Despite a significant upswing in funding for climate tech, a recent report underscores a noticeable disparity in meeting the actual financial requirements for climate action in Africa. The private sector’s contribution to climate finance in the region remains conspicuously low, according to the findings.
The report titled “Investing in Climate Tech Innovation in Africa” delves into the expanding climate tech sector on the continent, catering to the interests of investors, innovators, and stakeholders invested in Africa’s future. The Catalyst Fund, a pre-seed fund and accelerator supporting tech startups focused on enhancing the resilience of underserved, climate-vulnerable communities in Africa, authored the report.
The report emphasizes the challenges and immense potential of the burgeoning climate tech sector in Africa, offering critical insights into the future of climate resilience on the continent. Over the past year, the Catalyst Fund received overwhelming interest, reviewing more than 3,000 pitch decks from climate tech innovators seeking investments for their ventures in Africa. Combining this proprietary pipeline with data from Africa: The Big Deal, the report provides a comprehensive analysis of the state of climate innovation in Africa, covering sectors, technologies, demographics, geographical landscapes, founder attributes, funding trends, and exit pathways for climate ventures.
Despite the high volume of proposals, nearly 90 percent of pitch decks were disqualified for lacking a focus on either Africa or climate-centric solutions. The remaining 300 decks revealed a significant trend, with agriculture and energy startups at the forefront of entrepreneurial activity, especially in the pre-seed stage. While agriculture dominated earlier stages with 40 percent of solutions, data from Africa: The Big Deal disclosed that 75 percent of funding for climate tech startups in 2022 went to energy and water startups. Other sectors, though diverse, only accounted for 25 percent of the funding raised.
Despite the notable growth in funding for climate tech ventures compared to other sectors, the current financial support falls short of the substantial requirement for African countries to meet their 2030 climate goals. The report calls for a monumental increase in climate financing, estimating the need to jump from the existing $30 billion annually to an astonishing $300 billion, requiring contributions from both public and private sectors.
A significant concern is the limited contribution from the private sector, constituting only 14 percent of total climate finance. The dearth of climate-focused investors in Africa is reflected in around 100 deals for climate tech startups, even as funding for climate-related startups in Africa reached $3.4 billion between 2019 and 2023, making up nearly 60 percent of total funding invested in the more mature fintech sector.
The report stresses not only the need for increased funding but also the importance of diversified funding sources, including grants, venture debt, equity, blended and concessional finance, and local capital. It highlights the scarcity of early-stage funds focused on climate in Africa, with only 23 identified, some yet to make their inaugural investment. The struggle for grant capital is evident, with only 87 climate startups in Africa receiving grant funding over the past four years.
A concerning observation is the extended duration African startups require to secure venture capital compared to counterparts in other ecosystems. This lag, particularly pronounced for climate tech startups needing an additional year on average, underscores the urgency for increased patient capital. The report emphasizes the need for diverse financing avenues to fortify resilience and adaptive capacities across the continent.
With only 10 exits in the climate tech space, confined to the energy sector, the report calls for substantial strides before commercial capital enters at scale. It concludes by advocating for the development of multifaceted capital sources to nurture a diverse spectrum of enterprises crucial for expediting and scaling climate action across Africa. Proposals for blended finance approaches take center stage, aiming to attract more private funding into the sector, thereby mitigating risks for entrepreneurs and investors alike.
Supported by FSD Africa, UNIDO, GEF, and JPMorgan Chase & Co., this philanthropic endeavor aims to provide valuable insights to fellow investors, innovators, and ecosystem players in the African climate tech sector. The analysis seeks to catalyze progress within the climate resilience ecosystem, underscoring the urgency for concerted efforts and diverse financial mechanisms to foster a sustainable African tech landscape.
Source: WeeTracker