ADB Ventures, the Asian Development Bank’s venture capital arm, has announced its plans of launching a new debt fund of $100 million by next year, according to a DealStreet Asia interview with Dominic Mellor, Principal Investment Specialist at the ADB. The new fund will be geared towards investing in sectors such as CleanTech and AgriTech.
According to ADB Ventures’ Principal Investment Specialist Dominic Mellor, there are three main obstacles for businesses in verticals such as CleanTech and AgriTech. Companies would need to adapt to multiple small markets, especially in South Asia and Southeast Asia. More often than not, companies in these verticals have hardware attached to their solutions. This may not be attractive to some VC firms as the returns may come back slower than a company providing software-only solutions. The last obstacle is the lack of late-stage funding for companies to scale their operations.
The VC arm aims to address these obstacles. ADB Ventures was founded in 2020 and closed its first fund at $60 million. Its first vehicle will be deployed within the next three years and the remaining amount will be set aside for follow-on investments to be disbursed from around 2024 to 2033. ADB Ventures requires that the companies have a pre-Series A to Series A fund in the range of $500,000 to $4 million to qualify for the fund. The firm plans to announce its first list of investments this coming March 17.
Aside from its first fund, the firm also has its Seed Programme, which provides funding of up to $200,000 for companies that it deemed too risky to invest in using its first fund. This will allow companies to test the waters with their solutions. If the business is viable, the firm will then consider a follow-up using its fund.
The company’s fund for 2022 aims to solve the third obstacle, Mellor stated. The fund will concentrate on investing in companies in their Series B stage of funding for scaling and expansion.
When asked about Environmental, Social, and Governance (ESG) investing, Mellor explained how Asia is slowly on its way to catching up with North America and Europe, which are leaders in impact investing. Currently, in the view of total asset management, ESG investing is in the single digits but is growing fast. Countries such as Singapore and China are pushing for more types of “green investing.”
Mellor also goes into how ADB Ventures considers impact investments next to financial returns. He states that proper due diligence is needed to vet a prospect from both perspectives. More importantly, impact needs to be fully integrated into the company and not just an afterthought. With financial returns, we are seeing a lot of growth in the different industries as brought about by problems concerning future demands.
In CleanTech (energy efficiency, circular economy, and access to energy for remote communities), there is a larger demand for energy due to the rapid growth in population. This makes very attractive commercial returns for investors. Last month, global investment firm Eurazeo also announced that its Smart City II fund will also look into investing in startups in the energy, mobility, PropTech, and logistics industries.
For AgriTech and FoodTech, Mellor mentions that the APAC region needs to increase its food production by 77 percent to feed the population by 2050. The industry has been gaining traction across the region. Singaporean companies are mobilizing in the industry as the country aims to produce 30 percent of its food locally by 2030. Nutrition Technologies has also just opened an industrial-scale insect protein factory in Malaysia to address the growing demand for animal feed, aiding in efforts toward food sustainability.