Over the past few years there has been a sharp slowdown in venture-capital funding worldwide. Africa is less than 5% of the global market by deal value but has proved to be relatively insulated; total deal value peaked later, at $6.5bn in 2022, and fell less sharply, to reach $4.5bn in 2023. Make no mistake, the environment is challenging: steep currency devaluations and high inflation in some countries have dissuaded skittish investors from writing cheques and led some to leave the continent altogether. Yet there is good news, too. The industry is adapting. A financial squeeze is forcing startup founders to make tough choices in the name of efficiency: consolidating with rivals and cutting costs to hit profitability targets faster. Agility is the name of the game. Perhaps reflecting this, recent figures for funds raised by startups have improved: July was the best month in over a year.

But part of the sense of resilience is optimism over green investments that focus on the energy transition or tackle problems related to climate change. What counts as a green deal is subjective. But a classification by Africa: The Big Deal puts their share of vc activity at 43% (see chart). Energy and food-production firms increasingly have a green dimension.

Behind the green boom are several factors. Amid the venture-capital drought, development-finance institutions prioritising the climate crisis, such as the International Finance Corporation and Africa Development Bank, have launched funds of their own. Britain’s foreign office has invested in a $200m African climate fund. Savvy founders have learned to show that they are solving an urgent development problem as well as trying to make a fortune.

Yet the shift also reflects the reality that as climate change becomes more pervasive most long-term business models have to incorporate a response to it. Pula closed a $20m funding round this year. Although an insurance-tech company, their focus is crop insurance which is inherently a climate-related issue due to the prevalence of extreme weather events. From floods in Kenya to the desertification of the Sahel, agriculture startups have to deal with the climate crisis as they try to work within it.

The shift is expanding the geographic footprint of the vc and startup scene. SunCulture, which raised $27.5m this year, provides water pumps for irrigation: being solar-powered means they can reach smallholder farmers not connected to national grids. Nigeria’s sophisticated banking industry helped make financial startups, or fintechs, the region’s startup stars. But east Africa is best-placed to lead on energy because of the prevalence of renewable energy sources. One of the biggest African deals of 2024 has been $176m invested in d.light, an off-grid solar provider in Kenya, Tanzania and Uganda. And this is not just energy: “For every agri-tech company in Nigeria, I can name ten in East Africa doing the same thing”, says Brian Waswani Odhiambo, a partner at Novastar Ventures.

Africa’s green vc shift raises two big questions. One is how it boosts development. There is a compounding effect: telecoms firms, tech giants, startups and banks have built one kind of enabling infrastructure: mobile telecoms networks and the applications that run on them including payments. Energy is the next challenge: over half a billion Africans lack electricity. Just as cheaper electronics hardware transformed telecoms and payments, now the ever-falling cost of solar panels is expanding the pool of potential customers to include those on lower incomes.

The second question is how the green pivot alters business models. In the rich world utilities are a given. In Africa entrepreneurs have to hustle and innovate to get basic services. Some firms are venturing into renewable, off-grid energy generation because there is not enough grid capacity or connectivity for them to scale otherwise. Off-grid solar power systems can distribute power to external customers, if embedded with software and chips that allow people to pay with their phones. Unlike their peers in rich countries African startups are often not disrupting existing markets but creating new ones with limited capital or outside help. The degree of climate risk Africa faces is uniquely alarming. That means the solutions it must come up with need to be unusually creative.