Accelerating Climate Solutions in Africa's Startup Ecosystem
This episode of My Climate Journey features two guests: Tobias Ruckstuhl, Managing Partner at Persistent, and Bim Adisa, CEO at Beacon Power Services, which is a climate tech company providing data and software solutions for Africa's power sector.
Bim joined the MCJ pod previously for an in-depth episode on Beacon in February 2021. If you're interested in a deeper dive on his business in particular, check out that episode from the archives.
In today's conversation, we talk about the evolution of the startup funding landscape in Africa and the sources of capital that are available, the geographic startup hubs that are growing across the continent, the role model companies that are emerging, and the advice that Bim and Tobias have for founders looking to build in Africa.
Africa is huge, and the diversity of business needs, policy environments, economic mobility, capital availability and opportunity varies greatly from country to country. But in general, there's a sense of rising tides floating all boats in Africa at present, and the numbers seem to back this up. While global venture capital funding has seen significant year-over-year declines of 50% or more according to Crunchbase, VC funding in Africa is up slightly according to recent reports, accounting for $6.5 billion in financings in 2022. The capital stack also looks quite different than in the US and Europe.
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Bim Adisa LinkedIn
Tobias Ruckstuhl LinkedIn
Cody Simms X / LinkedIn
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*You can also reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded on Sep 14, 2023 (Published on Oct 16, 2023)
In this episode, we cover:
[03:38]: Overview and mission of Beacon Power Services
[07:49]: Tobias's background and his work with Persistent
[11:21]: Persistent's investments, exits, and locations
[13:04]: How Bim and Tobias connected
[15:50]: Bim's experience with the fundraising process and growth after Persistent's investment
[18:17]: Overview of venture funding and climate tech startups in Africa
[23:42]: Breakdown of the capital stack available to African startups
[30:41]: Evolution of the venture market and examples of active venture funds investing in African climate tech
[33:53]: Geographic hubs of entrepreneurship across Africa
[39:14]: Challenges specific to the Francophone Africa market
[41:12]: Bim's advice for foreign and local founders building in Africa
[43:54]: What sectors are currently booming and Persistent's criteria for evaluating new climate tech sectors
[48:52]: Leading climate tech companies in Africa that can inspire founders
[51:25]: Balancing urgency and realism in deploying climate solutions at scale
[53:31]: Persistent's LP fundraising process and investor priorities
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Cody Simms (00:00):
Today's episode of My Climate Journey is all about climate tech in Africa, what's needed, the opportunities and the challenges. We have two guests joining us to talk about this, Tobias Ruckstuhl, managing partner at Persistent, which is a leading venture builder in Africa, and Bim Adisa, CEO at Beacon Power Services, which is a climate tech company that provides data and software solutions for Africa's power sector.
(00:29):
Bim joined us previously on My Climate Journey for a full length episode with Jason all about Beacon Power Services back in February 2021. So if you're interested in a deeper dive on his business in particular, you'll want to check out that episode from the archives. In today's conversation, we talk about the evolution of the startup funding landscape in Africa and the sources of capital that are available, the geographic startup hubs that are growing across the continent, the role model companies that are emerging, and the advice that Bim and Tobias have for founders looking to build in Africa.
(01:07):
Africa is huge, and the diversity of business needs, policy environments, economic mobility, capital availability and opportunity varies greatly from country to country. But in general, there's a sense of rising tides floating all boats in Africa at present, and the numbers seem to back this up. While global venture capital funding has seen significant year-over-year declines of 50% or more according to Crunchbase, VC funding in Africa is actually up slightly according to recent reports, and accounted for $6.5 billion in financings in 2022. And the capital stack available to startups in many African markets is quite different than what it looks like in the US or Europe. Well, let's save some of this for the episode, but before we dive in, I'm Cody Sims.
Yin Lu (01:58):
I'm Yin Lu.
Jason Jacobs (02:00):
And I'm Jason Jacobs. And welcome to My Climate Journey.
Yin Lu (02:06):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (02:11):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
(02:24):
Tobias and Bim, welcome to the show.
Bim Adisa (02:27):
Thank you.
Tobias Ruckstuhl (02:27):
Thank you very much.
Cody Simms (02:29):
I always love episodes with two guests. We get a chance to hear multiple perspectives. And of course, Bim, we have you as a repeat guest on My Climate Journey. You joined us a few years ago to tell us all about your company. And Tobias, you are, I think a member of the MCJ community and had reached out and said, "Hey, you guys have done some episodes here and there on countries in Africa or different startups in Africa, but how about a conversation just on building in Africa, what's needed and why it's hard and why climate tech is so important?" And gosh, that sure seemed like an appealing conversation. So here we are.
Bim Adisa (03:05):
Thank you. Thanks for having us back.
Tobias Ruckstuhl (03:07):
Yeah, that's great. Really looking forward to that. I'm sure we'll have an exciting discussion here.
Cody Simms (03:12):
Well, why don't we start. Bim, since you've been on the show before, let's have you introduce yourself again to our audience and kind of dive into just a little bit on Beacon Power Systems. And then Tobias, we'll do the same with you where you can introduce the work you all are doing with Persistent, and then we'll dive into more about just what's going on in terms of the entrepreneurial ecosystems in Africa broadly. So take it away, Bim.
Bim Adisa (03:38):
Sure. Thanks again for the opportunity. Great to be back here. I'm the founder and CEO of Beacon Power Services. We provide data analytics and software for the grid in Africa. And sometimes, we may pause and wonder how's that connected to climate? The grid is still a very integral part of electricity usage. The absence of the grid results in use of diesel generators. So in our mind, it's absolutely critical to ensure that the countries and big cities in Africa have functional grids.
(04:11):
There are two barriers, amongst others, to achieving that right now. One is just data. Cities like Lagos have grown from 6 million people to 22 million since '99, the last three decades. And there's no real accurate data on how that has impacted the grid. So we're essentially mapping the grid in this country as one customer at a time and creating a digital grid topology, which the utilities then use to run more efficient grid systems.
(04:41):
And then we layer on upon that, we build software to basically help provide visibility on the grid, spot outages, and that leads to reduction in losses, grid losses, and better availability of electricity. And again, that better availability results in less frequent use of diesel generators, which is a negative contributor to the climate. So that's what we're doing. We currently have operations in Nigeria and Ghana. We have about 120 full-time employees. We're recently expanding into Eastern Southern Africa. We're pleased with the traction we've had and the growth we've had recently. And Tobias and Persistent have been their investors and they've been strong backers and advocates in multiple ways, helped us on our journey. So we're really thankful for that as well.
Cody Simms (05:29):
Awesome. It sounds like the primary customer of Beacon Power Services are the utilities in these countries, is that correct?
Bim Adisa (05:39):
Yeah. So directly the utilities, but indirectly the consumer. We touch the consumer as well. I mean in terms of creating transparency on grid availability, you have a platform you can log into, you can see how many hours of electricity you'll get in a day. You can report outages, you can report systemic issues, which again, adversely impacts kind of the use of electricity for the consumers. So yeah. So primarily, yes, the utilities, but we serve four utilities that have about 16 million customers combined covering a population of about 60 million people. So again, in terms of impact, ensuring there's more efficient availability of electricity for these 60 million people, and ensuring there's transparency in the process, I think that's important as well.
Cody Simms (06:28):
And one of the reasons we were excited to bring you back on and we're excited when Tobias suggested you all is you're operating in three countries, it sounded like between Nigeria, Kenya, and Ghana that I assume have three fairly different grid setups, fairly different energy mixes, fairly different policy environments, et cetera. So a good representation probably of the challenges of trying to build a venture scale business on the continent.
Bim Adisa (06:58):
No, absolutely. There's some similarities, but then also differences because they're different in regulatory bodies, different entities, but it gives you a good spectrum of what the problems are, what the challenges are, and how this impacts the individual and the climate in Africa. And again, I think we're strong advocates for the grid because we think it's often overlooked in the discussions. I don't know of any country, and again, there's no need to do... I mean, for Africa to replicate what was done 50 years ago. I think technology has allowed us to move on. But that said, I don't know of any economy that has developed without having a lot of electricity supplied to densely populated cities. And Africa has that same challenge. So how do we do that effectively with the climate in mind? I think it's something we all need to kind of address.
Cody Simms (07:49):
Tobias, tell us about your work with Persistent and the work you're doing on the continent today.
Tobias Ruckstuhl (07:55):
Thanks. So I'm the Managing Partner of Persistent. Brief context on myself, also because it's probably a bit less obvious. I did grow up in rural Central Africa and spent my childhood there, later on, went back, worked as an entrepreneur in various roles, started up businesses in rural remote settings. Really firsthand experienced also the struggles of reliable energy, of renewable energy, which later on led me back to joining Persistent nearly seven years ago. In short, also tying in with the name of this podcast, really part of my climate journey and what brought me into doing what I'm doing now since seven years with Persistent.
(08:36):
So few brief words on Persistent. Persistent, also according to our tagline, Africa's climate venture builder, which describes what we are, what we are about, focus on Africa, believe there is ample opportunity in Africa on the continent, super exciting space apart from the opportunities that there are climate very natural.
(08:57):
I did mention, we started off in off-grid energy. As Persistent, one of the first investors in off-grid energy, access to energy space, later on emerged into more commercial and industrial energy space. Electric mobility is one of our more recent investment themes. So really started to span not only in the energy space but also starting to grow more broadly in the climate space in Africa, which makes this discussion, I think, a very interesting one.
(09:27):
And then lastly, the third pillar of what we do, venture builder. So really that's not something that we just came up with and said "We'll be a venture builder," but really similar to Bim's analogy of how Beacon operates. In our sense, it was really where we saw the challenge. How do we invest in an appropriate way at the earliest stages where we see the biggest need, the biggest opportunity? And the way the model that we evolved over time is what we call our venture builder model, where we invest not only capital, but we also come in with human capital. We fill in operational roles. Myself, I've been interim CFO for some of our portfolio companies, and we really try and find that customized balance of working with various portfolio companies depending on what stage they're at, what skill sets the entrepreneurs bring, what needs there are, all really in order to bring in our own capital in a de-risked way, but also then capitalize multiple other capital streams into these businesses.
(10:29):
And so that's what we've been at at Persistent since over a decade now. Also have a quite broad footprint throughout Sub-Saharan Africa. And really what excites us is being at the forefront of new emerging climate sectors, particularly when they have a connection to energy that is renewable energy that is very close to what we have done. And a particular area that we're excited about as well is what we call the enabler area. And that's where Beacon fits in very well. We try and look at the whole ecosystem as Bim has also mentioned. What does it take to have a real climate impact? Where are the gaps? And so when I first spoke to Bim some two years ago, that's really what hit home, when we saw how that is a critical part of the puzzle piece, to really progress the whole climate agenda and fill some of these gaps.
Cody Simms (11:21):
So you all, you've made 20 plus investments, mostly in different forms of climate technology solutions. And then it sounds like you also roll up your sleeves and help provide interim staffing and interim team building support to the companies you work with as needed. Am I understanding the general scope of Persistent's focus?
Tobias Ruckstuhl (11:42):
Exactly. Yeah. So today, we've done just over 23 investments. We've actually also realized four exits, which we're quite proud of in the context of what we're doing, and an important part of course of creating a sustainable ecosystem, venture capital ecosystem. Yeah, you described I think quite well the approach of getting involved. And I think what differentiates us to some extent is our ability to customize that support.
(12:07):
So we don't really come in and say, "This is our offer, this is what we do," but really try and understand where's the company at. Where's the entrepreneur at? What do they bring? What do they need for the next stage of growth? What can we bring in realistically? And then basically customize a setup that we believe jointly with the entrepreneur helps bring the company that step forward.
Cody Simms (12:31):
And geographically on continent, you are in Nairobi and Lagos as well, is that right?
Tobias Ruckstuhl (12:37):
Yeah, that's correct. So we have the bulk of our team... We're still a small team, small entrepreneurial team of just around 25 staff. Most of us are in Nairobi. And then we do have an office in Lagos, and then we have a few staff dotted around the continent. We have someone in DRC, someone in Uganda, someone in Senegal. So we do really try and be as close as we can to the companies that we work with, to the entrepreneurs that we back, which we believe is an integral part of what we do.
Cody Simms (13:04):
How did you two meet? It's always good to hear a use case of, Tobias, how you are finding great entrepreneurs and, Bim, what it's like to go raise money on the continent. So maybe share a little bit about the story of you two meeting and what that looked like.
Bim Adisa (13:17):
Sure. Tobias, do you want to go or do you-
Tobias Ruckstuhl (13:19):
Yeah, I can go and then hopefully that matches with how you remember it as well.
Bim Adisa (13:25):
Okay. I'll let you give your version first.
Tobias Ruckstuhl (13:27):
Yeah, interestingly how it works, I think when you've been investing and working in this space for quite a while, you do build up a certain reputation. And so a mutual contact of ours called Quaker, I can point them out here who works with Shell Foundation, dropped essentially Bim's name to me in an email and said, "Hey, I believe you should speak to Bim. I believe what they're doing is fantastic." And equally, I believe his email told Bim, "Hey, this is Persistent, you should talk to them. They're really a strong partner for any of the companies they've invested in."
(13:59):
And it didn't take much more than a call with Bim for me to really understand what Bim is building with Beacon and how that really fits in. That's why I described it before, that puzzle piece. It really made sense from what we have been doing on the continent for the last 10 years, from the overall big picture. And I believe to date, it's been one of our fastest investment decisions and ultimately investments that we've done. And no looking back. But yeah, over to you, Bim.
Bim Adisa (14:27):
That's about right. Quaker made the introduction and I think it took a couple of months, we'd kind of traded emails and never really got to connect. And then about two months later, we were finally able to get on a call. Probably another month later, Tobias and the team were in our offices in Lagos. And I think maybe a month after that, they'd invested.
(14:47):
But I think one of the things that struck a chord for us was, I think at first, in Africa there's still the challenge of having a fundraising. It's a challenge everywhere, but more so in Africa. I mean, you look at the amount of capital flow into funding businesses, venture funds in Africa is still lagging behind everywhere else. So sometimes, you tend to go with what you can get, but for us, this was especially important because we had a team that understood what we were doing from the outset.
(15:16):
So often, we have to explain what we do, explain why it's a problem, and then hope everything kind of resonates. So for us, it was just refreshing when we talk about it and somebody instantly gets it, gets why this is a problem. And that also helps in terms of being able to provide input, tangible input in terms of helping us grow, because I mean we don't know it all. We have a fairly good idea of what we do and we've had some success, but it's important to also have external input to validate, to channel, to drive, and we're able to get that from the Persistent team, so...
Cody Simms (15:50):
Tell us about your fundraise process overall, Bim. How much capital were you raising for the round in which Persistent came in? Whatever you feel comfortable sharing. And what was it like to raise that round? I don't know if most of your investors are on the continent, if you have a combination of investors from different geographies on your cap table. But maybe explain a little bit about how it went and what the process was like.
Bim Adisa (16:13):
So I think for us, we're a bit non-traditional in terms of startup, but we've been around for about 12 years. So we won't actually... I don't think we quite qualify as a startup after 12 years plus in operations. But the first 10 or so years of our existence, we didn't raise institutional capital. So we just grew organically, honed in our skills, honed in our products. And it was at a point where we felt like, "Okay, there's an opportunity to grow" where it was important to then bring in external capital.
(16:41):
I mean, Persistent came in I believe the first real institutional round we did was, and I think it's public, we've announced it, we raised $2.7 million and Persistent was one of the major investors in that round. We've done a subsequent round, which haven't disclosed the terms, but which was about 12 months later or less. Persistent were also an investor in that round as well.
(17:03):
So they've continued to back us both in terms of human capital and financially, and we're actually doing a series A round now. But in that time as well, it's been important to have that because I mean, while it's great to establish discipline of growing organically, we've also seen... I mean I think if we look at basically from the first investment to now, we've basically grown revenue about 10x in that time, so we want to keep the momentum on, and there's still a lot more work to do, so we want to build on that momentum and continue and obviously, having capital is a part of that.
Cody Simms (17:39):
Congrats on all of that and congrats on the 10x revenue. It's one thing to raise money, it's another to build the business. It sounds like you were building the business prior to the capital. And the goal for any founder when you bring capital into the business is to see a growth accelerant. And it sounds like that's been hopefully a result thus far of having a little bit more resource at hand for you.
Bim Adisa (17:58):
Yeah, absolutely. I was going to say pour fuel on the fire, but I think for a climate conversation, it might be misguided. So maybe we'll scratch that from the recording.
Cody Simms (18:08):
I like it. There are a lot of metaphors that we find we try to state differently. Put your foot on the gas, that's maybe another one we don't use as much anymore.
(18:17):
Let's maybe turn our attention a little bit to the broader context. And again, Tobias reached out and said, "Hey, do you all want to do an episode on climate tech in Africa, what's needed and why it's hard?" And I said yes. And so I did uncover a little bit of data coming into our conversation today. There's a great article, I mean multiple articles on this, but one from a publication called SG Voice that just recapped the state of venture in Africa. And a few data points I found, one, $6.5 billion in funding broadly was raised across Africa in 2022. There are more than 500 climate startups in Africa, of which close to 150 have attracted capital since 2015.
(19:00):
Climate tech has the second-highest volume of venture capital on the continent behind FinTech. That one really stood out to me. And that funding grew 8% in 2022 to that $6.5 billion number despite a significant fall off in venture capital globally. Basically, countercyclical progress happening right now in the market in Africa relative to the venture economy globally, and that over a thousand unique investors have invested into startups in the African continent over the last few years. First of all, those are some numbers from a report somewhere. Do you feel it on the ground that that same momentum and progress is real? Whoever wants to take it.
Bim Adisa (19:46):
I think for us, you can see there's been an improvement, but there's still a long way to go. I mean, I think for sure... I mean when we started this about 12 plus years ago, one of the reasons, and again I'm actually thankful for it, is at the time, it was easier to get donations for businesses in Africa than it was to seek venture funding. We pitch invest [inaudible 00:20:07] like, "You want to actually build a business and grow and generate returns in Africa? If you want money, we'll kind of give you a donation, but we're not doing..." Right? Which is a bit myopic.
(20:18):
That has changed. I think people are now seeing that you can invest, you can grow and you can be successful in Africa. And again, the dynamics and a lot of the stats bear that out, that it's obvious. There was an event yesterday where someone was saying by 2040... Africa is not homogeneous. It's not a country. It's 54 countries. But as a continent, would have a larger workforce than India and China combined by 2040. 70% of the populations under the age of 30.
(20:50):
So you see these trends both economic and, of course, I mean people are going to have... They're going to have to transport themselves, transport goods, services. They're going to have to live and use electricity. So there's some degree or foresight in looking and saying, "This is a massive commercial opportunity, but there are also massive problems to solve." And I think that is starting to catch on. It's not quite where I think it should be, but you can get the sense that it's starting to catch up. So that's just my perspective.
Tobias Ruckstuhl (21:18):
Certainly when we started out in climate/renewable energy investing more than decade ago, there were not that many other actors around, especially branding themselves or focusing really on climate. And we have seen that change quite significantly.
(21:33):
There has been the two processes in parallel, Bim described it as well. The whole investment venture capital space has made big strides forward on the continent in the last decade. And then in parallel, there has been that global recognition of climate, the urgency, importance of climate, some related SDGs, energy access included in there, but just generally, the agenda for climate.
(21:59):
As we probably all know, right, there was the Africa Climate Week just very recently now in Nairobi. That was really an outcome of all of this, and I think showed the massive momentum that climate investment has in Africa on this continent. And I mean, the magnitude of actors on the ground spanning investment organizations to entrepreneurs was just really impressive.
(22:25):
There was a lot of talk, but the general feeling was that there will also be a lot to come out of that. I think nonetheless, one thing hasn't changed as much, I believe. There has always been quite a lot of capital that wants to go into the continent, and we've seen that. And that has basically increased now with the climate agenda, and the awareness of what you mentioned, I believe in the beginning, Cody, right? I mean, how the climate effects have an over proportionate impact on the continent despite that the African continent has not really contributed that much to this crisis, climate crisis that we have currently.
(23:02):
So that has increased, but the fact of investible opportunities, if we want to use that term, that is still a major challenge. How do you actually bring these big amounts in a sustainable way, in a commercial way into opportunities? And that's where I believe there is really a need for even more actors that find models to deploy that capital in a sustainable way, in a way that actually creates companies like Beacon Power Services to be able to grow and expand and then attract more and more capital. So that's maybe just a first statement there, but still overall acknowledging, I would say, the statistics that you've mentioned.
Cody Simms (23:42):
And what does that capital stack look like? Bim, you mentioned when you started out, people were saying, "Hey, I'm happy to give you a grant. I'm happy to just give you money, but investing, what? Venture? I don't understand." It sounds like, as you said, that's changed.
(23:56):
When I think of the different capital stack layers, I think of there is grant funding, there's catalytic or impact funding, which is seeking to invest for maybe a profit, but also is happy to just see change or impact happen to some extent. I'm sure there are much stricter KPIs around that than I'm letting on. Then there is venture as an asset class. And then there's the broad development bank or what are called I guess DFIs. Are those the primary sources today of capital to go build with and, A, what am I missing, and B, how does a startup generally think about operating across that stack?
Bim Adisa (24:35):
I think you've pretty much covered the full spectrum. I think you have the grants. I mean historically, what you had were the DFIs alone, and they catered to the large sector of the market. So you needed to be at a certain point in order to basically access that.
Cody Simms (24:51):
Bim, most of the DFIs are government money for the most part. Is that accurate?
Bim Adisa (24:55):
Yes, government or quasi-government money. It's, from a startup perspective, much bigger check. They need a lot more maturity for the company in order to be able to access it.
Cody Simms (25:06):
Debt mostly? Mostly debt financing?
Bim Adisa (25:09):
Debt. They're increasingly doing equity as well, but I mean traditionally debt. But I think a big part of what was missing was that starting point. How do you get started? How do you get the seed funding? You could have like that early stage where it's just angel investing and you get some funds, but beyond that to scale, you need seed funding. Then beyond seed, there's a gap between this what you would call your traditional seed and your series A.
(25:33):
That gap was both capital and expertise, because you need more resources. It's a different thing from going from your kitchen or your bedroom to kind of having an office and having resources and having staffing. And I think that's where folk like Persistent have come in, and that's a real value add to the ecosystem to say, "Look, you've gone beyond your initial friends and family kind of start up. You now need a proper seed round, you need some proper infrastructure around that, and you need some guidance to help you get to the point where you could then access the larger funds, the DFIs and so on." So I think for us, that's been a big part of the value. I mean, that ecosystem's still the same, but there's still a gap and I think folk like Persistent are filling that gap to take you from idea or concept to scalable and better access to capital.
Cody Simms (26:26):
Tobias, when companies you work with raise capital, how are you seeing them approach this mix of different sources, from pure venture to catalytic or impact capital, to grants or even DFI loans and the like? What are the considerations that you see founders needing to take when they are trying to decide what that mix might look like for them?
Tobias Ruckstuhl (26:51):
I think generally, we recommend and we try to help startups as well, to think of that very strategically and think of what are the use of proceeds, what type of capital really matches that. In reality then, there is a huge degree of cycles wherein the macroeconomic cycles, one, stands where what is perceived as innovative. I mean the fact is DFIs, as you mentioned, they still make up a big chunk of the available investment capital in Africa, either directly or indirectly as LPs into funds. And so there is a degree of what is perceived as innovative. For good reasons climate is, and climate tech in particularly, has a good perception there, but then as that digging a layer deeper, that does change. When you then go into the details, there is a degree of change there. What is perceived as being innovative? What is perceived as being really the need there?
(27:45):
So when then your ideal fundraising strategy hits reality, we do see that one needs to be able to adapt that strategy to what capital is available. Generally speaking, there is enough debt capital around, I would say. It's then a function of what risk is that debt capital willing to take, and does that match with what the company's business model risk is with what the company's own individual risk is? So there's sometimes a gap to be filled there. And then there's a bit of a gap, what Bim mentioned, in terms of from probably seed to series A, how do you get there, and what capital providers can get you there. There's probably a relatively limited amount of actors specifically in that space.
Cody Simms (28:32):
And Tobias, when an entrepreneur in the US hears debt, oftentimes they think of convertible debt, which is debt that really is kind of equity, it's just not priced equity yet. It will eventually convert into equity. But I think you're probably talking about more traditional bank debt with an interest rate and a payback period. Is that correct?
Tobias Ruckstuhl (28:49):
Exactly. No, that's fully correct. Often, it would still not come from financial institutions because most companies and the sectors are just not that advanced that they would actually, especially a startup... I mean I imagine even a company like Beacon that has been around for more than a decade will probably still struggle to just get a pure commercial bank loan apart from other factors there.
(29:11):
But yes, generally speaking of interest bearing debt that has covenants connected to it, that has certain expectations in terms of securities, that's that risk level I was referring to. So depending on what risk appetite that debt is willing and able to take, there can still be quite the mismatch between what the companies are able to offer in terms of risk mitigation, in terms of securities, and what the capital providers of that debt need to see.
Yin Lu (29:40):
Hey everyone, I'm Yin, a partner at MCJ Collective, here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast.
(29:52):
We started in 2019 and have grown to thousands of members globally. Each week, we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change.
(30:07):
Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early stage investments have been made, as well as ongoing events and programming, like monthly women in climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more.
(30:26):
Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the Members Tab at the top. Thanks and enjoy the rest of the show.
Cody Simms (30:41):
And so maybe with that overview of the capital stack, let's talk about the evolution of the venture market in particular. Bim talked about how firms like Persistent are coming in and not only providing capital, but also providing expertise and resource, and how that's needed in terms of talent development and whatnot.
(31:01):
I noticed quite a few new fund closed announcements, closed in a good way, like we've closed our capital. And a few in the hundred million plus range, firms like Novastar, firms like the, I guess it's called the EEGF fund, Energy Entrepreneurs Growth Fund. We've seen quite a few other firms going. Can you all just maybe give a... We don't need to talk about what each of them do, but just the list of maybe four or five, six funds that entrepreneurs interested in getting their businesses funded in the continent or on the continent should be maybe looking toward.
Bim Adisa (31:34):
I think Tobias can take the lead on that.
Tobias Ruckstuhl (31:37):
I can start from my end and then Bim, please add on. And this is obviously by no means exclusive asset. I think we've seen a very positive development towards more and more activity and more and more actors specifically coming into the climate space, which is a very positive development.
(31:53):
But just to name a few, there is on the early stage, there's a fund called Catalyst Fund that has just had their first close, who also have a hands-on model and focus on climate adaptation and mitigation and strategies. Just beyond that, you do have funds like Novastar's climate fund. You have a fund called Equator that has also had its first close that has a strong climate focus. The EEGF fund is actually interestingly mentioned. It is a fund that we advise as Persistent. It's managed by a company called Triple Jump, but also provides very flexible capital including equity to the space. So could group it in that category as well.
(32:33):
And then you have a number of debt funds and that are more focused on the debt side. Maybe specifically can mention a fund called SunFunder. They've now just also announced their first close. On the equity side, there is also another company called E3 Capital who've announced their first close.
(32:50):
So there is quite a bit of momentum on also the equity side. On the debt side, there still remains quite a bit of dry powder, I would say. And I would say it should be very encouraging for founders. There may still be a bit of a gap to get to that series A where then some of these funds that have now had their first close start up. But I do believe some of these funds will also have some flexibility to go earlier, if needed. But overall I would say that's quite encouraging to see. Bim, obviously feel free to add a few names, maybe also the ones that have supported you, you have mentioned all [inaudible 00:33:26]-
Bim Adisa (33:26):
Yeah. No, I think that's good.
Cody Simms (33:28):
Great. Through MCJ, we've seen a firm emerge called Satgana that I think does a lot in Africa. We've seen, Bim, I'm not sure if this is an African fund or not, but a firm that I think is on your cap table, Factor[e], that has certainly invested in multiple companies in Africa.
(33:43):
It just seems like there are a growing list of organizations that entrepreneurs who are interested in building on the continent should get to know. Obviously, that's a good thing for the growth of the ecosystem.
(33:53):
The next topic I wanted to hit on is the hubs, the geographies that are seeing a lot of entrepreneurial activity today. We've hit on a few of them between Kenya and Nigeria and Ghana. And boy, it's just easy to throw around these names, but if you haven't visited Africa or spent time there, it's a good reminder that the distance between Accra, Ghana and Nairobi is greater than the distance between New York and Los Angeles, right? Like it's a big place. And I assume there are real operational challenges to running a business that is trying to operate across these countries. What are the pockets of entrepreneurship you see cropping up today? And how are entrepreneurs thinking about a multi-market approach to building on the continent?
Bim Adisa (34:41):
I think from... I mean each market, again, it's the phrase Africa is not a country, so I think that's really important. We have to think of it because of size. I mean, it's homogeneous, but like all of Europe is, I mean, smaller than West Africa. It's really massive.
(34:57):
And you have different jurisdictions, different governments, so you've got to navigate that. And I think the approach we take is that you've got to treat each market as truly local. Yes, you can get some overlap and you get some benefits of scale on the product side, but if you are tackling, I mean Nairobi, you've got to really have a team there. You've got to really be local there. If you're in Kampala, you've got to be local there. You can't expect guys in Accra to basically have a finger on the pulse in terms of each local market. That creates this challenge but it also creates opportunities.
(35:33):
I think one of the, and I'm by no means an expert on this, but one of the misnomers is almost like there's a one size fits all. You'd have some technology solution and you've got to just apply it and then when you go, it's kind of right. There needs to be a local element and also a local understanding of how do things run in Uganda or Senegal or any of these countries. That gives you a sense, and that's then got to be factored into the product.
(36:00):
You've seen a wave initially where you had people just try to copy and paste whatever happened in the US or in Europe and bring it to Africa, and then just clearly that hasn't been very effective, because you haven't seen a lot of success, but that has created an opportunity for local entrepreneurs to spring up, and basically create local solutions.
(36:19):
And I think that's the way forward for Africa. Most of the solutions have to be created locally by people who encounter and face those problems. So the key is to kind of have capital and have the right resources to be able to do that, to able to create an enabling environment for innovation. But scaling again, just has to be done with the local context in mind. And I think that's important for entrepreneurs to bear in mind.
Cody Simms (36:44):
Piggybacking on that, Tobias, when I look at an investment with my investment hat on, I like entrepreneurs that are focused on a niche first. I want them to be the best in the world at that niche thing they're doing. Even if it feels small, as long as I can see a path to how it could potentially grow.
(37:00):
And so with what Bim is saying, to some extent, it sounds like maybe the advice is go own your market first, figure out what's your unique local context, but then eventually see how this business could expand and grow into different contexts. How do you find the balance there when you're looking at investments between a company that is great in one market and trying to understand if that solution could be applicable to other geographies that could help them really become a pancontinental solution as an example?
Tobias Ruckstuhl (37:34):
Good question and interesting one because certainly that has been one of the learnings or insights, to not underestimate that complexity. I mean the element that Bim mentioned on local context knowledge is of course a key one, but the other one is just being realistic about the growth and the revenue potential in the markets, and the speed especially which you can realize that in any new market you would expand to.
(38:00):
And what we've seen almost consistently is that being overestimated. And of course there is an investment cost, there is an additional overhead that needs to be built up for expansion. And when you underestimate, the time it takes to actually understand the market and build up the revenue base, that then creates some of that return of capital that you need to justify the investment that you've done, the overhead. You can fairly quickly get into serious problems, especially if the fundraising cycle has just turned negative, if there's any global pandemic going on, as we obviously all experienced.
(38:35):
And so that's the general learning there. So when we look at investments, obviously we love to see solutions that have a massive scalability potential. We love to see entrepreneurs that have that ambition and vision, but first and foremost, we do like to see entrepreneurs who know their market, can prove themselves in the market, and then are realistic about what it takes to expand.
(38:59):
And I think that's one aspect that we can help bring in as well, try and test that realism, but of course also support on some of these expansion topics. Obviously, Bim and Beacon have a positive example there with their expansion into Ghana, but I think it's also how they've approached it.
(39:14):
One maybe quick comment there is I do believe there is that element of Francophone Africa that is a huge potential in itself as well, but is just for multiple reasons more difficult to expand to, be it the different legal system, be it different language of course, et cetera. And that's one not to crack, I think especially for companies that have a Pan-African ambition.
Cody Simms (39:40):
Unpack that a little bit for those of us who maybe aren't as familiar with the African context. By Francophone Africa, what are you referring to in particular?
Tobias Ruckstuhl (39:48):
Some of the main countries, Ivory Coast, Côte d'Ivoire, Senegal, DRC, I mean all of them, quite large markets. I mean you could also put Cameroon in there. Cameroon has of course a small anglophone element, but some of them, especially are large markets in themselves have a large potential. Sometimes even neighboring countries, Togo, et cetera, that's in small countries, but still.
(40:11):
And it may seem obvious to expand into these countries, but what we've seen in practice is that the additional complexity it brings, for those of you who like finance accounting, consolidating accounts that have different standards, having to bring in that complexity on the finance side, that as a startup especially, that can quickly break you if you're at the same time overestimating how quickly you'll realize revenues, contribute margins from that new geography.
Cody Simms (40:39):
Interesting. I'm struck by a lot of similarities to what I hear about the startup ecosystems in Southeast Asia, to be honest, where you have multiple contexts, language context, geographic context, political contexts, unlike Europe where you have often a common regulatory environment. You certainly don't across these many countries that entrepreneurs are building in. And yet just tremendous population growth forecasts and economic mobility forecasts and just obviously lots of local challenges but lots of local opportunity as well.
(41:10):
To that end, I know we're running close on time, Bim, I wonder what advice you have that you'd like to share in two facets, one, in-country entrepreneurs who are looking to build and scale their businesses, and two, I've seen quite a few entrepreneurs who are not African who are building businesses in Africa. And what advice do you have for folks who are maybe looking to go build in the continent today?
Bim Adisa (41:34):
I think Tobias touched on one of them and I think first of it is just be the local champion. It's easier when you have a strength to leverage onto another strength. So find whatever it is, own that market, understand your product. And I think being a local champion, one of the big things for me personally is just context in Africa, the user.
(41:57):
Often, products are built without the user in mind because there's this disconnect, and this will segue to the second part for people who are not in Africa, want to go build in Africa, is to understand that, look, the problems might be similar, but the approach has to be different. If you're in San Francisco, the way someone in San Francisco, the dynamics of what they do, how they do it is different from if you're in Lagos or in you're in Dakar. You can't assume that because this works in San Francisco, you can just hand it to them and it's going to just fit.
(42:30):
So you've got to be local. You've got to have presence. You've got to spend time. And this is probably the biggest investment, understanding who you're serving and what their problems are. Again, again, it's not like I'm an expert on this. Often, you find solutions who conceptually make sense concept, but it just completely ignores the end user.
(42:50):
And like I said at the beginning, I mean maybe it was not on this call, I've been on quite a few today so I'm getting them all blurred, but one of the first and probably the best pieces of advice I got was actually from a utility CEO who told me, he said, "Look, Bim, when you build a product, it doesn't matter how fantastic it is. If my people, my team can't use it and they're not totally dependent on it, then you have not succeeded. So the key people is not me, it's my team. You're going to get them comfortable with it, happy with it, loving your product because that's what's going to bring success."
(43:28):
And often, people get it the other way around. They build and think, "Oh, this makes sense. This conceptually makes sense. This will solve a problem," but the end user has no connection with it.
Cody Simms (43:37):
It's a fantastic reminder. At the end of the day, you got to build stuff people want and people love. I think Y Combinator has some similar statement, build stuff people love, I think. Or I don't know. I'm probably getting it wrong, but good reminder that that's what we're ultimately doing, is building new products that become essential to what they do.
(43:54):
And just last question, just looking at the sectors that are really booming, like Tobias, I looked at kind of your focus areas and it looks like e-mobility, distributed renewable energy and energy efficiency are kind of the key areas of growth today. Any particular stories you want to paint about changes you're seeing in these markets? Wrap up by just maybe sharing a little bit about what you're seeing in terms of the different sort of sub-sectors of climate tech in Africa.
Tobias Ruckstuhl (44:22):
To start with, it is exciting times for climate tech. I mean because there is so much more attention on climate and climate tech, there's so much more just genuine understanding of it's needed and there is an urgency to it, and that makes it exciting. It doesn't make the problem easier or smaller, but it does add an additional layer of excitement when you know you're part of something much bigger and you can be one of those puzzle pieces there.
(44:50):
In terms of the sectors, you did point out the main ones that we have been investing in, and as I mentioned what we have done as Persistent, we've really tried to be at the forefront of new sectors emerging and understanding what technologies are emerging that really are a game changer. If it's the energy access space, the game changer was the ability to offer that on a pay as you go basis, through the penetration of mobile money, through the reduction of solar costs.
(45:17):
And so recognizing these trends early on and being able to define these business models help entrepreneurs build these businesses is exciting and impactful. And what is underestimated, at least from high level, is that these businesses continue. Let's take an energy access business, which is a climate business at its core, looks very different a decade later than it did 10 years ago. The hardware continues to evolve, the software continues to evolve, the prices continue to evolve. The consumers, Bim mentioned as well, right? Consumers evolve as well.
(45:51):
And I think that's one layer that is often underestimated, if not ignored, looked at from a higher perspective. Everyone thinks "Okay, decentralize renewable energy." Same thing, maybe larger scale, but that's in a way a miscategorization and there's a lot of exciting details happening there, and worth continuing to invest and interesting to invest.
(46:15):
On the electric mobility side, of course that's a massive wave coming. We're really convinced there, especially on the two-wheeler side, the game changer there is, I mean as most people will know, but the two-wheelers are the motorcycles, they're really a productive use asset. Most of the motorcycles on the road, they're used to generate income. And so that product market fit understanding rather you're replacing, how are you making it attractive for riders? At the same time, creating significant climate impact is very obvious.
(46:47):
And again, it's also not a challenge to be underestimated. There is a lot of things to be solved as that space evolves and creates, but that's an exciting space to follow, starting from where does one add value? Is it the energy as a service? Is it the hardware? Is it... All these questions that come up when a new sector is forming and that we're excited about. And all of them represent investment opportunities as well.
(47:12):
I think maybe a last comment is another space is, as said, one area that we are really excited about is all of these enabling business models. Supply chain has been a massive issue for many of these companies, having to import often be it electric bikes, be it solar panels, so companies that can solve, take some of the complexity out of supply chain, for example. Circular economy topics, all of these batteries, solar panels, electrical bikes, at some point both from an impact but also commercial perspective, they're getting to a scale that's becoming interesting, and that's becoming a problem from an impact perspective, but also interesting from a commercial perspective.
(47:55):
And so these are aspects that are very interesting to follow and certainly convinced there will be a number of interesting highly relevant investment opportunities in these sectors as well. The agricultural technology space as it relates to climate is a massive one as well.
(48:12):
Obviously, despite the urbanization that we see, there's still a huge part of the population that is dependent on agriculture and there's so much to do from a climate perspective. Just mentioned biochar, organic fertilizer, carbon capture aspects of that which have a huge climate relevance, but of course also the renewable energy solutions that could help agriculture become more efficient. So that's just a very quick fling through, but I hope that gives a very brief glimpse into just how big the opportunity is. We've just mentioned a few areas that we are looking at and the climate space is just an exciting one, particularly now.
Cody Simms (48:52):
I suppose the last question is who are the role model companies today that both entrepreneurs look at and that investors point to to say, "Hey, look, here are some of the outcomes that are possible, that we're starting to see happen"? It looks like there was a multi hundred million dollar acquisition recently of a pay as you go home solar company that I was able to find. Any other examples you might want to share would be awesome.
Tobias Ruckstuhl (49:16):
I'm sure probably the one you're referring to is Sun King, a pay as you go company that has for the first time really attracted also PE companies, General Atlantic, MNG Catalyst. When a company can grow to that level and scale, an interest where it can start accessing let's say global PE funds, that's really a game changer. I mean that's a game changer in amounts of capital, in visibility. And that's one of the first companies in that space that has achieved that, and in that sense is really a role model or a company that investors and other companies point towards both in terms of potential, what is achievable, even that company is not that old, but also in terms of how you can get there, what are some of the elements that got them there. That's certainly one of them, and the outcome of what they can reach is there.
Cody Simms (50:10):
Great. Well, I think that is certainly something all of us in climate tech, regardless of geography are continuing to look for, are signs of beyond just the potential of these technologies. Here are the companies that are starting to show that they've actually been completely transforming industries. And so that's an ongoing success story and storytelling component of the transition that we're all working through at the moment. And so excited to continue to see future stories emerge, and hopefully many of them are Persistent portfolio companies in the future.
(50:43):
Tobias, I super appreciate you joining and super appreciate Bim. He had to drop to go take a business development call, but obviously appreciate having him back on the show as well. And anything else I should have asked, or context we should have touched on, or advice you have for anyone? Go for it.
Tobias Ruckstuhl (51:01):
I believe this is one of these conversations that could have gone on for hours. Also, even reversing roles, I'm sure there's so much that would've been interesting to question you about with all of your experience, but certainly it's been a really interesting conversation. Also blending in the two perspectives that Bim brings. Obviously, knowing Bim fairly well from having now worked with him nearly two years, but also on my end.
(51:25):
As said, I think that the general sense is finding that right mix of understanding the urgency of what needs to be done, of how the whole climate and climate tech space needs to be accelerated, the excitement that comes with it, but at the same time not underestimating the challenges and what needs to be done. I particularly think it's important to note that while we as well, we're obviously very excited about software plays, FinTech plays, very lean models, in the end, especially on the climate side, the real impact mostly happens through hardware deployed on the ground.
(52:05):
And so it's important to not forget that that needs to happen. That requires a massive amount of capital. That requires entrepreneurs that focus on how do you get that hardware, right, be it solar panels, be it electric vehicles, be it production plants, be it carbon sequestration facilities on the ground, obviously, often connected or combined with software layers with lean models. But I think that's really worth mentioning, and as investors think about that space, important to consider to find that right angle.
(52:38):
And that's what we try to do at Persistent as well, to try and find that right mix of investments of business models that ultimately, when you take a step back, you see that can work. It doesn't then require magic to happen somewhere else for it all to work out, but that it all in the end creates that big puzzle that gets us one step closer to addressing some of the many challenges that climate change brings. That's exciting and I'm glad to see that beyond us as Persistent, there's so many other actors working on that as well.
Cody Simms (53:12):
Actually, Tobias, so I was going to wrap us up and then I thought of one other whole context we haven't talked about, which is a big part of operating a fund isn't just making investments and picking entrepreneurs and supporting those entrepreneurs, which we've talked about the work you all do there, but it's also raising the capital to run the fund, and to make the investments out of the fund.
(53:31):
And maybe one additional context that you can help us understand a little bit more is what does it look like today to raise capital from limited partners to run your venture fund? What are these limited partners looking for? What are they hoping to see? And why are they choosing to invest in the early stage sector in climate tech in Africa?
Tobias Ruckstuhl (53:57):
For brief context, that we've been investing for 10 years, we've raised capital for that and that we're also currently investing. We've raised, so far, into a permanent capital vehicle, which has given us a lot of flexibility. But we have now started early this year the process to raise our own dedicated Africa climate venture builder fund. So really in a structured fund while building on what we have done and continuing to do what we have done, also leveraging the other mandates that we have. A very pointed question because we are in the middle of it, and I'm having a lot of these conversations with potential limited partners.
(54:34):
So in that context, a very interesting question to understand what we see. It all does come down to what LPs, what investors who are looking at us, how do they understand the market? Do they have a similar view than we have? Do they see the gap in the market that we are filling? Do they see the need for much more companies being started, much more companies being successfully started, I often say as well, right?
(55:01):
Some of them like Beacon, they've been around for 10 years, but they need that acceleration to get to the next level where they can grow and start accessing some of that capital, right? Accessing some of that PE capital that I mentioned, the role model companies, so to speak, in one of the sub-sectors.
(55:19):
That's been a really important learning and understanding for us, to really find LPs that understand the market, that understand the market and see the market similar to we do. And if we can start the conversation on that basis, that's already a very different conversation when LPs understand why is there a need to do that difficult work of investing early, of getting involved, of filling roles, which requires quite a bit of flexibility beyond a very standard VC model. That's certainly a first element.
(55:51):
The second element is of course also a commercial one, is pointing towards track record, is pointing towards what returns are possible as we discussed as well. In the end, the VC space in Africa is not very old, and there is limited track record. So when you look back, you can build on that, but in the end, there's still a lot of nuance to be done and we have some exits to show for. But in the end, there is also just a lot of discussion around how we approach pipeline, how we approach assessment of opportunities, and how we work with companies to ultimately help them succeed and exit ourselves. There needs to be a healthy discussion around the awareness that the whole exit space, secondary space in Africa needs to evolve over the next 10, 20 years for the whole ecosystem to develop. So that's, I think, an important element there.
(56:44):
And then the last thing, which is probably the first item, I mean similar to us as an investor, when we invest early stage, we look at the team and we look at what has the team done? Do they bring the right skill sets? That's something that we see as well, that when we have conversations, we're looked at as a team. What have we been able to achieve? What skill sets do we bring, the entrepreneurial backgrounds that we have? Where are we based? All of these elements, how well do we fit together, how well do we compliment each other.
(57:14):
And that particularly for us as an early stage investor, that's of course also a very relevant question. So these are kind of three angles that we see often coming up, and they're all relevant. Maybe interesting to note, I think the climate point, given what we have done and how we position ourselves, is barely really a big discussion because it's very obvious from what we have done, from what we target to do, that we are genuine about climate, that we know what climate investment is, what it takes.
(57:42):
So I do think that's helpful that we can already build on that layer and then move on to some of these elements that I mentioned before.
Cody Simms (57:50):
Well, I think that is a perfect note on which to end, and a good reminder of the importance of these technologies being capitalized, receiving the oxygen that they need to grow and the potential in front of them. So thanks, obviously, for the work you're doing to support the ecosystem, and thanks for taking the time to come on here and help us all learn a little bit more about what's going on with climate tech in and across Africa.
Tobias Ruckstuhl (58:18):
Yeah, thanks so much, Cody. It's definitely been a fascinating conversation. Looking forward to our next one.
Jason Jacobs (58:25):
Thanks again for joining us on the My Climate Journey Podcast.
Cody Simms (58:29):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity.
Jason Jacobs (58:38):
If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter @mcjpod.
Yin Lu (58:51):
For weekly climate op-eds, jobs, community events, and investment announcements from our MCJ venture funds, be sure to subscribe to our newsletter on our website.
Cody Simms (59:01):
Thanks, and see you next episode.
