Ticked the climate-tech box yet?
On the artistic interpretations of "climate-tech" in Africa.
Stephen Deng less loose a grenade with his post on climate-tech. But surprisingly few people are engaging. Quite ironic too because the man mentions in his post that “For a category holding up almost *half* of all startup funding on the continent, the discussion and debate around it is dangerously quiet.”
Only Maelis Carraro (bless her heart), managing partner at Catalyst Fund, chipped in, and I’m hoping other VC funds with climate-tech mandates will also do the same and help us understand this stuff better. Consider this your official invitation.
That said, here’s a screengrab that is part of Stephen’s post1. The link to the post itself is at the end of this letter, so you’ll have to read through. Sorry. It’s just one of the things I do to help you, my fine reader, learn delayed gratification :)
First, I agree that the climate trouble is mainly about gases in the atmosphere. And that generally, when we talk climate-tech in Africa, we are typically (and unfortunately) not really confronting the realities of the gases-in-the-atmosphere problem.
Nor have I seen a lot of particularly venture-scalable efforts to "reduce" Africa's paltry GHG emissions (not to mention what a market for that looks like outside of voluntary emissions trading.
But the climate is not just gases in the atmosphere.
As someone who grew up in a small town with at least than dozen oil companies and oil servicing companies, I know that long before the gases-in-the-atmosphere problem becomes "real" to us. The activities that begin the supply-chain reaction that deposit gases up there have immediate effects on farms and health.
The climate is also about what those gases cause, and their complex interplay with other components of a climatic system like land and water... all factors which themselves affect the atmospheric climate or at least play a role somehow.
Like precipitation, for example, and ocean currents, etc.
That said, the thing is, these other factors are spaces where African "climate-tech" is not yet engineered for. With the exception of probably less than a handful of companies.
Why? Because it is a deeper form of technology than we’ve traditionally been set up for in VC circles.
It requires substantially more investment capital and depends upon the alignment of more than just the technology, but also markets, buyer behaviour, scalability, and most importantly, actual impact on tangible climatic conditions. Think rain falling in Marsabit or reliable industrial-scale electricity (not lightbulb electricity) in your favourite African country.
But we can't, or are not doing this, are we? Instead, we settle for what's fundable, which I think speaks to Stephen's point.
Yes, it might check the neat (reporting-intensive) "climate-tech" box that we've defined. It’s nobody’s fault, to be honest. Most LPs are DFIs that also have mandates guiding how they allocate the public money they have to invest.
But this fuzzy, hazy Nobody is why dressing up cheques and startups in climate-tech cosplay gear is probably not going to find any sizeable market, and might only be tolerated (eventually even by the LPs) as a do-something-to-feel-good project.
For example, I would rather see agri-tech SMEs get capital as agri-tech SMEs versus being categorised as a "climate-tech" VC-backed "startup" in order to chase or fund tick-the-box-able companies. Not because I don't want capital to flow to SMEs, but because labels do not create torque. Engines do. And torque, lots of torque is what’s needed for climate-tech to work.
It's OK for companies like my above example to be simple agri-tech SMEs. It doesn’t take away in the least bit from their “impact” what they’re labelled as.
And more importantly, casual labelling is the golden recipe for creating an ecosystem filled with “catering applications”, i.e. low-quality startups which are cultivated to cater to the tastes of (especially non-domain expert) venture investors.
Such "Catering applications are 19.3% less likely to get patent approval, suggesting low project quality," writes Xiyue (Ellen) Li, in Startup Catering to Venture Capitalists2
The point is not to damn "climate-tech" investments in Africa. I like the smooth ride on an Ampersand or Spiro motorbike.
The point (pardon a few exaggerations for effect) is that the climate-tech that will fix oil spills in Ogoni-land, generate industry-supporting scale electricity grids and make the rains fall again where it has stopped falling is the climate tech where you roll up your sleeves and actually go deep into the tech.
Because you can't resolve something as mysteriously complex as the climate system of a giant ball that is rocketing through space at around 107,000 kilometres per hour (67k mph for my American friends) by doing something that is still functionally the equivalent of panic-sipping a margarita on the Titanic.
The capitalist activities of creating value do not productively lend themselves very well to labels. If it doesn't materially impact the climate in a potentially market-shifting way, it's probably not climate-tech, and it's perfectly fine to call it something else. Heck, what does it even matter? So long as you and me are not deluding ourselves.
Again, labels do not create torque. Engines do.
Startup Catering to Venture Capitalists - https://afajof.org/management/viewp.php?n=58968
I think Stephen raised a important question but misses some points. Africa will feel the brunt of climate risks, even though we haven't contributed extensively to GHG emissions through history. Therefore we need products and services for adaption and resilience. In addition, climate related products are actually delivering products and services that are cheaper and more efficient than current products, as you illustrated with your Spiro example. Furthermore, the world is transitioning towards a low carbon future, Africa needs homegrown solutions to this otherwise we will be left behind as has happened with other economic developments. If we don't, there is a cost element in the form of carbon taxes that will make locally produced goods more expensive than other areas or not find appropriate export markets. Now, not every climate startup is venture backeable, but in essence, climate VCs have an impact lens. Within an African context, where we can produce sustainable businesses that are not necessarily unicorns, there is still a place for those type of businesses within a venture portfolio and still deliver optimal returns. We will also need more deep tech funds that are primarily focused on startups that require scientific or longer investment periods to be successful. Lastly, you are right, other forms of funding are needed, be it SME funds or private credit but I think Climate VCs can still have a portfolio of venture backeable businesses.
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