Why startups are missing out on lucrative climate financing deals

Jonas Tesfu, Pangea Accelerator CEO. [Graham Kajilwa, Standard]

Pangea Accelerator is an investment platform that provides startups and small and medium enterprises (SMEs) with funding and operational opportunities. It does this through climate tech finance, given as equity investments and also connects startups to investors.

Enterprise had a chat Pangea Accelerator Chief Executive Jonas Tesfu, who shared the strides made since 2018, when the firm started operations in Kenya; his thoughts on why climate-based finance is not ‘sexy’ among startups and SMEs and why this is the space for entrepreneurs seeking funding.

 Who is Pangea Accelerator and when did you get into the Kenyan market?

We are an investment and accelerator programme. So far, we have supported over 300 startups and SMEs - mainly in Kenya but we also do programmes in Ethiopia, Nigeria and Tanzania. Our first programme in Kenya started in 2018. In that programme, we also invested in WorkPay and Onesha.

The majority of the businesses in the first programme were technology-driven startups.

What is the portfolio of the 300 businesses you have worked with?

They represent businesses in the agriculture space, blue economy, affordable housing, urban technology, fintech, and climate tech.

How would you describe climate-sensitive investing among SMEs and startups in the country when you compare it to other investors and businesses?

Its (climate-sensitive investing) is not as sexy or as popular yet. One is because we do not have the same role models in the climate space (as those in other sectors have) but there is actually a lack of insight.

For example, according to the World Economic Forum, nature-based solutions as a sector is a Sh1,540 trillion ($10 trillion) per capita per year industry and can employ more than 300 million people.

And because it is a Sh1,500 trillion opportunity, does that automatically mean that we have a lot of startups in Kenya addressing the sector? No. Why, the simple answer is they have no idea that these opportunities exist.

Another is blue carbon. According to the African Union, it is a Sh6 trillion ($40 billion) per year market, and last year, I think in all of the African continent, blue carbon sold for like Sh3.9 million ($26,000) or something around there. We are not even scratching the surface.

Why, this is not public information so that if you are an opportunist youth, you will try and come up with a solution to see where you can take it.

What are some of the accelerator programmes that you have?

We have one now that is open. The deadline is January 12, 2024. It is an opportunity with a tailored programme to support 10 businesses in Kenya in the climate tech space. We offer funding opportunities of up to Sh38.5 million ($250,000) and we support them with market access, strengthening operations, governance and much more.

We also just finished a programme with Microsoft on supporting agritech businesses and we have an ongoing program on nature-based solutions together with the World Worldwide Fund (WWF) in coastal Kenya.

What do you look for when you want to invest in a SME or startup?

First, it needs to be young entrepreneurs who own the company. We believe in supporting the African youth and women. The innovative solution of the business needs to be scalable. They need to have a strong team and the business has to be for profit with customers. We also have certain sectors that we are focusing on sustainable agriculture, nature-based solutions, waste management, renewable energy and clean tech manufacturing,

What is clean tech manufacturing?

It means manufacturing utilising circular principles, from an end-to-end perspective of the value chain. This is by trying to have a waste approach so that there is no waste throughout the value chain and that the input is also waste.

How has business been for you in those entities you have invested in?

I would say it has been good. WorkPay, one of our startups, I think in the last investment round they did Sh462 million ($3 million) and Duhqa raised Sh308 million ($2 million). I would say we have a very good experience in Kenya. Obviously, we had a few businesses that we believed in but it did not go all the way and then you have those that have potential and have the people problem: the drama, big egos and they basically squandered the opportunities.

Considering the challenges startups and SMEs encounter when seeking seed or operational capital in the country, would you say the climate finance space is worth a try for such businesses or even those yet to start?

A hundred per cent. I would say they definitely should look into this space. There is a lot of interest from investors. I just came back from COP28 and there is already a lot of money and opportunities available and a lot more coming.

And climate will not be less important next year, mostly likely, it will be more important. There are many businesses in the climate space but they do not communicate that.