Africa contributes less than 3% of the world’s energy-related carbon dioxide emissions, but the continent will be one of the most affected by the adverse effects of climate change. Some explanations for Africa’s vulnerability include the poor dissemination of technologies and information relevant to supporting adaptation, usually provided by clean or climate technology companies.
Despite the precise role that technologies such as renewable energy, recycling and green transportation play in improving the world’s carbon footprint, raising venture capital has proven especially difficult for the companies behind it in recent years. However, investor interest has recently increased. In 2021, climate tech startups raised more than $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 companies like Sun King in the region last year, putting 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 technology venture capital firm focused on sub-Saharan Africa, has reached the first close of its first fund with $40 million in pledges. Limited partners include BII, the Global Energy Alliance for People and Planet (GEAPP), the Shell Foundation and impact investor DOEN Participaties, the company said.
Equator supports startups and Series A startups in the energy, agriculture and mobility sectors. In conversation with businessupdates.org, managing partner Nihad Jamal said the company is interested in these sectors because of the many untapped market opportunities. He also noted that by deploying capital in the seed and series A stages, Equator can bridge the gap between startups’ earliest checks (in 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 step in when the risks have already diminished and proven. In the seed and Series A stages, there is a shortage of capital and institutional investors to support companies in that stage of their lifecycle and journey,” said Jamal. “The hope is that by investing in these stages, we can mobilize capital into Series B and growth stock stages from major regional funds, global climate technology funds, and companies that are excited about the industry and region.”
Before joining Equator, Jamal worked several times at asset manager BlackRock and impact investment Acumen Fund, where he led the company’s cleantech group. At Moja Capital, a personal fund he founded, Jamal made seed and Series A investments across a variety of industries, including those at the heart of Equator’s strategy: clean energy, agriculture and mobility. SunCulture, a Kenya-based off-grid solar technology for small farmers, was one of Jamal’s investments. Equator made a follow-on investment in SunCulture and other start-ups backed by the company’s operators, including Morgan DeFortpartner at Equator and founder of Factor[e] Enterprises; Apollo Agriculture; Odyssey energy solutions; and wander.
LR: Nijhad Jamal and Morgan DeFoort
According to Jamal, Equator aims to support technology-enabled companies that benefit from a particular technology element, be it hardware or software or business model innovation, in a region where innovation may be lacking. For example, the fund will pay attention to technical founders with domain expertise who build solutions around clean energy, agriculture and mobility, ultimately addressing the impact of climate change on income inequality in Africa.
“Climate change and income inequality have been proven to be directly correlated. Data shows that the gap between the economic output of the world’s richest and poorest countries is 25% wider today than it would have been without global warming,” Jamal noted. “So climate change has exacerbated global income inequality and we see that very acutely in sub-Saharan Africa. And the companies and innovations we invest in are an essential part of meeting some of these challenges.”
Equator, hoping to make up to 15 investments over the lifecycle of this fund, says it is participating in rounds of $10 million or less, which is typical of pre-Series B clean tech startups in sub-Saharan Africa. For seed stages, the cleantech VC invests between $1 million and $2 million; for Series A stages, checks were cut between $2 million and $4 million. The company, which has teams in Nairobi, Lagos, London and Colorado, will also leverage the support of Factor[e] enterprises, an organization of venture builders and pre-seed investors. While both companies operate independently, Equator and Factor[e] collaborate on sourcing deals and perform 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. Companies also need very active and engaged investors to help them reach the growth phase of their journey,” added DeFoort.
Overall, Equator expects to capitalize on the current shift in the global narrative about the importance of climate technology and its impact on climate change. The investment coming into the sector, despite a fintech lagging behind by miles, is gradually being funneled into lowering the cost of technologies like solar systems and batteries, while individuals and businesses are getting better access with pay-as-you-go models. Jamal says these trends could make the sector more investable and, in many ways, more exciting. “We are optimistic about the role we have to play in this ecosystem. I hope this is the first of many funds to continue to follow in these footsteps as more capital, talent and innovation is needed to develop more holistic solutions to the challenges in the climate space.”
