Image Source : Satgana
Satgana, a European venture capital (VC) firm headquartered in Luxembourg, has closed a €30 million fund to fund startups that tackle climate change problems in Africa. The fund will do so by investing up to €500K in the pre-seed and seed stages of startups across Europe and Africa.
The VC will leverage the network of its team and some of its investors to help founders with direct operational and strategic support, in addition to funding, on issues like impact management, technology development, strategy, hiring, and fundraising. Satgana will concentrate on food, agriculture, energy, mobility, industry, buildings, carbon removal, and the circular economy as it works to decarbonize all areas of the economy.
The fund has invested in 3 climate tech startups: Orbio Earth, a German startup building methane intelligence software to help energy providers monitor and reduce methane emissions with the use of satellites; Mazi Mobility, a Kenyan startup building a network of electric motorbikes and battery-swapping infrastructure in East Africa; and Yeasty, a French startup building an alternative protein leveraging beer yeast with a circular model.
Satgana’s approach to funding climate tech startups is much needed across the continent, as most African countries are ill-prepared for disasters caused by climate change. Most noticeably, Nigeria, second only to South Africa as the top country for startups in Africa, has been affected by floods, which have left over a million people displaced.
In July, more than 18.5 million people in Ethiopia, Kenya, Somalia, and Djibouti faced a humanitarian crisis as droughts ravaged the Horn of Africa. Seven of the 10 countries that are most vulnerable to climate change are in Africa.
To better understand how Satgana plans to help mitigate climate change in Africa, TechCabal spoke to Romain Diaz, Satgana’s CEO, about how the fund will invest in startups in Africa.
Despite having a lower contribution to climate change than other continents, Africa is the most vulnerable. How will Satgana’s approach help Africa’s vulnerability?
Africa is the most vulnerable continent to climate change, putting its development at systemic risk, despite producing less than 3% of the planet-warming greenhouse gases. The continent is home to 7 of the 10 nations that are most at risk from climate change, including infrastructure threats, food insecurity, floods, droughts, and public health issues.
Climate disasters caused more than 2.6 million people to flee their homes in Sub-Saharan Africa alone in 2021, and the IPCC projects that number will rise to 700 million by 2030. This means that not only do we need to ensure that Africa is on a trajectory of green growth, but we must also find solutions linked to climate resilience.
Only 7% of climate-related investments are made today, even though many different solutions need to be developed and implemented. Some examples of such models that we are scouting at Satgana include regenerative agriculture, climate-resilient crops, early warning systems for extreme weather events, coastal barriers, water desalinisation; hydroponic agriculture, improved cooling and insulation systems, and modular housing from waste materials. It is worth noting that some of these models are at the intersection of climate change mitigation and adaptation, along with biodiversity and social co-benefits.
Early-stage startups usually take a while before making a considerable impact. For such a prevalent issue, why is Satgana’s focus on early-stage startups?
In essence, startups have limited impact in their early days, which can be both negative and positive. The startups that succeed, though, are the ones that can actually have an impact by developing much-needed technologies or using those that already exist in fresh ways, in new markets, and for fresh purposes. Startups by themselves won’t be enough for our economies to reduce emissions by half by 2030 and reach net zero by 2050 because we need a variety of players to contribute.
Luckily, the climate agenda is now front and centre, and we look forward to the outcomes of COP 27, where, by the way, Satgana will take part in a panel discussion to discuss the role of venture capital in fighting climate change.
Other environmental factors like biodiversity, which is currently underappreciated despite being equally crucial to combating climate change, shouldn’t be disregarded. Startups addressing these challenges are also urgently required to restore planetary health.
Besides funding, early-stage startups on the continent need help accessing a support network. What type of support will Satgana offer?
Funding is a big part. There is a shortage of funding (trillions of dollars) that’ll help get us to net zero, and part of it needs to come from the financing of startups. Climate investments in Africa represent only a tiny fraction of other verticals, such as fintech, which have taken the lion’s share of VC investments on the continent to date. We are convinced that this is poised to change as the climate agenda becomes front and centre for all nations and corporations.
However, as you rightly point out, startups also need more than just capital, and it is precisely around this gap identification that we have built our value proposition at Satgana. Once we invest, we support startups with knowledge, networks, and hands-on support, based on the needs of each startup.
Typically, this can take the form of support on technology development, impact management, marketing, financial modelling, recruitment (notably around diversity and inclusion hiring), and reliance on raising their follow-on round of financing.
In various instances, we have won competitive deals because founders want to work with us, feel value-aligned, and know that we will become true partners. We give them as much firepower as we can for them to succeed.
What type of impact does the fund want to have on the continent?
The goal of this 10-year life fund is to invest in 30 or more impact startups that are developing technological solutions to prevent or respond to environmental and climate emergencies. Each startup is judged according to a number of factors, including its potential impact, team, deal terms, and commercial viability.
On the latter, we agree with the founders on environmental and social impact KPIs (key performance indicators) on a deal-by-deal basis, mostly focused on CO2 reduction, but we also look at other environmental metrics such as biodiversity, resource use, and plastic reduction. We also invest with a gender lens, where we try to push the gender agenda with a target to invest in at least 30% of female-founded companies within our portfolio.
Investing in women is not only the right thing to do from an ethical perspective, but it is also widely proven to be the most financially successful thing to do in the long term. Given that women are also the most vulnerable to climate change, it also makes sense to invest at the intersection of climate and gender, and we look forward to connecting with more entrepreneurs and investors in this space.
What made you realise there’s an opportunity for Africans in climate change?
With its abundant solar and wind resources, along with geothermal in the case of Kenya, it is clear that Africa needs to be on a path to green growth from the get-go. The rapid urbanisation of the continent also requires efficient planning across all sectors, from transportation (adoption of electric vehicles) to waste management (circular models to upcycle plastics), building (energy efficiency), energy (micro-grids), food (solar-powered cold storage containers), agriculture (vertical farming), etc.
Although consumer pull is currently weaker than in more developed markets such as Europe, this will change over time. Governments, businesses, and innovations that don’t come with a green price premium—that is, those that simply benefit the end user more than the environment—will be the main drivers of the majority of climate-positive innovations in the interim.
What criteria or metrics must startups have to be able to qualify for Satgana’s fund?
We are for purpose-driven founders who build technology solutions to mitigate or adapt to climate and ecological emergencies. We typically work with entrepreneurs at a very early stage of their business development, when there is little more than a solid grasp of the market, an MVP, and some early customer validation.
First and foremost, we look at the founding team, whom we assess on both hard and soft skill criteria. We analyse the commercial potential and scalability like any other VC. We then look at the potential impact on the environmental KPIs that the startup is tackling, and we hope to be as direct and meaningful as possible.
We also take a close look at the terms of the deal. As a lead or co-investor, we typically make equity investments in pre-seed stage companies for amounts ranging from €50k to €500k, depending on the stage of development and the dynamics of the round.
Image Source : Satgana