When Ademola Adesina set out to launch a solar and battery power service in Nigeria back in 2015, securing financial backing was a significant challenge. At that time, climate technology was just beginning to make its mark in Africa, and venture capital for the continent was scarce. With limited funding opportunities available, it took Adesina a full year to gather just under $1 million through his network for his startup, Rensource Energy.
The landscape, however, has evolved considerably since then. Rensource Energy has successfully raised approximately $30 million over time, primarily from venture capital firms. The private sector’s funding for climate tech startups in Africa is on the rise, with over $3.4 billion amassed since 2019. Despite this growth, Africa still faces a significant funding challenge, needing an estimated $277 billion each year to achieve its 2030 climate objectives.
To attract more investment and address this shortfall, experts suggest that African nations must mitigate risks such as currency instability, which dampen investor interest. Moreover, investors should broaden their focus to include a wider array of climate sectors, for instance, flood defense, disaster management, and heat control, utilizing diverse financing strategies.
Last year’s investment figures in the climate tech sector—which encompasses renewable energy, carbon capture, land restoration, and waste management—are noteworthy. Climate tech startups raised $1.04 billion, marking a 9% increase from the previous year and tripling the funds raised in 2019. This growth occurred despite a downturn in overall startup funding in Africa. Climate tech’s share of the total startup funding in Africa was more than a third in 2023, trailing only behind the more established fintech sector.
Venture capital, known for backing high-risk but potentially high-growth businesses, is proving crucial for startups looking to break into new markets and commercialize their offerings. Brian Odhiambo of Novastar Ventures, an Africa-focused investment firm, emphasizes that venture capitalists are uniquely positioned to absorb risks that others cannot, understanding that while not all ventures will succeed, the successful ones can do so substantially.
Adetayo Bamiduro, co-founder of MAX, which manufactures electric vehicles and infrastructure in Nigeria, has seen nearly $100 million in funding since its inception in 2015. He acknowledges the pivotal role of venture capitalists in driving the necessary investments to decarbonize economies.
Kidus Asfaw, co-founder and CEO of Kubik, a company transforming non-recyclable plastics into eco-friendly building materials, points out the potential for startups to revolutionize traditional sectors such as waste management and construction. With around $5.2 million raised since its 2021 start, Kubik exemplifies how venture capital can speed up innovation within these industries.
Aside from venture capital, a variety of investors including private equity firms, syndicates, and grant providers are actively funding climate initiatives across Africa. However, private sector finance still trails behind public sector contributions, which come from governments and international organizations. A report by Climate Policy Initiative indicates that private financing constituted just 14% of Africa’s climate finance between 2019 and 2020, a stark contrast to regions like East Asia, Pacific, Latin America, and the Caribbean.
Investors’ preference for well-understood areas like renewable energy technology could explain the low private sector contribution in Africa. According to Sandy Okoth of FSD Africa, this sector is viewed as more mature and its funding models are more familiar to investors. Conversely, technology for climate change adaptation is perceived as more complex.
Wetility, a Johannesburg-based startup, secured $48 million in funding—predominantly from private equity—to expand its offer of solar panels and digital energy management systems, addressing energy accessibility and reliability issues in southern Africa. Its founder and CEO, Vincent Maposa, believes that while private sector financing in African climate initiatives is still modest, it is showing signs of growth and is expected to rise significantly in the coming decade.
Investors are also coming to realize the economic benefits of climate change adaptation solutions, which can yield returns on investment. Hetal Patel, director of investments at Mercy Corps Ventures, is optimistic about building a strong business case for adaptation investors, aiming to increase private capital flows.
Maëlis Carraro of Catalyst Fund emphasizes the importance of diverse funding, including combinations of private and public sector financing. She advocates for public financing to reduce risks and attract more private capital into climate initiatives, stressing the need for a collaborative approach to unlock further financing and extend beyond a few industries to a broader range of innovative areas.
Note: The amount raised by startup Kubik has been updated to $5.2 million from the previously stated $4.6 million.
