Catalyst Fund and Africa: The Big Deal partner to assess the State of Climate Tech in Africa

As COP28 comes to a close, calls to grow private sector financing for climate action, and especially for resilience and adaptation, are getting louder. Over four billion people around the world are vulnerable to climate change and vulnerable countries stand to lose as much as 64% of their GDP from climate change impacts. Given these needs, estimates for annual climate needs are growing, coming to over $10 trillion each year from 2031 to 2050. 

However, there is reason for optimism. The climate tech sector in Africa has been growing, reaching over $3.4B in invested capital since 2019. In 2023, one in every three dollars invested in African startups went to climate tech ventures. Furthermore, the sector has been resilience to overall downturns in investment flows as 2023 totals are set to match those in 2023 (approximately $1 billion). 

At the Catalyst Fund, we are at the frontlines of the growing climate tech sector backing tech startups scaling solutions for a climate-resilience future in Africa. We invest in a range of crucial sectors for adaptation across three verticals - Fintech for Climate Resilience, Climate-smart Essential Services, and Sustainable Livelihoods - as outlined our investment theses, and have made 16 investments in groundbreaking startups across the continent.

To make those investments, we reviewed over 3,000 pitchdecks and conducted initial due diligence on over 100 leading climate tech companies. That experience gives us first-hand insight into the state of the climate resilience and adaptation pipeline in Africa. In collaboration with Africa: The Big Deal, we analyzed our pipeline of startups as well as over 550 deals closed by climate tech startups in Africa, for startups that raised at least $100,000 in funding. This analysis allowed us to assess the sector, technology, stage, geography, and founder characteristics of the climate tech sector in Africa. 
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We found that overall the number of entrepreneurs building climate solutions is growing compared to prior years and the solutions extend across a range of sectors. This is encouraging as resilience and adaptation needs are pressing across a range of sectors from agriculture, infrastructure to transport, healthcare, housing. However, startup activities remain concentrated in agriculture, energy, and water. In fact, 75% of funding for climate tech went to  energy and water startups to date, and climate-smart agtech ventures dominate our early-stage pipeline. 

To have a chance at building resilience and meeting climate goals across the continent, funding for climate tech in Africa needs to reach more sectors and reach new heights, growing from $30 billion to nearly $300 billion annually. It also needs to grow to include more types of funding including grants, venture debt, equity, blended and concessional finance, and local capital. 

The need for soft capital is particularly urgent given that African climate tech ventures need an additional year to be ready for their first equity investment relative to startups in other sectors. This need for additional capital likely reflects the nature of these innovations, which require more research and development to get market ready (ie., agroforestry, carbon capture, circular economy, water access)

This landscape report seeks to shed light on the state of the climate tech sector in Africa from a startup pipeline and venture investing ecosystem perspective. It aims to understand what is happening in climate innovation on the continent and share insights into sectors, technologies, target users, geographies of focus, and founder characteristics of climate entrepreneurs. The paper highlights four gaps and opportunities for the sector to multiply its impact:

1. With just over 20 active investors in Africa with a focus on climate tech, the ecosystem has an opportunity to continue building the nascent sector and attract more private sector capital. This will entail further defining what is and is not a climate resilience and adaptation solution so investors and entrepreneurs can build confidence understanding the sector. Blended finance approaches will also be needed to de-risk private funding to climate ventures and grow capital flows to this sector. 
2. We need more diversity of capital to support climate tech ventures to scale, including a mix of concessionary capital to fund longer R&D and production innovation cycles, and debt for capex-intensive models in the climate space. The current trend is moving in the right direction. In 2023, more than $1.1 billion of venture debt was raised by startups in Africa, demonstrating 100% year-on-year growth. This emerging trend could open the door for more diverse types of capital offerings for climate tech startups to help them scale from pre-seed to growth stages. 
3. Over the past few years, a growing share of the early-stage active investors in Africa are offering a combination of financial and human capital. This combination is particularly suited for climate tech startups which require patient capital and hands-on support in their early years. On average, it takes climate tech ventures 2-3 years of soft capital before raising a venture round and hands-on support is critical in the early stage. On the back of this evolution, we are hoping to see more funds getting their hands dirty when supporting climate ventures.
4. Much of the success of startups hinges on having strong innovation ecosystems. During Africa Climate Week, the continent’s leaders recognized and reiterated this opportunity, noting that Africa possesses energy sources to be a leader in climate action and home of the solutions that can build climate resilience and reduce climate change impacts on a global scale. Earlier this year, Catalyst Fund and AfricArena successfully organized the first ever climate tech venture event in Africa gathering over 300 participants from the African climate tech ecosystem. There is a clear need and opportunity for more ecosystem initiatives that enable collaboration, knowledge sharing, connections, and co-investments to spur more climate innovation across Africa.