There’s no doubt that funding from development finance institutions (DFIs) has significantly shaped Africa’s venture capital (VC) landscape. Stuck with limited sources of capital, unlike their global counterparts, African VC firms have turned to DFIs since 2017, when TLcom Capital became the first institutionally backed commercial VC in Africa.
That relationship, described as “great” and “beneficial” by two general partners, has played a part in the boom in funding for Africa’s climate tech market.
Naturally, if you give someone money, you can advise on where to invest the money or the best way to invest the money. And if you’re an DFI backed by a government that is climate-focused, which is most of the rich ones, you advise African VC firms to invest in climate tech.
As a result, climate tech funding in Africa surged, reaching $1.04 billion in 2023 (from $340 million in 2019), making it the second most funded sector after every investor’s darling—fintech.
But that’s the only similarity that both share. Unlike fintech, which has become a vibrant ecosystem in Africa and has clear winners like Paystack, Wave and Flutterwave, climate tech is yet to create a market that matches its clout.
Venture capitalists love to show their investors above average returns and climate tech has not yet displayed enough returns to warrant the amount of investment that it constantly attracts.
At this point, it is only right to point out that creating a market takes time. The aforementioned fintechs did not reach their scale in a short period of time. Rome was not built in a day, but there were always signs that it might become a major city.
Climate tech solutions in Africa must soon demonstrate their value. The path forward requires key players to emerge and deliver scalable, transformative solutions. Otherwise, despite the billions pouring in, the sector risks stagnating as a “policy-driven” space without the commercial breakthroughs needed to address Africa’s climate challenges.
Read Muktar’s article here.