Funding from development finance institutions (DFIs) has played a crucial role in shaping Africa’s venture capital (VC) landscape. African VC firms have turned to DFIs for capital since 2017, with TLcom Capital being the first institutionally backed commercial VC in Africa.
This relationship has been described as beneficial, leading to increased funding for Africa’s climate tech market.
DFIs, backed by climate-focused governments, advise African VC firms to invest in climate tech, resulting in a surge of funding to $1.04 billion in 2023 from $340 million in 2019, making it the second most funded sector after fintech.
Unlike fintech, which has clear winners like Paystack and Flutterwave, climate tech is yet to establish a market with similar success.
Venture capitalists seek above-average returns, and climate tech has not shown enough returns to justify its high level of investment.
Creating a successful market takes time, as seen with fintech successes that did not happen overnight. Climate tech solutions in Africa need to demonstrate their value and deliver scalable solutions to address climate challenges effectively.
Without significant breakthroughs, the climate tech sector risks remaining policy-driven without the necessary commercial success to tackle Africa’s climate challenges.
Explore more about climate tech here.