Launching a solar and battery-powered energy subscription service in Nigeria in 2015 proved challenging for entrepreneur Ademola Adesina, particularly when it came to securing funding. At the time, climate technology was nascent in Africa, and the continent was only just emerging as a destination for venture capital, with fewer investors and limited funds available. Adesina recalls spending a year networking extensively to secure his initial funding, which was just shy of $1 million, from venture capitalists and other sources. This early financial journey was marked by significant learning curves.
However, the investment landscape for climate tech startups in Africa has undergone a transformation, with Adesina’s company, Rensource Energy, successfully raising about $30 million over time, predominantly from venture capital firms. Private sector funding for climate technology startups in Africa has witnessed a surge, with over $3.4 billion raised since 2019. Yet, there remains a substantial funding gap, as the continent needs an estimated $277 billion annually to achieve its 2030 climate objectives.
According to experts, African nations must address issues such as currency instability to boost investor confidence. Moreover, investors should broaden their focus to encompass a wider range of climate-related sectors, including flood protection and heat management, and employ a variety of funding strategies to meet financial needs.
The investment figures for the climate tech sector—which encompasses renewable energy, carbon removal, and water and waste management businesses—are impressive. Startups in this space raised $1.04 billion last year, a 9% increase from the previous year and three times the amount secured in 2019, as reported by Africa: The Big Deal. This is significant considering the overall decline in funding for all startups across the continent during the same period. Climate tech’s funding accounted for more than a third of the total raised by African startups in 2023, ranking just behind the more established fintech sector.
Venture capital is crucial for businesses that present substantial risks but also have the potential for considerable long-term growth. Startups utilize this capital to penetrate new markets and launch their products and services. Brian Odhiambo, a partner at Novastar Ventures based in Lagos, emphasizes that venture capitalists are uniquely positioned to take on risks that others cannot due to their business models accommodating failures. The successes that do emerge often do so on a grand scale.
Adetayo Bamiduro, co-founder of MAX, which produces electric vehicles and related infrastructure in Nigeria, has successfully raised just under $100 million since the company’s inception in 2015. He acknowledges the critical role played by venture capitalists in driving investments necessary for decarbonizing economies.
Startups are also bridging industries, as demonstrated by Kubik, co-founded by Kidus Asfaw. Kubik converts hard-to-recycle plastics into eco-friendly building materials and has raised approximately $5.2 million since its launch in 2021. Asfaw highlights the potential for innovation within traditional sectors like waste management and construction through collaboration with startups.
While venture capital is a significant source of funding, other private investment forms, such as private equity firms and grant providers, are also contributing to climate initiatives on the continent. However, private sector financing still trails behind public financing, which includes government and development finance institutions. From 2019 to 2020, the private sector accounted for only 14% of Africa’s total climate financing—a stark contrast to regions like East Asia and the Pacific at 39%, and Latin America and the Caribbean at 49%.
The disparity in Africa is partly due to investors gravitating towards more familiar areas such as renewable energy technology and being less adventurous in funding a broader range of initiatives. Sandy Okoth, a specialist in green finance at FSD Africa, points out that investors perceive renewable energy technology as a mature sector with established funding models. In contrast, technology for climate change adaptation is considered more complex.
One such company making strides in renewable energy is Wetility, based in Johannesburg, which secured $48 million in funding—largely from private equity—to expand its operations. The company offers solar panels and a digital management system for homes and businesses, addressing energy access and reliability issues in southern Africa.
Vincent Maposa, founder and CEO of Wetility, notes that while private sector financing for African climate initiatives is currently modest, it is on an upward trajectory. He anticipates significant shifts over the coming decade. Similarly, Hetal Patel, director of investments at Nairobi-based Mercy Corps Ventures, believes that the economic advantages of adapting to climate change are becoming more evident, with promising returns on investment.
Maëlis Carraro, managing partner at Catalyst Fund, advocates for diverse funding mechanisms, including those that blend private and public sector resources. She stresses the importance of public financing to mitigate risks for the private sector, thereby encouraging more private capital to support climate initiatives. Carraro emphasizes the need for collaboration between the public and private sectors to unlock additional financing and extend beyond a few select industries where innovation is prominent.
This story corrects the money raised by startup Kubik to $5.2 million, not $4.6 million.
