NAIROBI, Kenya — When Ademola Adesina founded her startup in 2015 to provide solar and battery-based power subscription packages to individuals and businesses in Nigeria, funding was much more difficult to obtain than it is today.
Climate change technology is new in Africa, and the continent is a nascent destination for venture capital funding, with fewer funders to approach and less funding available, he said.
It took him a year of “running and scouring” his network to raise his first funding (just under $1 million) from venture capital and other sources. “The whole thing 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.
Private sector funding for climate technology startups in Africa is increasing, with companies raising more than $3.4 billion since 2019. But the continent still has a long way to go, with $277 billion per year needed to meet its 2030 climate goals.
Experts say that to enable access to finance and close this gap, African countries need to address risks such as currency instability that reduce investor appetite, while investors need to address risks such as flood protection and disaster management. , says there is a need to expand the scope of interest to more climate areas such as thermal management. Utilize a variety of financing methods.
Still, the amount of investment in the climate technology sector, which includes renewable energy, carbon removal, land restoration, and water and waste management projects, is compelling. Last year, climate technology startups on the continent raised $1.04 billion, a 9% increase over the previous year. According to the funding database “African: The Big Deal,” the amount raised in 2019 tripled compared to the previous year. This is despite the fact that the total amount raised by all startups on the continent fell last year.
Adesina said this is important because climate change technologies require experimentation and venture capital firms that fund early-stage companies play an important role by providing risk capital to climate change technology startups. said. “In the climate field, a lot of things are uncertain,” he says.
Funding raised by climate technology startups last year accounted for more than a third of all funding raised by startups in Africa in 2023, making climate technology second only to the more mature sector fintech. It became.
Venture capital is typically awarded to companies that have high potential for long-term growth despite high risks. Startups use it to expand into new markets and bring products and services to market.
Brian Odhiambo, a Lagos-based partner at Africa-focused investor Novastar Ventures, says venture capitalists “can take risks that others can’t take because our business models fail. That’s because it’s designed that way.” “Not all have to be successful. But some do, and those who do will be very successful.”
So did Adetayo Bamiduro, co-founder of Metro Africa Express, which manufactures electric two-wheelers, electric three-wheelers and electric vehicle infrastructure in Nigeria and has raised just under $100 million since its founding in 2015.
Mr. Adetayo said venture capitalists “play a vitally important catalytic role.”
“We all know that truly decarbonizing the economy requires investment. And it’s not an easy investment,” he said.
Kidas Asfaw, co-founder and CEO of Cubic, a start-up that transforms hard-to-recycle plastic waste into durable, low-carbon building materials, said the fund will support traditional and non-traditional sectors. He said it can also bridge the gap between sectors. His company, which operates in Kenya and Ethiopia, has raised about $4.6 million since its founding in 2021.
He points to waste management and construction as examples of traditional sectors that can connect with startups like his.
“There’s a lot of innovation in these spaces that has the potential to transform over time,” he said. “Venture capital is accelerating the path to change.”
In addition to venture capital, other investments by private equity firms, syndicates, venture builders, grant makers and other financial institutions are also actively funding climate action on the African continent.
However, private sector financing generally lags far behind public financing, which includes funds from governments, multilateral institutions, and development finance institutions.
In 2019-20, private sector financing accounted for just 14% of all climate finance in Africa, compared with 39% in East Asia and the Pacific and 39% in countries such as Latin America and the Caribbean, according to a report by the Climate Policy Initiative. It was much lower than in the region. It was 49%.
Sandi Okoth, a green finance capital markets expert at FSD Africa, said Africa’s low contribution is due to investors putting money into more familiar areas, such as renewable energy technology, and investing in more diverse initiatives. He said this was due to the lack of inflow of funds. , one of the committee members of the CPI investigation.
“The private sector feels this (renewable energy technology) is a more mature area,” he said. “They understand the funding model.”
Technology to adapt to climate change, on the other hand, is “more complex,” he said.
One of the emerging companies working on renewable energy is Johannesburg-based Wetility. Last year, the company secured $48 million in funding (primarily from private equity) to expand.
The startup aims to solve southern Africa’s energy access and reliability problems by providing solar panels for homes and businesses and a digital management system that allows users to remotely manage their electricity usage.
“Private sector financing in the African climate remains quite low,” said founder and CEO Vincent Maposa. “But we’re seeing visible growth. And I believe that over the next 10 years or so, we’ll start to see these changes.”
Hetal Patel, investment director at Nairobi-based Mercy Corps Ventures, said investors are also beginning to understand the economic benefits of climate change adaptation and solutions. Mercy Corps Ventures is an early-stage VC fund focused on helping startups build solutions. Climate adaptation and fiscal resilience.
“We are starting to build a very strong business case for adaptation investors and making sure that private capital flows start to flow in,” he said.
Maelis Kalaro, managing partner of Catalyst Fund, a Nairobi-based venture capital and accelerator that funds climate adaptation solutions, said that more diverse investments, including a mix of private and public sector funding, sought funding. He said the role of public financing should be to de-risk the private sector and attract more private sector capital to finance climate action.
“Public funding alone is not going to do enough,” she says. “The private and public sectors need to work together to raise more money. And especially looking beyond just a few industries where innovation is happening at scale.”
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