Ep68 Bridging the Climate Finance Gap: VC Trends in APAC, ft Toby Chan, Audacy

Joseph Jacobelli and Toby Chan unpack the dynamic landscape of climate tech investing in Asia. The discussion highlights current VC trends, financing gaps, and the transition from emerging tech to mainstream infrastructure, with case studies from maritime and aviation. Discover why Asia is gaining ground amid US policy shifts and how policy, capital, and supply chains are driving change in the region.

ABOUT TOBY: Toby is a co-founder of Audacy Ventures Limited, focused on catalysing and scaling decarbonisation technologies critical to the energy transition post his prior career in traditional energy and renewables. Audacy is an early growth stage investor and supports technologies related to energy efficiency, transportation and industrial decarbonisation, that are in early stages of commercialisation particularly in the APAC region.

Toby has 20 years of investments and advisory experience across energy, infrastructure, technology, real estate and natural resources. Toby advised on over US$15bn of transactions whilst at Macquarie Capital and was part of the founding team of Kerogen Capital, a specialist in international energy investments with over US$2 billion AUM.

FEEDBACK: Email Host | HOST, PRODUCTION, ARTWORK: Joseph Jacobelli | MUSIC: Ep0-29 The Open Goldberg Variations, Kimiko Ishizaka Ep30-50 Orchestra Gli Armonici – Tomaso Albinoni, Op.07, Concerto 04 per archi in Sol - III. Allegro. | Ep51 – Brandenburg Concerto No. 4 in G, Movement I (Allegro), BWV 1049 Kevin MacLeod. Licensed under Creative Commons: By Attribution 4.0 License

Transcript

*** PLEASE NOTE: Automatically generated transcript may contain errors. For accuracy, only rely on the original recording. ***

Ep68 Bridging the Climate Finance Gap: VC Trends in APAC, ft Toby Chan, Audacy 20250808_1040

Good morning, good afternoon, and good evening, wherever you may be listening from. Welcome to episode 68 of the Asia Climate Finance Podcast. In this episode, I sit down with Toby Chan, co-founder of Venture Capital Firm Audacy. Toby has over two decades of experience in investment banking, private equity, and venture capital, and has specialized in energy infrastructure and natural resources.

We have a deep dive into the shifting world of venture capital and climate tech across the Asia Pacific region. The conversation travels through investment strategies, the evolution of energy transition, finance. And how pioneering solutions are overcoming policy and market hurdles. Expect an insider's view of trends, challenges, and success stories shaping the Asia Pacific path to net zero.

Please do contact us for ideas on themes, guests, or just uh, some comments. The email address is in the show notes. I really hope you enjoy this very interesting conversation.

Joseph Jacobelli: Hey Toby, welcome to the Asia Climate Finance Podcast. Really happy to have you. Know you've been traveling around quite a bit, so glad that caught you. How's everything, how's, how's Hong Kong doing? 

Toby Chan: Hong Kong is , spent some time in, in the southern hemisphere, , had had the cool winter breeze for a little while and back to Hong Kong, hot and humid weather. But I, I knew that I skipped a lot of black rain events when I was away, so I'm glad to return to better weather.

Joseph Jacobelli: The frequency now of these one in a lifetime weather events in Hong Kong when you, once you get it three or four times in the summer, it's a little bit, it's a little bit crazy. But anyway, once again, thank you very, very much for making the time to chat about venture capital in general in in Asia, what's going on, all the trends. I really appreciate your time. 

Toby Chan: Thank you for having me. 

Joseph Jacobelli: So, Toby, we've got your bio in the show notes, but could you just tell me a little bit more about, , yourself from your own perspective in terms especially how, a little bit about your background and then how did you kind of get into climate tech and the energy transition in Asia in general?

Toby Chan: Sure. So firstly, pretty much my whole career of 20 odd years has been in the energy and infrastructure space. Initially with Macquarie Capital in Sydney where I grew up did a lot of work in the traditional energy and transportation infrastructure space. And back then I started, just started seeing the first.

Solar and wind sort of lookalike projects. It wasn't even called renewables then. But then I, I moved back to Asia about 16 years ago when Macquarie was expanding in Asia. Was also curious about China. So did a number of M&A transactions there. And then I joined the buy side as a founding team member of an energy specialist, PE firm called Kerogen capital. Helped them raise the first couple of funds and they're now a $2 billion US platform. And I was like, searching, what's the next thing ? Took a career break. And then after that that led to co-founding of Audacy in 2017. 

Joseph Jacobelli: Right. Tell us a little bit about what Audacy is, because you could just describe, it's a venture capital firm based in Hong Kong, looking at Asia climate tech. But I think there's a little bit more to that. So maybe just tell, tell us a little bit more about the company. 

Toby Chan: Yeah, so, get on with what the current focus is now. we are an early growth investor, specialized in climate tech solutions and APAC that are ready for commercialization and scale up mainly across three thematics: in energy efficiency, transportation and industrial decarbonization.

And we work with and co-invest alongside with many corporates and strategics in the region to facilitate that scale up like process. But the, the history is really a, a joint effort between sort of a highly specialized investment team in the energy and industrial space. But supported by the drive from the next generation of many co-founders family office to invest more sustainably.

And the, the first couple of years in 2018, 19, we invested more in, the traditional distributed renewable space back then where there were still some attractive opportunities. But since 2020, the pivot or the focus has been increasingly more on the technology side and, and to what is now sort of the climate tech strategy.

Joseph Jacobelli: Just because we mentioned climate tech quite a few times before I ask you a little bit broader questions about the markets and, and before we get into climate tech, could you just, quickly define what climate tech actually is?

Toby Chan: Yeah, I know that is a concept or, or an outcome rather than any specific industry and mm-hmm. Mm-hmm. , and in Asia, we, we constantly, , need to sort of educate people more about what it is. I think in the West is definitely more understood and mature. Right. But a lot of the solutions is helping various industrial process to become more efficient.

 People think of like, like EV as an example, is to make the auto industry more efficient. , The electrical motors are much more efficient than fossil fuel banks, right. So, and then there's what about other tra other forms of transportation like aviation? Of shipping heavy industries or lower carbon materials in the built environment.

So it's really encompasses various types of industrial solution to enable a lower carbon economy, but will at the same time, hopefully saving costs as a result once these solutions scale. 

Joseph Jacobelli: Right. And, and I think that later on we're gonna go on with a couple of examples to put a little bit of color.

But let, let's go back to the big picture first if I could. Mm-hmm. So, , we're trying to understand, or at least I try, and I think many other people try to understand a little bit about capital flows in in the energy transition related project and solutions. And I'm making as, as wide as I possibly can in terms of definition.

 What's the state based on, , your discussions with investors, and I know that you are focused on, , a portion of that, which is the VC market, but I'm sure you're also, were aware of the broader trends. Because there's a lot of misunderstandings I think out there saying, well, there's not enough money. We need to find financing solutions. We need to find, we need to find finance, and we need to find financing solutions. What's your opinion on that and what, what are the general kind of capital flows that you're seeing in terms of , funding and financing, energy transition related projects and solutions in Asia Pacific region in general? Where's the market? 

Toby Chan: Yeah, as I mentioned my previous background had been, , involved with, on the infrastructure side and in private equity as well. So I'm pretty familiar with what they're up to. So the state of play in, in my opinion, is yes, we have the infrastructure as an asset class that's growing and booming, right? So you have a lot of established infrastructure funds not only the Macquarie, the KKRs, the Stone Peaks, and even more newly established ones that are investing in very established technologies solar, wind, but they are going to complimentary technologies like, like batteries, et cetera.

Mm-hmm. Mm-hmm. But many are actually that raise big pool of capital before have seen those established asset classes. The returns are normalizing. So they have to explore a little bit, either go earlier stage or you invest in platforms or some funds are willing to take, , more nascent technologies.

 Then you have the PE funds that are also quite large, but not as large as the infrastructure funds that , have been looking at later stage growth rounds. But they're actually not that many around since the the EV wave has passed a few years ago, so. Mm-hmm. And then on the other end of the spectrum, you have traditional VC firms that the, the traditional model is you invest in a big portfolio of you know what I call, like bets and they're mm-hmm. Really focused on the C stage. Little bit of a spray and pray approach. And I think that's where we differentiate and there's not enough capital to support. Sort of more mature technologies, but they are at the earlier stage of commercialization where they're not in the position to raise those huge rounds for the later stage B funds, not at that infrastructure stage yet, but need that scale up.

Sort of capital. So that's why we're focusing there. We think that's where a significant gap in, in that series sort of C to B round. And we also think that it provides a good sort of risk adjusted returns for investors. 

Joseph Jacobelli: Right. So, so in summary, or if I can paraphrase it in a, yeah, my usual very bad way which is, , on the private equity side lots of capital available, identifying projects is challenging because, . We can talk about that separately. Secondly, on the VC front, it really depends on which portion of the markets you're, you're, you're, you're talking about. But in terms, I mean, your sense is that in general the funding and financing is not really a major stumbling block or hurdle for the growth of the energy transition in Asia.

Toby Chan: Yes. I think we need just more successful like case studies. We need more, I guess yes, policy is put to capitalize that capital, but it is there. And also, , a lot of private investors are sitting on a lot of capital just waiting for the right opportunities to, to deploy, so. 

Joseph Jacobelli: Right, right.

 One capital related question before we get on to talking about climate tech specifically, , there's been let's call it a, anti clean energy wave in the us recently kind of started late last year and it got accelerated in last six months. So given the recent pullbacks in the US is that a, an opportunity for Asia? In terms of both technologies as well as capital flows?

Toby Chan: I definitely agree. That is the case because four. The longest time US is seen just as a very healthy or attractive ground for scale up and commercialization. Of course the IRA has also helped accelerate things the last few years, but with a lot of those being pulled back and increase uncertainty, not just about now, but.

What, what's gonna happen in the next few years. Like the, the Big Beautiful Bill is just one thing, but like you, it's just the uncertainty makes people right. A bit more skeptical. And and, and then people realize in Asia actually we have the supply chain here. We have a very good manufacturing skill set for scale up.

 And actually. Different countries regulatory bodies are increasingly supportive of this theme , and say, Hey, we are gonna become like leaders in, in the clean tech space. Not only China, but like other regional economies are looking to sort of have a longer term vision and see this as a strategic area to invest more in.

Joseph Jacobelli: And are you already seeing some. Kind of hints of capital flows or, , people developing technologies, preferring Asia to some extent Europe rather than rather than the US because of all the uncertainty being generated in the US. 

Toby Chan: Yes. I wouldn't say necessarily.

Prefer, but they're def definitely more open to explore what they would try and head the risk and, and run things in parallel. Mm-hmm. And I'm also seeing capital allocators like previously. for discussions with like other investors, they will only look at US focused funds or at least US centric, US plus Europe.

Now they're definitely more open to seeding deals and, and, and managers in Asia Pacific as well. Just to diversify, at least diversify the portfolio a little bit given the increased uncertainty. 

Joseph Jacobelli: Right. So moving on to climate tech, what's the biggest misconception that, , the investors you talk to or investors in general still have about climate tech globally? I mean, that's in general, and then is there kind of slightly different view or even less of a, more of a misconception in the Asia Pacific region? 

Toby Chan: Yeah, I think as we mentioned before one is in Asia particular, what climate tech is, mm-hmm. Which we talked about. But the other common misconceptions is if anything that's cleaner will necessarily be more expensive, they still see this as concessionary capital or, or philanthropic.

 They still require more convincing and education that, oh, this is actually particularly with the right solutions it helps enterprises save costs, it increases your margins, and therefore, actually it is not concessionary. The more impact that we could make actually , the, the climate tech business or a portfolio company should actually be more profitable.

And then the other thing that we have to sort of counter but in some cases up they these businesses take 20 years to scale. They're really, really capex heavy so far away from commercialization. But in reality we see actually a lot of solutions where the technology is already quite mature has been developed within research institutions for a long time, or the founders have bootstrapped very efficiently where even an early growth company is already 10 years old, and so it doesn't take another 10 plus years to actually have an exit or have a positive outcome. 

Joseph Jacobelli: We talked before a little bit about climate tech, you and I, Toby and you, you were kind of arguing that, , climate tech investing is actually giving rise to a new infrastructure asset class. Could you, talk a little bit more about that, please?

Toby Chan: Yeah. So we know from, . Various sources out there that to facilitate the energy transitions we need to invest annually, trillions, and trillions of dollars in this space, right? Mm-hmm. Yes, we have cracked wind and solar or other asset classes like this, but we can't actually deploy these trillions of dollars until we actually have technology or improve the technology to make these sort of infrastructure or, or the rollout of these infrastructure like viable. As I mentioned we have a lot of established infrastructure asset funds or investors out there that are waiting for a say, for example, this, one of our portfolio companies in the sustainable aviation fuel space the whole industry is still relatively early.

You have some mm-hmm. Plants that are scaled up using established technology pathways like HEFA. But there are other methods of producing SAF that are technology mature, but you cannot deploy. They're at the cusp of, , having the first few commercial infrastructure facilities, but they're sort of in the order of a couple of hundred million dollars. But once you see successful case studies, examples of that, then people say this is an established technology. Then people would want to do the same, sort of, use the same technology in different parts of the world. And same with other asset classes, like waste to energy. For, say for example in the municipal solid waste. We do that. And, and similar to a lot of the other solutions that we look at. Mm 

Joseph Jacobelli: mm mm mm-hmm. Toby, how do you balance climate impact with financial returns? Especially in early stage investment? I mean, that's, that's a very broad question, but j just from your perspective, how, how do you look at that?

Toby Chan: From Audacy's standpoint we don't believe there's necessarily a trade off. Hmm. So we are seeking the solutions that are scalable therefore creating the impact. And if that happens, then sort of the financial returns will come. I think our balancing is okay, there, there are a lot of early stage investment opportunities that, where the technology is less mature and then in some cases maybe philanthropic capital or government grant money or subsidies would be in a better place to fund such technologies at that stage. But where we investing in, we, we believe in most cases the interests are actually aligned. But as I mentioned earlier, yes, there are other solutions that takes a longer commercialization timeline with huge potential impact. But then you have, you have other sort of investors that are more set up for, for those types of investments.

Mm 

Joseph Jacobelli: mm mm mm mm. Again, sticking to climate tech, what, which climate tech verticals are most sought after right now? And which ones do you think may be, , undervalued. 

Toby Chan: Yeah. Well, I think. We can go through like by a process of elimination or what's happening in the market recently is what's given the scarcity of capital or certain pullbacks is what's gone out of favor are those solutions that have longer commercialization timelines and the commercialization environment is less certain.

So I'll say those that less attractive now with like the direct air capture solutions more bio-based solutions where the scale up process is more difficult. Hydrogen has experienced a, a, a pullback 'cause The infrastructure's not ready. Just anything that tends to be more CapEx heavy. But the commercialization time is a bit far. 

So on the contrary where investors are still more amenable to at least, , assess opportunities is where the commercialization market is perceived to be more certain. We all know, for example, there's a big AI data center boom and that means grid infrastructure needs to be upgraded. There'll be more needs for cooling technologies. Mm mm mm They might need to have power generation on site. So the solutions that are tangential, for example, to that. Mega trend is seen as more in favor by investors. 'cause they just feel like the commercialization market is more certain.

 I'll, I'll also say we ourselves are also looking at less policy dependent solutions, such as in the built environment, more efficient heating, cooling system, hvac. We, we hadn't made an investment in that space, but we are looking at it more seriously. And then also other waste to energy solutions.

 We utilizing industrial waste heat because the input is, waste and very low cost and you can sort of that degree of circularity that's pretty attractive. And other particular thematics could be there. They're actually a lot of bridging opportunities out there that from a valuation perspective are quite attractive because, the fundraising environment has been slow recently, so a lot of companies needing to do extension rounds. Some of those could be quite attractive. As I mentioned, they're also like early stage infrastructure development opportunities that are not a lot of investors early stage investors understand because they just don't come from an infrastructure background.

Mm-hmm. Yeah. So I'd say some of those that I mentioned. 

Joseph Jacobelli: That's great. Maybe just going back to Audacy to put a little bit of color, Toby, on what we are talking about. Do you think that you could talk about two or three of your investments, whether they're current or, or, or past investments so as to give a little bit of color?

Or what it is that we're talking about in terms of company profiles, where they coming from? Perhaps what kind of size of funding we're talking about. Maybe just two, two or three examples to put a little bit of color in the picture. 

Toby Chan: Sure. So I'll give an example in, in the maritime space, we made an investment in a company called X Fuel. And the core technology platform is a chemical refining technology. And one of the first use case is to recycle marine oil sludge, which is the dirty oil that come from, industrial shipping and able to recycle that into clean shipping fuel in a very energy and cost efficient process. So the technology has been, as I mentioned, been developed by the founding team for around 10 years already. It has gotten it from inside the lab to, early stage pilot and it's just, we invested just when the the funding is used to do the first commercial facility in Europe.

And for us coming in we know the shipping space quite well in APAC. Also one of our advisory board members was very experienced shipping exec, , had experience in Maersk. And we've been able to sort of connect the company with sort of sludge collectors in places like Singapore, which is a major shipping hub.

And, mm-hmm. Trying to, to land the technologies in major shipping hubs in, in, in Asia. 

Joseph Jacobelli: mm Mm mm. Interesting. Do you have maybe 1, 1 more example to just put a little bit more color. 

Toby Chan: Yeah. So we also invested in, in the aviation space a company called Jet Zero Australia. Currently they're developing the first commercial project in Australia.

 The technology pathways called alcohol-to-jet. So they using agricultural waste the energy content from that to create jet fuel. So. Again, it's on the cusp of commercialization. We've been supporting them since the end of 2022 from the Series A.

 We also made a follow on investment in the Series B last year alongside Qantas, Airbus, and a Japanese strategic. Energy company called Idemitsu and they're already progressing to the series C and hopefully like early next year it'll get to that sort of final investment decision stage to put in the big CapEx, the CapEx for this first project will be somewhere between, , the 500 to a billion dollars. So that's where we are already having conversations with infrastructure investors that would like to come in at that stage already. 

Joseph Jacobelli: Right. That's sounds pretty, pretty massive actually.

Toby Chan: Yeah, and that's just the first one. It's really a development platform for a series since our. When we initially invested, it was one anchor project, but since then there's a second project in Australia that is at least twice as big and we are also helping them, , with business development opportunities in other Asian countries such as Thailand, where there's a lot of sugarcane waste.

 Mm-hmm. Mm-hmm. They also have business opportunities in, in Brazil where there's also a big sugar industry there and, and mm-hmm. The waste has been underutilized. So it's really, , becoming a more and more international platform. 

Joseph Jacobelli: That's great. I think these maritime and aviation examples are really great Looking a little bit at the outlook now, if I could Toby two questions on that front.

One is the more. Kind of hot topic. The Asia Climate Finance Podcast is not, is not focused on, , the latest hot topic because we're looking more at the long-term trends. But I think one hot topic, which is a long-term trend as well, is this gold rush to AI. Which is very hot for many investors right now.

 But not realizing energy is a huge part of the required solution. , data centers especially backup power, the energy storage, cooling technologies, et cetera. What are your thoughts on that?

Toby Chan: I think it's great that, like, that thematic is getting more attention to these type of solutions and realizing that infrastructure, like the grid has been underinvested for, for a long time. So it's shining, , a light on, on those groups of technologies.

Mm-hmm. But the outlook for like other types of solutions is, I think it's, it's gonna be a bit tough for the next couple of years. We just need more successful sort of case studies of technologies, , crossing that scale up phase and to become more mainstream and other investors say, oh, say that this is no longer a new technology.

It's been proven by first a couple of like commercial Facilities like I mentioned in the SAF space. 'cause I, a, a lot of investors are sitting back and waiting to see these new solutions being commercialized and scaled up. And then, I think, , hopefully that would open the wallets of the bigger investors.

Joseph Jacobelli: But, the scaling up for example, if we look at, green hydrogen, which in the last I guess 20, 30 years, has gone from hot to cold, hot, hot to cold, from hot to cold. And now we're in a kind of lukewarm situation with hydrogen. I mean, my basic non-technical understanding, 'cause I'm a, I'm a stupid finance guy, is that.

, You just need to scale it up. And once you scale it up, that's how you bring down the cost and that's how you make it more commercially available. And there's a lot of stuff in that space happening in Australia. In the last podcast, episode 67, we had Nick Smith who's an expert in that particular side of things.

So in terms of scaling up is it really what, what you're talking about, so the technology is there. But you just need to have, , China style, size investments to scale up the projects so that the technology can be more viable commercially. 

Toby Chan: Yeah. Oftentimes, or at least in some cases, there's a lot of sort of chicken and egg, like issues like for example with the hydro space as, as you mentioned, right? Like so for investors to put in that heavy CapEx okay, where's the offtake coming from? Like a lot of corporate customers willing or not at the stage of, , making. Binding or, or very solid commercial agreements that the infrastructure investors can rely on because they don't know whether, right?

Yes. So I think in those instances that's where policy can, can step up and either mm-hmm. Mm mm , , facilitate, putting their, their credit behind some of those offtake discussions or provide more first of a kind types financing or at least reduced able to de-risk the project a little bit more to make it more appetizing for investors.

Joseph Jacobelli: Mm-hmm. Mm-hmm. Understood. One very final question, Toby, if I could you have to take your, your crystal ball out of your desk, the dusty one, and share a little bit about what you're thinking in terms of the next, , and then knowing that the energy transition is a long term, long term game, not a short term game, but over the next, , 10, 20 years, where do you see financing going? Where do you see funding going for energy transition related projects and solutions on maybe the VC side or any other aspects that you wanna talk about? 

Toby Chan: Hopefully, and I'm seeing signs of that which is positive, is, , the different parties are. Coming closer and meeting in the middle to, to plug some of those financing gaps, right?

So for example, I mentioned in the sustainable aviation fuel space, right? There are some investors . IFM Brookfield that have at least made public announcements that they're willing to invest in less proven solutions such as the SAF space and really seeing there are solid mandates in that space, especially in Europe where they're binding at least at this moment quotas and mandates. So I'm gonna make, a long-term commitment to putting capital in that direction, even though the solution is technically less, less mature. And so, , you see some of the, what we said, the latest stage investors are starting to come in earlier. Other investors are willing to take more a lot of these technologies not entirely new, not parts of it may be less proven, but a lot of the combinations of the technologies have been proven before. So hopefully, , we see investors being more cognizant of actually just be, because it's a new thing. It's not technically new.

Like all, we'll, we'll come together and realize that. The risk is worth the potential returns. And then these other solutions will hopefully follow in the footsteps of EVs becoming mainstream, like, , hopefully in the aviation and other transportation sectors. And other types of newer infrastructure investors will actually get rolled out successfully.

But there's no doubt that it's gonna take a lot of effort and time and a lot of conversations to how to collaborate and make that happen. 

Joseph Jacobelli: Y you said there's a lot of parties have to come together. What about the role of banks? I mean commercial banks or multilateral development banks who are. By nature, very, very conservative.

So if you tell them, we've got this technology that needs to be scaled up and it's gonna make lots of money five years from now, they're gonna go, okay, we'll see you six years from now. But do you see that some of these banks are starting to at least trying to understand what's going on and looking at the opportunities and perhaps to be one of the early participant in this, whether it's commercial banks or multilateral development banks? 

Toby Chan: Yes. I've seen some commercial banks and banks for multilateral that are little bit more progressive. And, and seeing that this is a real opportunity, but they tend to be, hey, not the first tier, the biggest, right? It's the more up and coming the second tier or, or people that really want to make a name of, of their, their brand out there to be seen as, and it's a long term strategic decision by management who has a longer term vision.

 And, and hopefully with, as I mentioned, with what usually tends to happen is that very few players want to be the first or the second, but once you have that, then the floodgates open. Hopefully we can see that happening. 

Joseph Jacobelli: It kind of defeats the preface of the concept of being a first mover advantage, right?

They want to be the second or third mover. 

Toby Chan: Yes, yes. 

Joseph Jacobelli: Well, listen, Toby, I really, really appreciate the time. I really enjoyed the conversation. I hope we can visit this topic again, climate tech again, perhaps, , next year and see where we're at and see the developments.

 Once again, I really appreciate your time. 

Toby Chan: That's that. Thank you very much for having us again. And we are very appreciative of the opportunity to tell our story and hopefully more in investors or industry participants, , can work together to facilitate the energy transition, particularly in the APAC region where it's like very, very needed.

Joseph Jacobelli: Agreed. Thank you again, Toby. Thank you. 

Toby Chan: Okay, thank you. Bye-bye.