How Amasia Identifies Target Sectors
How our "4 Rs of Behavior Change" translates into sectors of interest
We are thesis-driven investors who invest at the intersection of purpose and profit, focusing on software and software-enabled solutions to tackle the climate crisis. We have just concluded a blog post series on our four investment pillars: Review, Renew, Rethink, and Rebuild. Each R represents an area where we believe behavior change at scale has significant potential to reduce emissions.
An obvious question arises: this is all very well, but how does this translate to sectors of interest? The “unit” of VC investigations is a sector — how do we get from the framework to sectors?
In this blog post, we want to dive into how we identify sectors, and subsequently companies, that “fit” into each R. This involves assessing the positive climate impact potential of each sector.
We begin by asking how.
Each R has a guiding question that helps us think about tackling specific climate problems. For instance, R2 prompts us to think about how we can turbocharge the shift in consumption behavior towards reuse and recycling, while R3 asks how we can rethink the environmental impact of the built environment. We use these questions as a starting point for our sector identification. Let’s use R4 as an example.
Identifying sectors under R4
R4’s guiding question is: “How do we help make supply chains for consumer consumption far less wasteful?”
Preliminary research pointed us to a list of behavior outcomes that we want to work towards in the realm of supply chains. For R4, these include reducing supply chain emissions and minimizing supply chain waste.
We then look into enablers — in other words, what actions, or levers for change, can help us achieve these behavior outcomes? Enablers, in turn, helped us identify specific software or software-enabled solutions or sectors, that we can invest in that can help us achieve these behavior outcomes.
In identifying sectors to further explore, we draw insights from climate solution repositories such as Project Drawdown and Regeneration’s Nexus. These sources lead us to potential solutions that might not currently be in the spotlight within the realm of VC, but that hold real promise in tackling climate change — in many cases, by tackling the root of the problem: human behavior.
For instance, our examination of methods to reduce food waste (R4) is in part informed by Project Drawdown’s solutions library: cutting food waste can avoid 88.5-102.2 gigatons of CO2e by 2050. And automating building systems like HVAC not only reduces energy use but can save up to US$3.42t in lifetime net operational savings; this guides our thinking for three of our physical infrastructure-related sectors (R3).
Even if these sectors are not viable for us, they add nuance to our understanding of the climate crisis’ profound complexity; we also keep an informed eye out for opportunities outside of what’s trending in the world of climate investing. As we build up our knowledge, we can also better reflect on our own investment thesis and how we approach impact.
This table lays out our process of reaching sectors that we find interesting, using the R4 example:
Fig. 1: We use enablers of behavior outcomes to arrive at the most promising sectors in R4.
We repeat this process for each R. The sectors that we’ve identified as areas of interest under all four Rs are laid out in the mindmap below:
Fig. 2: Mindmap of sectors under each R that hold great potential for both profit and impact, as of Dec 2023.
This is an ongoing process, and we update the mind map with relevant sectors that we come across in our research and sourcing process, and that we find most promising.
Deep Dives & Sector Learnings
Determining our sectors of interest marks the initial phase in our sourcing process. The subsequent, more research-intensive step is forming a thesis for each sector. We do this with comprehensive sector analyses, or “deep dives” — these efforts broaden our understanding of each sector’s role in addressing the identified issue and highlight the obstacles hindering widespread scaling and adoption of the solution.
Our deep dive into microgrids, for instance, necessitated a closer look at the issues afflicting electricity generation and use in the US. We identified four main problems:
Energy reliability (which is affected by weather events), energy affordability
Energy accessibility (which incorporating renewable energy sources might influence)
Energy sustainability (i.e. energy mix and efficiency of production, distribution and use)
Energy capacity (accommodating renewable energy sources)
Only by identifying these issues could we determine the value that microgrids bring to the table. Microgrids:
Enhance energy reliability by enabling the generation and storage of electricity independent of the main grid
Increase energy accessibility in regions not covered by the main grid and generate savings from price arbitrage by generating and storing excess energy — the IEA estimates that more than 50% of access to electricity can be created with microgrids, with 90% of new connections powered by renewable energy
Allow for the integration of renewable energy sources into the energy mix by decentralizing energy generation and allowing for prosumption
Provides a capacity growth solution for utilities: microgrids are cheaper and less burdensome regulation-wise to install, and offer more flexible step-ups in generation capacity as compared to conventional large power plants
Our deeper understanding of the problems and solutions makes us more discerning when identifying companies best positioned to tackle the issue at hand — we’re better able to assess their impact and thesis fit.
Within each sector, we look for best-in-class companies with potential for high growth and scalability in both profit and impact. Key criteria we look at include the following:
Product thesis fit: Is the company software-focused and does it align with one or more Rs of Amasia’s thesis?
Product differentiation: Is there clear and significant differentiation from competitors’ solutions?
Traction: Does the company demonstrate accelerating, capital-efficient growth?
Team: Is there founder fit, coachability, and chemistry with our partners and team? — This is valuable to us as we work closely with each of our founders
Fundraise/valuation: Seed and Series A rounds are our sweet spot; entry valuation should be within a reasonable revenue multiple range
While we are a single bottom-line investor, we nevertheless heavily emphasize impact. Each company is, therefore, put through our impact screen before we reach an investment decision. The five aspects we look at include
Positive impact: alignment with Amasia’s climate-driven thesis
Intentionality: how core impact is to the company’s business model
Scale: the company’s potential for global scale
Depth: the significance of the company’s impact on customers or users, and consequently in tackling climate change
Additionality: the contribution that a company makes in relation to the baseline
This combination leads us to companies that are likely to be commercially successful while also delivering societal and planetary impact.
We are constantly improving and fine-tuning our sector identification process and, subsequently, the companies we seek. We supplement our growing knowledge base with learnings from interactions with our portfolio companies, potential investee companies, and other VCs.