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African investors are raising more funds to back startups that offer solutions to climate change challenges, targeting areas including agriculture, clean energy, clean cooking, and transportation.
In the last 12 months EchoVC Partners, a pan-African firm, invested in 14 climate-related startups across the continent through an inaugural $3 million “eco” fund, general partner Eghosa Omoigui told Semafor. It was an “experimental fund to show the market need” for environmental solutions using business models, he said. The firm has started raising a separate $3 million fund to replicate the pilot with new investments this year, as well as a fund of up to $30 million for startups addressing climate change and other sectors.
Novastar Ventures, another Africa-focused firm with $260 million in assets, debuted a fund for “people and planet-positive” technologies in January. Its $3.5 million check to Sistema.bio was almost half of what the biogas producer active in Kenya and India raised in a round joined by other investors.
Supporting “backable” environmentally-focused tech companies has been “exciting,” Novastar’s Lagos-based partner Brian Odhiambo said. There is “a massive pipeline” of companies that can demonstrate commercial success, he added.
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About a third of the investment into African startups went to those driving climate tech solutions in each of the last two years, according to Africa: The Big Deal’s data. Energy tends to draw the most funding, taking up nearly 60% of climate tech’s total last year at $423 million.
Money is moving into non-energy verticals too. BasiGo, an electric bus company that plans to roll out 1,000 buses in East Africa by 2027, raised $42 million from Novastar and other investors in October. Meanwhile, electric motorcycles provider Spiro secured $50 million from the African Export-Import Bank to build on its fleet of 14,000 bikes in Benin and Togo.
Sensing an opportunity in the sector, development finance institutions have started making more enquiries about climate-dedicated funds in Africa, EchoVC’s Omoigui said. Last year, the World Bank’s International Finance Corporation made its first investment in an African climate-tech venture capital fund, backing Kenya and Nigeria-focused Equator Africa with $5 million. The UK’s British International Investment is also an investor in the fund.
Alexander’s view
Omogui’s description of his firm’s fund as an “experiment” is apt for the growing investment we’re seeing in African climate tech funds. Dealmakers like him appear willing to make up the playbook as they go.
But the experiment may not be everybody’s cup of tea, at least not yet. Some African fund managers feel pressured by investors — mainly development finance institutions — to seek climate deals, as Semafor reported in December. Africa is disproportionately affected by climate change compared to other regions, despite contributing a fraction of global greenhouse emissions. But investors have typically channelled funding into more immediately transformative and financially rewarding opportunities.
Given the Trump administration’s aggressive break with environmental, social, and governance (ESG) norms and its priority on fossil fuel investments, climate-related fundraising looks set to suffer around the world. If funds that usually invest in Africa begin scrubbing climate references off their branding to align with Trump, the “massive” pipeline Odhiambo refers to may dwindle.
It suggests Africa’s climate tech investment experiment will only work with patient local investors. “Tons of patience,” is required, Omoigui said, but “the market needs it.”
The View From LAGOS
Nigeria-based investor Ventures Platform published an evaluation model last year, which argued for assessing portfolio companies not just on returns but the roles they play in mitigating or contributing to climate risks. “If your job as a VC is to invest in the future, one of the things that will impact that future is climate change,” said Dotun Olowoporoku, Ventures Platform’s managing partner and a former principal at Novastar.
The real prospect of Lagos, arguably Africa’s most vibrant tech hub, going under water in a few decades due to a warming climate should raise an urgency among investors, he said, whether they invest in food delivery or fintech — to prioritize resilience-conscious business models.
Notable
- The African Development Bank invested $10 million in December in a fund by Nairobi-based energy investment firm Persistent aimed at boosting climate-tech in Africa.
- But climate tech may not amount to more than a “buzzword” in Africa because “a lot of it is not sustainable,” warned Idris Ayodeji Bello, a Nigerian startup investor, in a WeeTracker report.