$2.8bn for climate change startups in Africa in 5 years, but will funding get better?

You would be surprised, or not, that Africans understand climate change and its implications. But, don’t be surprised that Africa is highly vulnerable to the impacts of climate change due to its dependence on agriculture, limited infrastructure, and socioeconomic challenges.

Many African countries have experienced the effects of climate change firsthand, including droughts, floods, warmer temperatures, and changing rainfall patterns, which have significant impacts on their economies, ecosystems, and livelihoods.

But, there’s good news.

Governments, organisations, and individuals across Africa are actively involved in climate change discussions, research, and initiatives. And, a total of $2.8 billion in funding have been invested in climate-related startups in Africa since 2019, which represents 21% of all the funding raised by startups on the continent over the period (excluding exits), according to data from Africa: The Big Deal.

Zooming in on the climate change funding since 2019

At least 230 deals over $1 million have been signed in the climatetech space since 2019, just over 20% of all the deals signed on the continent.

This percentage is higher for 2023 so far [Jan-May] -(27%), the highest of any half-year since 2019.

Africa: The Big Deal

Energy represents the vast majority of the funding raised in the space: $2 billion out of $2.8 billion (73%).

Three out of five $1m+ climate-related deals since 2019 have been in the energy space.

In 2022, Africa’s climate change startups raised over $860 million in equity funding, largely driven by clean energy technologies, representing 3.5x growth amid macroeconomic headwinds last year, data shows, making climate Africa’s most funded sector after fintech.

Cleantech in 2022 [Partechpartners.com] - US$863 million, +347% YoY, 18% of total funding, 43 deals, +65% YoY, 6% of deals.

In 2023 alone, M-Kopa’s ($200 million debt + $55 million equity) and Sun King’s ($150 million), proportion currently stands as high as 89% so far.

“While the Energy sector – and more specifically pay-as-you-go solar scale-ups – is driving the numbers up, the space is getting broader with startups addressing a range of issues from bridging the environmental data gap (e.g. Amini), tackling food waste (e.g. Figorr) or building low-carbon homes (e.g. Kubik),” Africa: The Big Deal notes.

The most prominent funding rounds:

• AfricaGoGreen Fund’s second close ($47 million)
• Launch of Oxfam Novib and Goodwell’s Pepea fund ($20 million) 
• Novastar’s Africa People + Planet Fund (up to $200m?) 
• Equator’s initial close of its first fund ($40 million)
• E3 Capital and Lion’s Head climate fund first close ($48 million)

Will funding get better?

It has to, as the 54 countries from Africa contribute only 3% of global carbon emissions – compared to China’s 27% and the US’s 15%. Yet, more than 60% of African households will be impacted by climate change if no action is taken.

A General Partner at Flat6Labs’ new Africa Seed Fund (ASF), Ramez El Serafy sees potential in Africa and argues that the continent is one of the most exciting regions to invest in.

We will leverage our experience and knowledge to guide the startup founders to create truly scalable, investment-ready, Africa-based companies.

 Ramez El Serafy

It was reported in March that VC firm Flat6Labs launched a new US$95 million seed fund to nurture and develop early-stage tech startups on the African continent.

Headquartered in Egypt, the Africa Seed Fund (ASF) will focus on three main investment territories on the continent: North Africa, West Africa, and East Africa.

The focus will be on impactful sectors that accelerate digital inclusion through the use of information technologies in addressing social and environmental challenges, such as Healthtech, Fintech, Edtech, Greentech, Agritech, Climatetech, and others.

Also, the Climate Investment Funds (CIF), implemented by the African Development Bank, has supported the development of 39 investment plans across 27 African countries to unlock climate action.

The CIF has four key programs, one of which is the Clean Technology Fund (CTF) which promotes scaled-up financing for the demonstration, deployment and transfer of low-carbon technologies with significant potential for long-term greenhouse gas emissions savings.

Many venture capital firms are currently in pursuit of startups in Africa, actively seeking out new opportunities, while others are accumulating significant funds to leverage existing prospects. This includes potential acquisitions of successful and promising energy startups, like the acquisition of Ghaan-based PEG Africa by Bboxx.

As the 2023 numbers have shown, investment in African tech startups that prioritise addressing climate change is starting to increase, in line with a global trend, although valuations remain considerably lower compared to other ecosystems.

Ultimately, the global focus on climate change is increasing. So, there is a growing pool of talent in Africa working on climate tech. This is due to a number of factors, including the increasing number of universities offering courses in climate science and engineering, and the growing number of accelerators and incubators supporting climate tech startups.

There is also a growing demand for climate tech solutions in Africa. This is due to the continent’s vulnerability to climate change, and the need for sustainable solutions to address the challenges of climate change.

Of course, there are also some challenges that climate change tech startups in Africa face, including a hostile regulatory environment. However, the overall trend is positive, and there is a good chance that climate change tech startups in Africa will receive better funding in 2023.