EchoVC Reveals Insights from $2.5M Climate Tech Fund, Advocates for Microfund Strategy in African Startups
In a rare move for Africa’s venture capital ecosystem, EchoVC has published a detailed report on its $2.5 million climate tech fund’s performance, offering valuable insights into investment strategies for the continent’s emerging markets.
The EchoVC Eco Pilot Fund, launched in 2023 in partnership with Shell Foundation and UKAid, has invested in 15 startups across various climate-related sectors, including energy storage, clean cooking, renewables, and waste management. The fund’s experimental approach challenges traditional venture capital models, particularly in how climate tech startups should be financed.
Managing partner Eghosa Omoigui advocates for microfunds as the most effective investment vehicle for African markets. He argues that seed funds should not exceed $30 million, while Series A funds should cap at $75 million, targeting 10-20% ownership stakes. This approach, he explains, allows investors to “meet the market where it is” and provides founders more freedom to experiment and potentially fail without severe consequences.
The report highlights several key findings:
– Climate tech startups often require a mix of equity, grants, and asset-based financing rather than pure equity
– There’s a critical “missing middle” in early-stage startup financing
– Traditional equity financing models may not suit capital-intensive or hardware startups
– The fund has successfully backed numerous women-led ventures through an intentional, open-door policy
Regarding funding structures, Omoigui emphasizes the importance of context-specific financing solutions. For instance, some companies require working capital lines to bridge payment gaps, while others need asset-based financing for infrastructure development.
The fund’s report also addresses the “market paradox” where talented local founders often face systemic barriers, noting that 92% of climate investment in Africa has historically gone to non-African founders. EchoVC’s approach aims to correct this imbalance while demonstrating that successful investments in local founders are both possible and profitable.
Looking ahead, the fund projects that climate companies, though slower to scale initially, can generate significant returns through sustainable business models. One portfolio company is already on track to return the entire fund’s value, validating EchoVC’s experimental approach to climate tech investment in Africa.
