Equator, a climate tech venture capital firm, has announced the initial close of its first fund with $40 million in commitments. The company, which focuses on sub-Saharan Africa, has received support from various limited partners, including BII, GEAPP, the Shell Foundation, and DOEN Participaties. The fund will back seed and Series A startups across energy, agriculture, and mobility sectors, which are considered to have significant untapped market opportunities in Africa.

The VC firm plans to bridge the gap between the earliest checks startups receive (at the pre-seed stage) and growth capital, which could come from its limited partners. Managing partner, Nijhad Jamal explained that many larger funds and international investors tend to come in when things have already been de-risked and proven out, leaving a shortage of capital at seed and Series A stages. By investing at these stages, Equator aims to mobilize capital at Series B and growth equity stages from large regional funds, global climate tech funds, and corporations excited about the sector and region.

Also, the fund’s focus on technical founders with domain expertise who are building solutions around clean energy, agriculture, and mobility, ultimately addresses the impact of climate change on income inequality in Africa. Jamal further said that climate change and income inequality are directly correlated, with data showing that the gap between the economic output of the world’s richest and poorest countries is 25% larger today than it would have been without global warming. Climate change has worsened global income inequality, and this has been acutely felt in sub-Saharan Africa.

How Equator Intends to Utilized Its Funds

Equator will expect to leverage the current shift in the global narrative about climate tech’s importance and impact on climate change. The investments coming into the sector are progressively being funnelled into reducing the cost of technologies such as solar systems and batteries while enabling better access for individuals and businesses with pay-as-you-go models.

The fund’s participation in round sizes of $10 million or less is typical for pre-Series B clean-tech startups in sub-Saharan Africa. For seed stages, the clean tech VC invests between $1 million and $2 million; for Series A stages, it cut checks between $2 million and $4 million. Equator will be looking to make up to 15 investments throughout this fund’s life cycle. The firm has teams in Nairobi, Lagos, London, and Colorado, and it will leverage support from Factor[e] Ventures, an organization of venture builders and pre-seed investors, to source deals and undertake due diligence.

This investment will further consolidate the gains already recorded in the climate tech startup space, as startups operating in the vertical raised about $863 million, representing 15% to 18% of the total VC funding in Africa in 2022, making clean tech second only to fintech. This was, however, an improvement from the over $60 billion, about 14% of the total VC funding received by clean-tech startups in 2021.