Is climate tech on the same trajectory as fintech?

In spite of being one of the regions most affected by climate change, MENA is falling behind on funding innovation to mitigate and adapt to the effects of it, according to a report (pdf) by the Clean Energy Business Council (CEBC). The report found an absence of patient capital necessary to return investments on climate tech as well as misperceptions that climate tech is still not a profitable endeavor. Despite the findings, four regional VC funds we spoke to said that they were eyeing investments in climate tech in the near-term, and all of them noted an increased appetite among VCs and investors for climate and clean tech as development money pools into the sector — with all of them comparing the sector to the early days of fintech.

Climate-focused funds on the rise: Egypt-based Flat6Labs announced a USD 95 mn fund in March that will go to 160 startups working in climate and cleantech in East, West and North Africa. In February, Dubai-based deep-tech VC fund 8X Ventures — which has 12 companies in its portfolio, mostly in the UK, India and Bangladesh — announced plans to allocate USD 25 mn to cleantech and climate tech in the region. Hossam Allam and Sherief Kesseba co-founded the pan-African Climate Resilience Fund in September, which will deploy USD 25 mn to agrifoods over the next two years. The fund supports startups working in agrifood and nature-enabled solutions across Africa and focuses on investing at the intersection of agrifood and climate, Allam tells us.

Impact investors are shifting to climate tech: The UAE-based VentureSouq — a venture capital firm for global early-stage tech startups — includes climate tech in its conscious collective investment thesis, created for investing in founders harnessing technology to address critical economic, environmental, and societal issues. VentureSouq senior investment associate Lola Flores tells us they have developed a climate thesis and are seeing a “large appetite” for climate tech investing as the ecosystem matures. Other VCs with a climate tech mandate include Nairobi-based Catalyst Fund and Norway’s Katapult, which have invested in agtech, waste management, and energy startups in Egypt, Morocco, and Tunisia. Others like Morocco’s EmergingTech VC and Iraq’s Euphrates Ventures have made investments in agritech startups in their respective countries.

From fintech to climate tech: Algebra Ventures Managing Partner Tarek Assad and Flat6Labs’ CEO Ramez El-Serafy agree climate tech appears to be following the same trajectory as fintech, with global, impact-driven capital increasingly being directed to climate and greentech solutions. Assad tells us that governments, development finance institutions (DFIs), local investors and global investors, as well as large commercial organizations are seeing the benefit and the trend and want to get in early but it takes time to assemble the sector, since proprietary tech is hard to come by. He tells us that building local and regional climate and clean tech will require a different model that depends on homegrown talents and, in some cases, technology. El-Serafy agrees, attributing the uptick in the climate tech pipeline to capital flowing into greentech solutions.

Climate tech needs more innovation and technical know-how: El-Serafy tells us that, in spite of surging interest in the sector, developing an organic pipeline for climate tech and creating mechanisms for tech transfer from universities to market will take time. “We have really good engineering talent in Egypt and we’re trying to work with students and academic bodies to drive innovation in this space and take it to the market,” he adds. On the flipside, Assad notes that adapting models that have worked elsewhere is no guarantee for success in climate tech, and that the skill sets needed are still being developed, with big projects likely to benefit the green job market. “In some cases, you need strong locally developed tech components, so the teams that emerge to work on climate tech will definitely have a stronger technical side. Those that have that domain expertise will get ahead, although it’s still not clear how they will acquire the skills needed to develop the sector,” Assad says.

So, which sectors are drawing the most interest? Assad notes rising interest in EVs and EV components, but points to clean tech, waste management and agrifoods as areas of interest as well. Energy, waste management and water treatment are all emerging as areas of interest, El-Serafy notes, with many startups that aren’t asset-heavy focusing their efforts on improving operational efficiency and innovating in the process. Hossam Allam tells us that VCs are increasingly eyeing agritech and agrifood, as they see “the size of the prize.”