Nairobi, Kenya — When Ademola Adesina founded a startup to offer solar and battery-based energy subscription packages to individuals and businesses in Nigeria in 2015, it was much more difficult to raise money than it is today.
Climate technology was new to Africa, the continent was a nascent destination for venture capital money, there were fewer financiers to turn to and there was less money available, he said.
It took him a year to “run and crawl” his networks to raise his first amount (just under a million dollars) from venture capital firms and other sources. “The whole thing was a learning experience,” she said.
But the ecosystem has changed since then, and Adesina’s Rensource Energy has raised about $30 million over the years, mostly from venture capital firms.
Private sector funding for climate tech startups in Africa is growing, with companies raising more than $3.4 billion since 2019. But there is still a long way to go, with the continent needing $277 billion a year. to meet its climate goals for 2030.
Experts say that to unlock financing and fill this gap, African countries must address risks such as currency instability that they say reduce investor appetite, while investors must broaden their scope of interest to more climate sectors such as flood protection, disaster management and heat management, and use various financing methods.
Still, the investment numbers for the climate tech sector, which includes renewable energy, carbon removal, land restoration, and water and waste management companies, are compelling: Last year, climate tech startups in the continent raised $1.04 billion, a 9% increase from the previous year and triple what they raised in 2019, according to the funding database Africa: The Big Deal. This was despite a decline in the amount of money raised by all startups on the continent last year.
That’s important because climate technology requires experimentation, and venture capital firms that provide money to startups are playing an essential role in providing venture capital to climate technology startups, Adesina said. “On the climate front, a lot of things are uncertain,” she said.
Money raised by climate tech startups last year accounted for more than a third of all funds raised by startups in Africa in 2023, putting climate tech second only to fintech, a larger sector. ripe.
Venture capital is typically awarded to companies with substantial risk but great potential for long-term growth. Startups use it to expand into new markets and launch products and services into the market.
Venture capitalists “can take risks that other people can’t take, because our business model is designed to be flawed,” said Brian Odhiambo, a Lagos-based partner at Novastar Ventures, an Africa-focused investor. “Not everything has to go well. But some will, and those who do will be extremely successful.”
That was the case for Adetayo Bamiduro, co-founder of Metro Africa
Adetayo said venture capitalists “are playing a catalytic role that is extremely essential.”
“We all know that to truly decarbonize our economies it is necessary to make investments. And it is not a trivial investment,” he stated.
The funds can also bridge the gap between traditional and non-traditional sectors, said Kidus Asfaw, co-founder and CEO of Kubik, a startup that converts hard-to-recycle plastic waste into durable, low-carbon building materials. His company, which operates in Kenya and Ethiopia, has raised around $4.6 million since launching in 2021.
He cites waste management and construction as examples of traditional sectors that can connect with startups like his.
“There is so much innovation in these spaces that can transform them over time,” he said. “Venture capitalists are accelerating that path to transform them.”
In addition to venture capital, other investments from private equity firms, syndicates, venture creators, grant providers and other financial institutions are actively funding climate initiatives on the continent.
But private sector financing overall lags far behind public financing, which includes funds from governments, multilateral organizations and development financial institutions.
From 2019 to 2020, private sector financing accounted for just 14% of all climate finance in Africa, according to a Climate Policy Initiative report, much lower than in regions such as East Asia and the Pacific at 39%, and Latin America and the Caribbean. at 49%.
The low contribution in Africa is attributed to investors pouring money into areas they are more familiar with, such as renewable energy technology, and receiving less funding for more diverse initiatives, said Sandy Okoth, capital markets specialist for green finance. at FSD Africa. , one of the curators of the IPC study.
“The private sector feels that this (renewable energy technology) is a more mature space,” he said. “They understand the financing models.”
The technology to adapt to climate change, on the other hand, is “more complex,” he said.
One startup working on renewable energy is Johannesburg-based Wetility, which last year secured $48 million in funding (mostly from private equity) to expand its operations.
The startup provides solar panels for homes and businesses and a digital management system that allows users to remotely manage energy usage, while attempting to solve energy access and reliability issues in southern Africa.
“Private sector financing in the African climate is still quite low,” said founder and CEO Vincent Maposa. “But there is visible growth. And I think that in the next decade we will begin to see those changes.”
Investors are also starting to understand the economic benefits of adapting to climate change and solutions as they have returns on investment, said Hetal Patel, Nairobi-based chief investment officer at Mercy Corps Ventures, a venture capital fund in early stage focused on startups creating solutions for climate adaptation and financial resilience.
“We are starting to build a very strong business case to accommodate investors and make sure that private capital flows start coming in,” he said.
Maëlis Carraro, managing partner of Catalyst Fund, a Nairobi-based venture capital fund and accelerator that finances climate adaptation solutions, called for more diverse financing, combining public and private sector financing. The role of public financing, she said, should be to reduce private sector risk and attract more private sector capital to finance climate initiatives.
“We’re not going to go far enough with public funding alone,” he said. “We need the private sector and the public sector to work together to unlock more funding. And, in particular, looking beyond a few industries where innovation features prominently.”
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