Why we Invested in Two Point O Capital

The micro, small, and medium enterprises (MSMEs) sector is a vital driver of India’s economic growth, accounting for 30% of the country's GDP and 40% of total exports. The sector employs over 200 million people in India, including many in rural India focused on industries such as dairy, textile production, and food processing. The MSME sector contributes to 25% of India’s industrial energy consumption, primarily powered by fossil fuels. Reducing MSME sector emissions is critical for India's ambitious 2030 climate targets.

Given the falling costs of green technology, all kinds of businesses can substantially cut costs through decarbonization. For example, dairy plants and sugar mills in India still use inefficient thermal boilers; upgrading these could save as much as 30% on the total energy cost. India is also swiftly moving towards stricter regulatory requirements on effluent treatment in industrial processes. However, businesses today lack the capital required to upgrade existing units and move towards climate-smart infrastructure. The credit deficit for MSMEs in India is over USD 500 billion, with more than USD 100 billion attributed to the small ticket loan segment. Climate finance for smaller enterprises, in particular, remains elusive since banks and larger NBFCs lack the technical expertise to underwrite distributed green assets.

Two Point O Capital is bridging this gap through its tech-enabled innovative financing platform across rooftop solar, energy efficiency and water treatment. Archit, Karan, Manya and Shashi bring a rich expanse of expertise across the financial and techno-commercial aspects of this business through their work in KKR, BP, Shell, ReNew Power, Honeywell and GIC. Through flexible solutions such as leasing or capex financing, Two Point O will enable sustainable growth across industries in urban and rural India, enabling enterprises and underserved MSMEs to decarbonize. For instance, one of our portfolio companies, Agrizy, currently works with multiple agri-processing units across India in categories including chilli, dehydrated garlic, pulps, purees, and extracts. Two Point O Capital is exploring partnerships with some of these small processors to upgrade their existing systems and cut down on thermal power usage.?

Three things stood out for us at Two Point O Capital:

• Creation of an end-to-end platform across origination, financing and monitoring: Two Point O is building a partnership-based model to enable lifecycle monitoring and asset management. A significant barrier to widespread cleantech adoption is the shortage of skilled technicians capable of effectively maintaining and optimizing these advanced technologies for peak performance. By partnering with marquee operating partners, Two Point O provides guaranteed energy savings and asset maintenance. The company aims to eventually build a sophisticated platform that manages the entire asset lifecycle from origination to underwriting to asset management.
• Focus on the large and untapped small-ticket opportunity: The coming five years will unlock asset creation in small-ticket size segments, driven by textile, pharmaceuticals/healthcare, agriculture, hospitality and other industries. Rural cold storage, currently lacking in a big way, is set to grow substantially. The industrial segment in rural India is evolving alongside the plummeting cost of cleantech. Two Point O Capital is well-positioned to serve businesses that are looking to invest in clean energy assets from a cost-efficiency standpoint. The upgradation of SMEs/MSMEs, both urban and rural, will drive a use case for climate finance.
• Focus on “next horizon” asset classes: Solar rooftop financing has become a crowded and commoditized space in India. Two Point O will capitalize on the opportunity in solar but is also expanding to products that are the “new solar” – energy efficiency and wastewater treatment. We believe that this continuous muscle of innovation and staying one step ahead of what is becoming mainstream will help the company to scale exceptionally fast.

Over the next 18 months, we believe that Two Point O Capital will emerge as a leading financing partner in India’s clean energy transition. The company will use the capital raised in this round to expand its team and enhance its platform to source, underwrite and monitor projects in this sector.

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