Funding from DFIs has grown Africas venture capital industry and now that funding seeks to create a market for climate tech in Africa but there needs to be clear winners soon.
A venture capitalist has two jobs: funding companies with the potential for outsized returns and managing relationships with the limited partners (LPs) who provide the funds. In Africa, this relationship with LPs has increasingly leaned towards development finance institutions (DFIs), which are some of the largest sources of capital for VC firms.
But this relationship gives DFIs significant sway over the direction of Africas VC landscape as firms receive impact metrics from DFIs. The institutions, backed by governments or international bodies, often deploy funds to align with their backers goals. As these governments focus on fostering a safer global climate, they have increasingly incentivised funding for climate technology in Africa.
This reliance on DFIs is unique to Africa. African VC firms, unlike their global counterparts, have limited access to funding sources like pension and endowment funds, leading them to DFIs, which has fuelled a surge in funding for VC firms.
These institutions, like the IFC, which invested in Africas largest and second-largest VC fund, control billions of dollars and see VC firms as key custodians of capital that can leverage their local presence to drive innovation, job creation, and economic growth on the continent.
