Early exits is the key to sustainability in climate tech funding—Basigo CEO, Bhattacharya

Amid conversations surrounding the massive improvements in venture funding into climate tech in recent years, there have been worries about long-term sustainability. The critical question from many observers revolves around whether startups operating in the space can deliver strong returns to investors.

These questions are pertinent considering that many climate tech startups have a dual mission: profitability and sustainability impact. Thus, there are doubts if the sector could be as commercially viable in the long term or whether it would become a flash in the pan, pretty much like the health technology sector.

Jit Bhattacharya, Co-founder and CEO of BasiGo, believes the space can be commercially profitable in the long term if it can record several successful exits. The CEO disclosed this in a chat with TechNext. According to him, climate tech startups need to demonstrate returns to early-stage investors to keep the belief strong.

“The answer lies in successful exits,” Jit Bhattacharya said. “For climate tech to be sustainable as a venture asset class, it must demonstrate returns to early-stage investors through exits. To achieve this result, African climate tech businesses must achieve strong business fundamentals and demonstrate a clear path to profitability much earlier than their counterparts in Western markets,” he said.

While admitting that this would be a challenge for the startups providing climate solutions, he also pointed out that it is also the characteristic that can set them apart in the global market for climate investment.

Interestingly, unlike other sectors where digital infrastructure is relatively easier to scale, climate tech often requires more capital-intensive solutions, longer adoption cycles, and sometimes policy interventions from the government.

Despite the influx of funding into the space, it is interesting to note that very little of it has come from local investors and venture capitalists. Thus, a significant portion of funding for startups in the space comes from international investors, particularly development finance institutions (DFIs) and impact investors. This could spell doom for the sector in the long run.

Again, Bhattacharya believes that for climate tech to thrive, it must shift from relying solely on grants and impact funding to attracting local investors and proving it can generate competitive returns on investment. The key, he said, lies in “early exits that validate the sector’s financial viability.”

Climate tech vs fintech, competition or collaboration

Climate tech funding has recently gained momentum in Africa, with hundreds of startups scattered across the continent and raising more than $3.7 billion from VC funding since 2019. More recently, the space dominated VC funding for the first half of 2024, contributing an impressive 45 per cent of the total $721 million raised by tech startups on the continent (an all-time high for the climate tech sector).

Indeed, the pace of growth in funding has been steady rather than explosive. This has led some to question whether climate tech is poised to overtake fintech as Africa’s preferred funding sector. But Jit Bhattacharya argues that such fears are misplaced, as climate tech and fintech are not in competition but rather complementary forces driving Africa’s economic transformation.

“There is no competition between fintech and climate tech in Africa because many of the fast-growing climate tech businesses in Africa have fintech innovation at their core,” he noted.

BasiGo itself is a prime example of this synergy. While the company, which has received over $50 million in VC funding across multiple rounds, is known for its electric buses, the CEO noted that its key innovation lies in its financing model. The model has been instrumental in making electric buses financially accessible to operators.

“At BasiGo, our key innovation is not the E-Bus; it is our financing model called Pay-As-You-Drive. This tech-driven leasing model eliminates the high upfront cost of an E-Bus and charging infrastructure, making it affordable for bus operators in Africa to access. Our fintech has always been at the centre of our pitch to early-stage investors,” the CEO said.

The company’s approach highlights how fintech solutions are enabling the expansion of climate tech by providing financial models that make sustainable technologies more accessible. This underscores the reality that fintech remains an integral part of Africa’s startup ecosystem, even as climate tech grows in prominence.

Ultimately, fintech and climate tech are not competitors but allies in Africa’s development journey. Fintech innovations will continue to power climate tech solutions, enabling wider adoption and long-term impact. Rather than displacing fintech, climate tech will likely deepen its reliance on it, ensuring that both sectors grow hand in hand.

Overall, Africa’s climate tech revolution hinges on proving that impactful innovations can also be commercially sustainable. As demonstrated by BasiGo’s breakthrough Pay-As-You-Drive financing model and its successful track record of attracting significant VC funding, the way forward requires a shift from the present overreliance on grants and foreign investors to delivering measurable, competitive returns. By charting clear exit strategies that validate profitability, the sector can not only secure robust investor confidence but also foster a resilient ecosystem of locally driven, scalable solutions.