More money is going to African climate start-ups, but it’s not enough
African climate tech start-ups have raised more than $3.4 billion since 2019, but the continent requires $277 bn. annually to meet its climate goals; Experts say to unlock nancing and ll this gap, African countries need to address risks like currency in
hen Ademola Adesina founded a start-up to provide solar and batterybased power subscription packages to individuals and businesses in Nigeria in 2015, it was a lot harder to raise money than it is today.
Climate tech was new in Africa, the continent was a edgling destination for venture capital money, there were fewer funders to approach and less money was available, he said.
It took him a year of “running around and scouring” his networks to raise his rst amount — just under $1 million — from VC rms and other sources. “Everything was a learning experience,” he said.
But the ecosystem has since changed, and Mr. Adesina’s Rensource Energy has raised about $30 million over the years, mostly from VC rms.
Funding for climate tech start-ups in Africa from the private sector is growing, with businesses raising more than $3.4 billion since 2019. But there’s still a long way to go, with the continent requiring $277 billion annually to meet its climate goals for 2030.
Experts say to unlock nancing and ll this gap,
WAfrican countries need to address risks like currency instability that they say reduce investor appetite, while investors need to expand their scope of interest to more climate sectors like ood protection, disaster management and heat management, and to use diverse funding methods.
Still, the investment numbers for the climate tech sector — which includes businesses in renewable energy, carbon removal, land restoration and water and waste management — are compelling: last year, climate tech startups on 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. That was despite a decline in the amount of money raised by all start-ups in total on the continent last year.
That matters because climate tech requires experimentation, and VC rms that provide money to nascent businesses are playing an essential role by giving climate tech start-ups risk capital, said Mr. Adesina. “In the climate space, a lot of things are uncertain,” he added.
The money raised by climate tech start-ups last year was more than a third of all funds raised by startups in Africa in 2023, placing climate tech second only to ntech, a more mature sector.
‘Risk takers’
Venture capital is typically given to businesses with substantial risk but great long-term growth potential. Start-ups use it to expand into new markets and to get products and services on the market.
Venture capitalists “can take risks that other people cannot take, because our business model is designed to have failures,” said Brian Odhiambo, a Lagos-based partner at Novastar Ventures, an Africa-focused investor. “Not everything has to succeed. But some will, and those that do will succeed in a massive way.”
That was the case for Adetayo Bamiduro, cofounder of Metro Africa ◣press, which makes electric two- and three-wheelers and electric vehicle infrastructure in Nigeria and has raised just under $100 million since it was founded in 2015.
Mr. Adetayo said venture capitalists “are playing a catalytic role that is extremely essential.”
“We all know that in order to really decarbonise our economies, investments have to be made. And it’s not trivial investment,” he said.
Besides venture capital, other investments by private equity rms, syndicates, venture builders, and other nancial institutions are actively nancing climate initiatives on the continent.
But private sector nancing in general lags far behind that of public nancing, which includes funds from governments, multilaterals and development nance institutions.
From 2019 to 2020, private sector nancing represented only 14% of all of Africa’s climate nance, according to a report by the Climate Policy Initiative, much lower than in regions such as East Asia and Pacic at 39%, and Latin America and the Caribbean
at 49%.
The low contribution in Africa is attributed to the investors putting money in areas they’re more familiar with, like renewable energy technology, with less funding coming in for more diverse initiatives, said Sandy Okoth, a capital market specialist for green nance at FSD Africa, one of the commissioners of the CPI study.
“The private sector feels this (renewable energy technology) is a more mature space,” he said. “They understand the funding models.”
Investors are also starting to understand the economic benets of adapting to climate change and solutions as they have returns on investment, said Hetal Patel, Nairobi-based director of investments at Mercy Corps Ventures, an earlystage VC fund.
“We’re starting to build a very strong business case for adaptation investors and make sure that private capital ows start coming in,” he said.
Maëlis Carraro, managing partner at Catalyst Fund, a Nairobi-based VC fund, urged more diverse funding, such as that which blends private and public sector funding. The role of public nancing, she said, should be to de-risk the private sector and attract more private sector capital into nancing climate initiatives.
We all know that in order to really decarbonize our economies, investments have to be made. And it’s not trivial investment ADETAYO BAMIDURO