Africa contributes less than 3% of the world’s energy-related carbon dioxide emissions but the continent will be one of the most impacted by the adverse effects of climate change. Some explanations for Africa’s vulnerability include poor diffusion of technologies and information relevant to supporting adaptation, usually provided by clean or climate tech companies.
Despite the precise role that technologies such as renewable energy, recycling and green transportation play in improving the world’s environmental footprint, raising venture capital has proved chiefly hard for the companies behind them in years past. However, investor appetite has been enhanced in recent times. In 2021, climate tech startups raised over $60 billion, about 14% of VC dollars raised that year; in Africa, clean tech accounted for 15% to 18% (about $863 million) of the total funding that venture capitalists poured into the region last year in companies such as Sun King, making clean tech second only to fintech.
Development finance institutions (DFIs), including the British International Investment (BII), FMO and Norfund, are active investors in the clean tech space, as are clean tech–focused funds such as All On, Ambo Ventures and Catalyst Fund. In the latest development, Equator, a climate tech venture capital firm focused on sub-Saharan Africa, has reached an initial close of its first fund with $40 million in commitments. Its limited partners include BII, the Global Energy Alliance for People and Planet (GEAPP), the Shell Foundation and impact investor DOEN Participaties, according to the company’s statement.
Why international DFIs are looking to African startups to scale impact investing efforts
Equator backs seed and Series A startups across energy, agriculture and mobility sectors. On a call with TechCrunch, managing partner Nijhad Jamal said the firm is interested in these sectors because of numerous untapped market opportunities. He also noted that deploying capital at seed and Series A stages allow Equator to act as a bridge between startups’ earliest checks (at the pre-seed stage) and growth capital, which could come from its limited partners.
“The challenge for many of those larger funds and international investors is that they tend to come in when things have already been de-risked and proven out. At the seed and Series A stage, there is a shortage of capital and institutional investors supporting companies at that stage of their life cycle and journey,” commented Jamal. “The hope is that by investing at these stages, we can mobilize capital at Series B and growth equity stages from large regional funds, global climate tech funds, and corporations excited about the sector and region.”
Jamal, before joining Equator, had several stints with asset manager BlackRock and impact investment Acumen Fund, where he managed the firm’s clean tech group. At Moja Capital, a personal fund he founded, Jamal made seed and Series A investments across several sectors, including those central to Equator’s strategy: clean energy, agriculture and mobility. SunCulture, a Kenya-based off-grid solar tech for smallholder farmers, was one of Jamal’s investments. Equator made a follow-on investment in SunCulture and other startups backed by the firm’s operators, including Morgan DeFoort, partner at Equator and founder of Factor[e] Ventures; Apollo Agriculture; Odyssey Energy Solutions; and Roam.
According to Jamal, Equator wants to back tech-enabled ventures that bring some element of technology, whether hardware or software or business model innovation, to bear in a region where innovation might be lacking. As such, the fund will pay attention to technical founders with domain expertise who are building solutions around clean energy, agriculture and mobility, and who ultimately address the impact of climate change on income inequality in Africa.
“Climate change and income inequality are proven to be directly correlated. Data shows that the gap between the economic output of the world’s richest and poorest countries is 25% larger today than it would have been without global warming,” Jamal remarked. “So climate change has worsened global income inequality and we’re seeing that very acutely in sub-Saharan Africa. And the ventures and innovation that we’re investing in is a material component to addressing some of these challenges.”
Equator, hoping to make up to 15 investments throughout this fund’s life cycle, says it participates in round sizes of $10 million or less, which is typical for pre-Series B clean tech startups in sub-Saharan Africa. For seed stages, the clean tech VC invests between $1 million and $2 million; for Series A stages, it cut checks between $2 million and $4 million. The firm, which has teams in Nairobi, Lagos, London and Colorado, will also leverage support from Factor[e] Ventures, an organization of venture builders and pre-seed investors. While both companies operate independently, Equator and Factor[e] collaborate on sourcing deals and undertaking due diligence, and they share a post-investment support platform to provide value to portfolio companies as they scale.
“The reality is that capital alone is only part of the problem. Ventures also need highly active and engaged investors to help them reach the growth stage of their trajectory,” added DeFoort.
In all, Equator will be expecting to leverage the current shift in the global narrative about climate tech’s importance and its impact on climate change. The investments coming into the sector, despite lagging fintech by a mile, are progressively being funneled into reducing the cost of technologies such as solar systems and batteries while enabling better access for individuals and businesses with pay-as-you-go models. Jamal says these trends could make the sector more investable and, in many ways, more exciting. “We’re optimistic about the role that we have to play in this ecosystem. I hope this is the first of many funds that continue to follow in these footsteps because more capital, talent and innovation are needed to develop more holistic solutions to the challenges in the climate space.”
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