Talk about adaptation.
Kenya Climate Ventures, among the earliest dedicated climate adaptation and climate tech funds in Africa, has pivoted before, and is now pivoting again.
The firm, which began as Kenya’s hub in a network of World Bank-funded climate innovation centers, made the transition to a for-profit fund manager in 2016. Since then, it has facilitated more than $20 million in investments to 20 climate tech startups on the continent, addressing water challenges, climate resilient agriculture, circularity and waste management, renewable energy and sustainable forestry.
But it has yet to reach a final close for its targeted $25 million fund. Raising capital for climate adaptation solutions with novel business models and uncertain cash flows has long been a tough sell. Fundraising for Kenya Climate Ventures, a for-profit entity, has also been hampered because of lingering perceptions about its nonprofit, grant-funded origins and broader investor assumptions about currency and other risks.
Its own resilience through a decade of tough lessons has made Kenya Climate Ventures an expert in navigating the myriad challenges of getting early and growth funding to promising climate solutions on a continent in urgent need of such solutions.
It’s now refocusing its strategy to build funding mechanisms and partnerships to crowd in more players to deliver more and better climate adaptation finance.
Kenya Climate Ventures launched a partnership this month with the nonprofit CARE Denmark to build a fund for very early climate startups in the Horn of Africa. The new Asili Fund will cut tiny checks of $10,000 to $20,000 for super early-stage companies, then redeploy the capital into new startups as it exits.
The firm is also running a climate adaptation accelerator for entrepreneurs in Uganda and Kenya. The Kenya Uganda Adaptation Accelerator, a $5 million, four-year initiative, aims to make at least 100 climate adaptation businesses bankable. At least 50% of the cohort will be women-led businesses. The entrepreneurs will receive up to $50,000 in performance-based grants to meet adaptation targets.
“We are looking to be at the center of an integrated model that provides the appropriate pipeline, brings in the appropriate investment and technical support to be able to deliver a creative ecosystem in a more effective and efficient manner,” KCV’s Victor Ndiege tells ImpactAlpha.
Fund economics
Kenya Climate Ventures evolved from the World Bank’s Climate Innovation Center, whose goal was to nurture regional green businesses and tech that can foster climate resilience in emerging markets. It was a forward-thinking effort by the World Bank’s now defunct innovation program InfoDev when it was conceived in 2010.
The program launched seven innovation hubs, Kenya being the first in 2012; most were in Africa, with one in Vietnam and one in the Caribbean. International development agencies in Denmark, the UK, Australia, the Netherlands, Norway and elsewhere supported individual centers.
The goal for the hubs was to incubate startups and entrepreneurs in the climate space. The hubs were funded through five to 10 year operational grants, after which they were to become self-sustaining accelerators and funders for local climate startups. All of the hubs except Kenya’s struggled to build operations and funding streams that could stand on their own once the operational grants expired. The programs have since been absorbed into government agencies, universities or tech hubs, if not shut down completely.
Kenya’s climate innovation center transitioned into Kenya Climate Ventures, a standalone fund manager, in 2016, after making several early-stage investments. Private equity fund manager Paul Ohaga was recruited to lead Kenya Climate Ventures and its early efforts to raise the $25 million fund; Ndiege joined as CEO in 2020.
“The fact that we did not close at the end of the program seven years ago shows it is possible to transform into a vehicle that can service the market based on the lessons that we’ve learned,” says Ndiege.
Ndiege declined to disclose how much the fund itself had raised, but said Kenya Climate Ventures has helped mobilize $22.4 million for companies including briquette manufacturer Acacia Innovations, Rafode, a microfinance that also provides solar products on credit, Nazava, which provides low-cost, ceramic-based water purifiers for households in Kenya and Indonesia, Hydroponics Africa, which offers hydroponic farming solutions to cut water usage, among others.
Ndiege says one of KCV’s key learnings has been about how ill-suited traditional venture capital and private equity fund structures are for smaller or early-stage funds in Africa. As an example, the conventional 2% management fee is insufficient to cover a fund managers’ costs on a $25 million fund, he says, yet investors are reluctant to consider alternative approaches.
The Small Foundation is one of a small number of organizations helping African fund managers with operational working capital.
“It is a big challenge, and it is the reason why funds have [closed down] here in Africa,” Ndiege says. Traditional fee rates “can never support the structure. It is just not realistic.”
Building pipeline
Not all climate adaptation funds have had as much fundraising difficulty as Kenya Climate Ventures. Catalyst Fund, an Africa-focused fund manager for early-stage adaptation tech, just closed $30 million of its $40 million fundraising goal after hitting the market three years ago.
That’s still a pittance compared to the need for climate-adaption capital in Africa, where there’s an annual shortfall of more than $50 billion for such climate solutions. The capital that is being deployed disproportionately supports large-scale commercial projects and infrastructure, leaving small companies and projects undercapitalized (for background see, “AI power demand revives climate tech funding”).
KCV launched the new Asili Fund at its first Adaptation Investment Summit for Africa in Nairobi this month. The fund is being piloted with $100,000, jointly funded by Kenya Climate Ventures and CARE Denmark. The hybrid model is meant to act as a bridge between the conventional fund model and grants, Ndiege says. Kenya Climate Ventures’ goal for Asili is to raise $10 million over the next three years.
“These are the ticket sizes that are very rarely available under very favorable, concessional terms and favorable repayment schedules,” CARE’s Helena Lassen told ImpactAlpha on the sidelines of the gathering.
CARE has been actively working on ways to deliver more impact through its grants amid the development aid crash. Part of that strategy involves supporting impact startups’ investment readiness and transition to revenue-generating businesses.
“We have a platform to expedite our work” through KCV, Lassen said. “We hope that in the long run it’s going to benefit the broader humanitarian community.”
Asili has already cut checks to four startups in Ethiopia and Kenya, which are delivering climate-smart agriculture tools like solar powered irrigation, biofertilizers, insect-based animal, and briquettes for cooking made from invasive plants.
The Kenya Uganda Adaptation Accelerator is a partnership between Kenya Climate Ventures, the United Nations Industrial Development Organization, climate research organization Adelphi, and Uganda-based Finding XY. It is supported by the multilateral Adaptation Fund and the Kenyan and Ugandan governments.
The Asili Fund will use the accelerator to build its pipeline. A goal of the accelerator is to work with local commercial lenders and impact investors to co-design other blended finance instruments for the climate tech and green business ecosystem.
Kenya Climate Ventures has learned a few lessons along the way. The Asili fund’s management fees and operational costs, for example, are factored into the fund’s budget.
