Nairobi, Kenya — When Ademola Adesina founded a startup to provide solar and battery subscription packages to individuals and businesses in Nigeria in 2015, it was much harder to raise money than it is today.
Climate technology was new in Africa, the continent was a fledgling 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 of “scouring and scouring” his networks to raise his first amount — just under $1 million — from venture capital firms and other sources. “Everything was a learning experience,” he 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.
Funding for climate technology startups in Africa from the private sector 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 dollars annually to meet its 2030 climate goals.
Experts say that to unlock finance and fill this gap, African countries need to address risks such as currency instability that they say reduce investor appetite, while investors need to expand 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 technology sector – which includes businesses in renewable energy, carbon removal, land restoration, and water and waste management – are compelling: last year, climate technology startups on the continent raised 1.04 billion dollars, an increase of 9% compared to the previous year and tripled what they raised in 2019, according to the financing database Africa: The Big Deal. This was despite a decline in the amount of money raised by all startups on the continent last year.
This is important because climate technology requires experimentation and venture capital firms that provide money to emerging companies are playing an essential role in providing venture capital to climate technology startups, Adesina said. “In the climate space, a lot of things are uncertain,” he said.
The money raised by climate tech startups last year was 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 typically awarded to companies with substantial risks but great potential for long-term growth. Startups use it to expand into new markets and to bring products and services to market.
Venture capitalists “can take risks that other people can’t take, because our business model is designed to fail,” said Brian Odhiambo, partner at Lagos-based Novastar Ventures, an Africa-focused investor. “Not everything has to go right. But some will, and those who do will be hugely successful.”
This was the case with Adetayo Bamiduro, co-founder of Metro Africa Xpress, which manufactures two- and three-wheeled electric vehicles and electric vehicle infrastructure in Nigeria and has raised just under $100 million since being founded in 2015.
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 said.
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 turns 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. “VCs are accelerating this path to transform them.”
In addition to venture capital, other investments from private equity firms, unions, venture builders, financiers and other financial institutions are actively financing climate initiatives on the continent.
But private sector financing in general lags far behind public financing, which includes funds from governments, multilaterals and development finance institutions.
From 2019 to 2020, private sector finance accounted for just 14% of all Africa’s climate finance, according to a report by the Climate Policy Initiative, much lower than regions such as East Asia and the Pacific at 39%. and Latin America and the Caribbean. by 49%.
The low contribution in Africa is attributed to investors putting money into areas they are more familiar with, such as renewable energy technology, with less funding coming in for more diverse initiatives, said Sandy Okoth, a capital markets expert for Africa. green financing 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 financing models.”
Climate change adaptation technology, on the other hand, is “more complex,” he said.
One startup working in renewable energy is Johannesburg-based Wetility, which last year secured $48 million in funding – most of it 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 their energy use, while trying to solve the problems of energy access and reliability 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 believe that over the next decade you will start to see these changes.”
Investors are also beginning to understand the economic benefits of climate change adaptation and solutions as they see returns on investment, said Hetal Patel, chief investment officer at Nairobi-based Mercy Corps Ventures, a private equity fund. early-stage venture focused on startups creating solutions for climate adaptation and financial resilience.
“We are starting to build a very strong business case for investors in adaptation and ensuring that private capital flows start to arrive,” 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 diversified financing, such as that which combines public and private sector financing. The role of public financing, she said, should be to reduce private sector risks and attract more private sector capital to finance climate initiatives.
“We won’t go far enough with public funding alone,” she said. “We need the private sector and public sector to work together to unlock more financing. And in particular, looking beyond just a few sectors where innovation is widespread.”
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