African venture capital firm Equator has successfully raised $55 million for its inaugural fund, dedicated to supporting early-stage climate tech startups in Africa. This milestone marks a significant step in addressing the funding challenges faced by climate tech companies in the region.

Climate tech startups in Africa face a tougher funding landscape compared to their counterparts in more developed economies. They rely heavily on development finance institutions (DFIs), foundations, and endowments, making them vulnerable to shifts in global capital flows. As aid and development finance budgets shrink, DFIs deploy less capital, adding pressure on African startups. Climate tech companies, in particular, require more capital than traditional tech startups, exacerbating the challenge.

Equator's fund aims to bridge this gap by investing in scalable solutions that can attract private capital. According to the firm's managing partner, Nijhad Jamal, "We are needed more than ever to invest in technology and scalable ventures tackling fundamental climate challenges. These investments will help reduce dependence on aid and instead bring more global private capital into the region."

The fund's backers include DFIs such as British International Investment (BII), Proparco, and IFC, as well as foundations and endowments like the Global Energy Alliance for People and Planet (funded by IKEA, Rockefeller, and Jeff Bezos' Earth Fund) and the Shell Foundation. While this may seem counterintuitive, given the firm's goal of weaning startups off aid, Jamal emphasizes the importance of mobilizing private capital for scalable ventures.

Equator plans to invest the fund in 15 to 18 startups, writing checks of $750,000 to $1 million for companies at the Seed stage, and $2 million for those at Series A. Beyond capital, the firm aims to provide support in areas such as unit economics, governance, and regional expansion. The fund will also reserve capital for follow-on investments and later-stage rounds, with the goal of mobilizing its limited partners as co-investors to bring in equity, debt, or blended financing.

Africa accounts for less than 3% of global energy-related CO2 emissions, yet bears some of the harshest climate impacts. Equator's investments focus on ventures addressing economic and sustainability challenges emerging from these impacts. Jamal highlights the importance of backing technical founders building in the energy, agriculture, and mobility sectors.

The market has shifted since Equator's first close in 2023, with investor conversations evolving from a focus on impact to a greater emphasis on sales and economic value. Jamal cites examples of climate solutions that deliver clear economic value, such as electric vehicles that cost less than fuel-powered ones, climate insurance that accurately covers extreme weather, and AI-powered logistics optimization for businesses.

Equator's portfolio companies, including Roam Electric, Ibisa, and Leta, are building these solutions. Jamal notes that the narrative has shifted, with a renewed focus on mobilizing private capital for scalable ventures that solve problems. The emphasis is now on unit economics, profitability, and exits, as investors seek strong returns.

Jamal anticipates a renewed focus on M&A, with $100 million exits becoming more common. He stresses the importance of capital structuring, arguing that startups need the right mix of equity and debt to avoid excessive equity dilution. As debt and other financial instruments become more available, commercial exits will become more feasible.

Equator's managing partner, Nijhad Jamal, brings a wealth of experience to the table, having previously held roles at BlackRock and impact investor Acumen Fund. He founded Moja Capital, a personal fund that made early-stage investments aligned with Equator's current strategy. Jamal runs Equator alongside partner Morgan DeFoort.

With its $55 million fund, Equator is poised to make a significant impact in the African climate tech ecosystem, bridging the funding gap and promoting scalable solutions that attract private capital. As the sector continues to evolve, Equator's investments will play a critical role in addressing the region's unique climate challenges.