Coffee With: Ramez El-Serafy (LinkedIn), CEO, Flat6Labs: Ramez El-Serafy has served as Flat6Labs’ CEO for 12 years. Before that, he was responsible for building and managing Sarmady’s mobile apps unit.

In March, Flat6Labs launched the Africa Seed Fund (ASF) — a USD 95 mn fund targeting greentech, agritech, smart city, and climate tech startups based in Africa — with the aim of investing in over 160 startups in North, West, and East Africa, according to a statement (pdf). We spoke to El-Serafy about Flat6Labs’ previous investments in climate and cleantech, as well as the challenges, outlook, and opportunities for investing in the sector.

Enterprise: A report by the Clean Energy Business Council (pdf) last year found that MENA is falling behind on climate tech funding. How is that changing and what is causing the change? Are you seeing an increased appetite for climate tech investing in the region?

Ramez El-Serafy: Climate tech includes a lot of sustainability-related businesses like renewable energy and greentech solutions. I think hosting two consecutive COPs in the region is creating more interest in the sector, but it’s also becoming a hot topic regionally and globally. Up until a few years ago, fintech drew a lot of interest, but a lot of global impact-driven capital is being directed to climate and greentech solutions now.

We’re also seeing some regional investors enter this space. One of our startups, Nadeera, which is a waste management solution based in Abu Dhabi, just raised a round from a couple of angel investors in the UAE and they are closing with a major group in the UAE. Another example is Bekia, which raised funds from Oman Technology Fund (OTF) and from the Catalyst Fund. This is really good because it’s not just impact investments or investors from outside of the region — there are regional investors and commercial entities that believe in it.

E: Are you seeing increasing interest from investors in climate tech?

RS: We’ve invested around USD 1 mn in greentech in total, and our companies have raised USD 5 mn, so that’s almost four times what we’ve invested. This is above the average follow-on funding that we see in other sectors and most of that funding is from regional investors.

We know that we cannot be the first or the last check startups receive — a big part of our offering is connecting them with other potential investors and giving them access to new markets. Seeing more capital being driven into this space is really important.

E: What does the pipeline look like? Are there more startups working in clean and climate tech?

RS: There has definitely been an uptick in the pipeline in the past couple of years, which I would say is driven by the amount of capital that is being pooled into the sector.

From what I can see, the innovation system around solar isn’t as robust compared to 2015, maybe because the market has stabilized around requirements for solar energy, and also because governments are investing heavily in this space. But other sectors are drawing interest, so we have a lot of startups working in water in Tunisia and waste management in Egypt. I think it also has to do with how easy it is for startups that aren’t asset-heavy to build their products and innovations and deploy them in the market.

E: How is investing in climate and cleantech different from investing in other sectors?

RS: There are definitely more challenges because it’s a new sector. I think that, once we start seeing successful examples of exits and companies raising large rounds in this space, more founders will be motivated to enter it. So far, most of the region’s success stories have been in e-commerce and fintech. In the past, greentech has been more impact-driven than commercially-driven, with government and international or development organizations interfering. We need to reach the point where it’s commercially viable and startups see the whole process from start to finish so that it becomes a self-sustainable ecosystem.

The other challenge is regulation. It takes a little longer for greentech companies to get things from product development to market because they need more licenses and certifications from different entities.

Also, the path to market is a little longer for greentech companies, and the local investment appetite for the sector still doesn’t compare to something like fintech, for example.

E: How do you assess potential investments?

RS: There are a lot of economic factors. We are a very early stage investor, so the potential for businesses to secure follow-on funding is one of the factors that we look at because there’s a limit to how much we can invest and how long we can support our startups. Where other VCs are investing and the route to exit both impact our strategy.

The market is very relevant as well. Lebanon and Tunisia are amazing markets, but they’re very limited, so we need to see the potential for regional scalability.

E: Your recently announced the Africa Seed Fund (ASF) will cover North, East, and West Africa. Do you see synergies across Africa that will allow startups to operate across borders more easily?

RS: Absolutely — the main thesis of our funding is that there are a lot of synergies between African markets, and that’s why we launched the fund. We see a lot of potential and innovation in Africa and we believe that it’s undercapitalized because it is so big and very fragmented. Whenever there’s limited or lacking resources, you will also have innovation to try and overcome the challenges. Greentech sometimes sounds like a luxury, especially in Africa, but when you get down to it, there are many places where basic resources and services are lagging behind or don’t exist. So creating innovative ways for people in Africa to access clean water, clean air, and clean energy is key.

We still don’t know where the big innovations will come from. We’ve learned that when you do multi-country funds, you cannot limit yourself to specific markets because the fund will invest over 5-6 years. For now, we know that we will have focal points in Kenya in the east and Nigeria in the west.

E: Are you seeing increased collaboration between Africa-based VCs?

RS: There is definitely increased collaboration between VCs in East, West and North Africa. For almost every startup that raises a round in our Egypt and Tunisia portfolios, there is always one local check, one from the Middle East (KSA, UAE, Lebanon, Bahrain, and Jordan), and one from an Africa-based VC. We’re definitely seeing more Africa-based VCs investing in our portfolios in Egypt and Tunisia. Two-thirds (around 67%) of our portfolio’s total USD value of funding comes from within Africa, followed by 22% from the Middle East and the rest comes from other geographical regions

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