy 100,000 of these, that turns into half a million tonnes of avoided emissions from tried and tested technologies.

What isn’t tried and tested yet is the business model, taking the technology to scale and the finance – what does all of that look like? And so during that six months, we’re testing things and getting to a point where we’ve got a minimum viable product – we have a hypothesis and we’ve tested where we think there’s going to be a hundred megatonnes [of CO2 removal] and US$100 million revenue opportunity within 10 years.

But invariably during the process, you come up against roadblocks, and learn new insights and pivot probably two or three times to find the right product market fit.

Our job is to try to help the founder find that product-market fit as quickly as possible. Because as soon as you’ve got the product market fit, you can attract talent, customers and funding a lot faster. But most of the companies are generating revenue within 12 months.

The first one we did is now generating about US$7 million in revenue this year and is EBITDA positive already in two countries, and about to enter a third country. So you can build nice, scalable businesses using this boring trial and test process.

Your investments are not always guaranteed to pay off, short or long term right? What is the biggest mistake you’ve made, and your greatest triumph to date in this sector? Also, what do you suspect are the biggest mistakes you’ve noticed others make in this space?

First of all, I’d say that building any startup to a point where it becomes successful is a 10-year journey, minimum. But the big caveat to my answer now is, I’m only five years into my own journey, so I haven’t quite got there.

However, I can share a little bit in terms of, how I approached it initially and how I approach it now.

Initially, when I was moving into this space, I was very “green” to the topic. I was learning. I’d meet people and start by saying “I’m focused on climate, and I want to invest in this space”. I would fall in love with the founders’ ideas, their passions, their purpose, and be less rigid and strict about the potential opportunities.

Some of those early investments I made, out of the 22 or 23 so far, were probably more “gut”, or emotionally driven and came from a desire to do good rather than a desire to do good and also have a big impact.

What changed over time was to think more about how to have a really big impact.

I think what has changed, from my point of view, is being a little bit more disciplined around the founder or founders. Are they curious? Do they have a higher EQ? Are they going out talking to customers on a daily basis and learning? Because the way to finding the product-market fit and accelerating the company’s growth comes from really understanding the market, the customer’s pain points and addressing these pain points.

Or do they know it all? Do they take the view that “I don’t need to know all this, I’m an expert in my area.” That differentiates whether a company gets invested in or not, from my point of view.

That goes even further when it’s a science-based company. Early on, I invested in a few deep tech, science-based companies. And in many of them, it’s just a scientist or an engineer so in love with their technology, they just keep improving it, polishing and gold-plating it. But it never gets commercialised. So that’s probably the biggest mistakes [made in the climate tech sector].

Interesting you mentioned the EQ of entrepreneurs, which perhaps doesn’t get talked about enough in this space…

It’s the most fundamental thing.

The entrepreneurs who are constantly curious, asking questions, learning, listening, asking for advice, taking it on board – not all of it, of course… They know that business better than anybody else – but are willing to be challenged, to listen and have a dialogue and be curious…

If you’ve got a founder who thinks they know it all, they’ve got the best technology, the best product in the world and everyone should have it, then clearly it’s not going to work.

To get there, you need to ask lots of stupid questions, you need to be really humble and spend a lot of time with customers and be curious.

In terms of triumphs, I think it’s probably a little bit too early for me to say.

How I’m looking at it is, the companies that can have the biggest impact. I will probably get slammed for saying this, but I’m not so focused on the financial returns. I’m doing this cause I want to make a world better place for my kids. So I very much approach it from an impact point of view.

You’ve got US$1 million dollars left in your back pocket. What sort of climate tech would you invest in and why?

I put one million dollars into Wavemaker Impact as a general partner, because I think if we can build 60 companies, and some of them become 100 megaton opportunities, then it starts to look like a gigatonne opportunity, then two or three gigatonnes over time.

You squint and say, okay, maybe that gets to 10 per cent of GHG emissions, while the big funds go into R&D and “rocket science” stuff, which hopefully will materialise and have a big impact in 20, 30 years’ time.

Our focus is on technology for emissions sequestration, or reduction at scale today. That means some kind of physical product to absorb carbon. So all the companies we’re investing in and building have some form of hardware. Meanwhile the whole VC industry is geared more to the software industry and internet, which in many cases is obviously easier to scale.

If I go to the portfolio of all of the green tech companies I work with and ask: What’s your biggest challenge? They’ll say I need a bit of emotional support as a founder, or I need some help with organisational development or business development or funding.

That’s the same for any startup. But what’s different about a climate tech company is the physical hardware. Because you need hardware to either capture or reduce emissions. It’s physical. In the finance industry today, particularly in Southeast Asia, there’s a gap around funding these businesses with working capital or debt finance.

Yes, there’s a wall of VC money. There are family offices, there’s early-stage, mid-stage, B2B, B2C, etc. But there are no companies looking at debt finance yet. And it’s the single biggest decelerator [in this space].

These companies would be willing to pay 15-20 per cent interest on their money, because it’s considerably cheaper, rather than taking VC funding and heavily diluting their equity.

Ideally, you’d have a very healthy VC equity financing industry, and also very healthy debt finance, working capital and inventory financing. But the latter is missing. So if anyone listening to this podcast is interested, I’d love to talk to them. Because these companies need anywhere between half a million and five million in debt finance. That would just enable them to buy the kit, assemble and distribute it, rather than use their precious equity money, which doesn’t make sense at all.

One last thing. I’m fascinated by how you manage your time. How do you do what you do? 

First of all, I do it really, really badly! I don’t get the balance right. Which is why I know I couldn’t just do another startup again, because it’s all-consuming.

It’s a never-ending challenge for me personally. I have a coach who helps me prioritise and say “no” to things. she holds me accountable to focus on what’s important. 

For example, I was on seven advisory boards in Asia. I was doing calls at 5am, 6am, 7am, 8am – not much fun during winter in the UK. You wake up, it’s dark. You’ve done four or five hours, and it’s still dark.

So I’ve reduced the number of zoom calls and stuff I have in Asia, which consumed a lot of my time.

Now I have one day in London, meeting human beings.

I have one day, which I’m trying to keep for myself.

Then I have two days, which are call days, which is generally on Mondays and Thursdays. Wednesday is an emails and catch-up kind of day.

But to be honest, I’m not that disciplined. I’m not the best example of how to do this well.

The transcript has been edited for clarity