On March 1st and 2nd 2023 the 10th Sankalp Africa Summit took place in Nairobi, Kenya. Climate change is happening and adapting to its effects is crucial for the survival of humanity. The private sector has a critical role to play in contributing to climate change adaptation, designing and pivoting business models to have a substantial contribution to adaptation efforts. Despite their visible impact, there is a continuous struggle to raise capital to scale while on the other end impact investors interested in building an adaptation portfolio struggle to build a pipeline. What is the missing middle? “The Secret to adaptation investment” was a session curated by GIZ and DFC at the Sankalp Africa Summit. The panel session brought together stakeholders including investors, adaptation & resilience businesses, and intermediary institutions to discuss the experience in promoting the adaptation ecosystem in different capacities.
Eric Onchoga (Irrihub) | Martin Kiilu (Growth Africa) | Rebecca Mincy (Acumen Resilient Agriculture Fund) | Luni Libes (Africa Eats) | Peter Fry (Kua Ventures)
Eric as an innovator highlighted the challenges associated with raising funds, partly due to the fact that businesses such as Irrihub are often perceived as high-risk business models. Many investors are not very familiar (yet) with the issue of climate change adaptation, which makes adaptation investments a learning journey for both sides. Meanwhile, for ARAF as a fund with a strong agriculture and adaptation lens, a sharp narrative on adaptation impact is a core investment criterion, next to the sustainability of the business model and proof of commercial returns. Martin of Growth Africa, an Enterprise Support Organisation (ESO), stressed that money is not a silver bullet to address the challenges SMEs are facing. In underdeveloped markets like what the African continent faces, businesses need more than financial investments to thrive. There is a need for businesses to appreciate business coaching and take advantage of programs like PrivABoo and Growth Africa Accelerator programs to prepare for fundraising.
As both Luni and Peter stressed, SMEs have a journey to make and questions to tackle before they are ready to pitch to investors – it is critical to know the investor and investor landscape on the one hand but to also know your own business, have your mission and vision straight, understand your customers, your company culture, and the competitive landscape. Ideally, this preparation is already done by the time companies need an investor – the easiest time to approach investors is when companies are in no actual need of them. A common mistake companies tend to make is asking for too much money – as a rule of thumb, according to Luni, your ask should not exceed your revenues made over the last 12 months, especially for a start-up. There are risks associated with putting too much money into a business too early, and/or putting it in the wrong place. It is critical for companies to be able to turn the investments into revenues in order to sustain themselves – as Martin put it, “the best money comes from customers”.