African venture capital firm Equator raised $55 million for its first fund. This supports climate technology startups through the early stages, one of the most difficult and often overlooked phases of the journey.
Climate technology startups in African countries need to navigate a more demanding funding environment than their counterparts in more developed countries, where governments often subsidize companies that work on greener technologies. Instead, they need to rely heavily on development financial institutions (DFIs), foundations and donations, making them particularly vulnerable to changes in global capital flows.
As the financial budgets for aid and development are reduced, DFIS will deploy less capital, increasing pressure on African startups. The situation for Climate Tech companies is getting worse, requiring more capital than traditional high-tech startups.
The fund provides Equator with the feeling that it will be able to fill this gap and fill in scalable solutions that can attract private capital.
“We need to invest in technology and in scalable ventures that tackle basic climate challenges,” said Nijhad Jamal, the company's managing partner. “These investments will help reduce reliance on aid and bring more global private capital into the region instead.”
It's a noble goal to aim for, but like many Africa-focused funds, Equator's Limited Partners foundation is still made up of the very institutions that are aiming to separate startups. Its supporters include basics and donations such as the UK International Investment (BII), DFIs such as Proparco and IFC, as well as the Global Energy Alliance for People and Planets (funded by IKEA, Rockefeller and Jeff Bezos Earth Fund) and Shell Foundation.
“The story has changed.”
The Equator plans to invest funds in 15-18 startups, writing checks of $750,000 to $1 million for seed-stage companies and $2 million for Series A people.
Aside from capital, the company wants to help its founders understand the economics, governance and regional expansion of the units. The fund wants to reserve capital for subsequent investments and later rounds, and aims to mobilize LPs as co-investments to bring in equity, debt or fusion funding.
“In some of our portfolio companies, we are the only investors in the Cap Table that focuses on Africa, and that's the role we play in this ecosystem,” Jamal said. “We had a 100% success rate in taking investors directly to ventures that supported them up to the latest investments.”
Africa accounts for less than 3% of global energy-related CO2 emissions, but has some of the most severe climate impacts. The Equator wants to address that and tells the venture that it will “treat the economic and sustainability challenges that arise from these impacts.”
After reaching the initial end of this fund, when covering the company in 2023, Jamal emphasized the importance of building buildings in the energy, agriculture and mobility sectors. At the time, investment in climate technology had skyrocketed, becoming Africa's second-largest VC sector.
Since then, the market has changed and the investors' conversation has evolved along with these changes. Initially, founders and investors focused primarily on impact. Currently, Jamal says emphasis is shifting to sales. Climate solutions must provide clear economic value to customers with purchasing power.
Taking an example of such a solution, Jamal pointed out fewer electric vehicles than fuel-powered electric vehicles. Climate insurance that accurately covers extreme weather. Or AI-driven logistics optimization for businesses. Some of Equator's portfolio companies, Roam Electric, Ibisa and Leta, are building these solutions.
“The story has changed,” Jamal said. “It's no longer about development and impact. It's about mobilizing private capital for scalable ventures that solve problems. Today's focus is further on the economics of units and the path to profitability. [enough] Capital thrown into ventures to expand without thinking about monetization, true economics, profitability, or exit. ”
A new focus has been placed on M&A
Jamal, today's climate technology startups, unlike first-generation CleanTech counterparts like Sunking, M-Kopa and D.Light, have raised billions and are now ready for an IPO.
These new startups will operate in more mature ecosystems and allow them to use their capital and time more efficiently, he said. Jamal expects an exit of $100 million rather than a $1 billion IPO, saying it can bring strong returns to investors.
Space has already seen some integrations, but most of them are private. Notable M&As, like the 2022 acquisition of Bboxx's PEG Africa, was more recently fused with equatorial support Steamaco, which was integrated with Shyft Power Solutions last year.
Jamal emphasized the importance of capital structures, just as the sector hopes to see more exits. Climate Tech raised the most debt funds last year, and he argues that startups need a proper mix to avoid excessive dilution of equity.
“If stocks are used for everything, including working capital, the dilution is too high for investors and founders to see meaningful returns. But as debt and other financial products become more accessible, they start looking at commercial exits, even if they are more bite-sized,” he said.
Jamal previously played roles in BlackRock and Impact Investor Acumen Fund, leading Clean Tech Group. He later founded Moja Capital, a personal fund that made early stage investments consistent with Equator's current strategy. He runs along the equator with his partner Morgan Default.
One of Jamal's early bets was SunCulture, a Kenya-based off-grid solar company backed by the Kenya-based Schmidt Family Foundation. Equator is also investing in other stages of growth startups, such as SoftBank-backed Apollo Agriculture and Odyssey Energy Solutions.