by NAIROBI, Kenya (AP) – When Ademola Adesina founded a startup to provide solar and battery-based power subscription packages to individuals and businesses in Nigeria in 2015, raising money was a lot harder than it seems. today.
Climate technology was new in Africa, the continent was a new destination for venture capital money, there were fewer funders to approach and less money available, he said.
It took him a year of “running around and scouring” his networks to raise his first amount – just under $1 million – from VC firms and other sources. “Everything was a learning experience,” he said.
But the ecosystem has since changed, and Adesina’s Rensource Energy has raised about $30 million over the years, mostly from VC firms.
Funding for African climate tech startups from the private sector is on the rise, with firms raising more than $3.4 billion as of 2019. But there is still a long way to go, with the continent needing $277 billion each year to achieve climate targets for 2030.
Experts say in order to unlock funding and bridge this gap, African countries need to address risks such as currency instability which they say reduces investor appetite, and investors need to broaden their horizons to more more climate sectors such as flood protection, disaster management and heat management, and use different financing methods.
Still, the number of investments for the climate technology sector – including businesses in renewable energy, carbon sequestration, land restoration and water and waste management – is impressive: Last year, climate start-ups raised on the continent $1.04 billion, a 9% increase from the previous year and triple the amount they raised in 2019, according to the Africa: The Big Deal funding database. That was despite a reduction in the amount of money raised by all start-ups in total on the continent last year.
That’s important because climate technology requires experimentation, and VC firms that provide money to start-ups play a critical role by giving risk capital to climate start-ups, Adesina said. “In the climate space, there are a lot of uncertainties,” he said.
The money raised by climate startups last year accounted for more than a third of all funds raised by startups in Africa in 2023, putting climate tech in second place behind fintech, a more mature sector.
Venture capital is usually given to businesses that carry significant risk but have great long-term growth potential. Startups use it to expand into new markets and market products and services.
Venture capitalists can “take risks that others can’t 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 be successful. But some will succeed, and those will succeed in a huge way.”
That was the case for Adetayo Bamiduro, co-founder of Metro Africa Xpress, which builds electric two- and three-wheeler and electric vehicle infrastructure in Nigeria and has raised just under $100 million since its inception in 2015.
Adetayo said venture capitalists are “playing a catalytic role that is absolutely essential.”
“We all know that investments have to be made to really decarbonise our economy. And it’s not a trivial investment,” he said.
The funds can also bridge the gap between the traditional and non-traditional sectors, said Kidus Asfaw, co-founder and CEO of Kubik, a startup that turns hard-to-recycle plastic waste into a sustainable, low-carbon building material. His company, which operates in Kenya and Ethiopia, has raised about $4.6 million since launching in 2021.
He cites waste management and construction as examples of traditional sectors that can connect with start-ups like his.
“There’s so much innovation in these spaces that they can change over time,” he said. “The VCs are stepping up that way to change them.”
Apart from venture capital, other investments by private equity firms, syndicates, venture builders, grant providers and other financial institutions are actively funding climate initiatives on the continent.
But private sector funding generally lags far behind public funding, including funds from governments, multilaterals and development financial institutions.
From 2019 to 2020, private sector funding accounted for just 14% of all African climate funding, according to a report by the Climate Policy Initiative, far 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 has been attributed to investors putting money in areas they know more about, such as renewable energy technology, with less funding coming in for more diverse initiatives, Sandy said. Okoth, capital market specialist for green finance at FSD Africa. , one of the commissioners of the CPI study.
“The private sector sees this (renewable energy technology) as a more mature space,” he said. “They understand the funding models.”
On the other hand, the technology to adapt to climate change is “more complex”, he said.
One startup working in renewable energy is Johannesburg-based Wetility, which received $48 million in funding last year — 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 manage power usage remotely, while trying to solve the problems of energy access and reliability in southern Africa.
“Private sector funding in the African climate is still relatively low,” said founder and CEO Vincent Maposa. “But growth is visible. And I believe you will see those changes in the next decade or so.”
Investors are also starting to understand the economic benefits of climate change adaptation and solutions as they see returns on investment, said Hetal Patel, Nairobi-based director of investments at Mercy Corps Ventures, an early-stage VC fund which is aimed at developing solutions for start-ups. climate adaptation and financial resilience.
“We are starting to build a very strong business case for adaptation investors and ensure that private capital flows start to come in,” he said.
Maëlis Carraro, managing partner at Catalyst Fund, a Nairobi-based VC fund and accelerator that finances climate adaptation solutions, argued for more diverse funding, such as blending the funding with private and public sector funding. The role of public funding, she said, should be to de-risk the private sector and attract more capital from the private sector to finance climate initiatives.
“We will not go far enough with the public funding alone,” she said. “We need the private sector and the public sector to work together to release more funding. And especially looking beyond just a handful of industries where innovation is inscribed.”
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