African entrepreneurs call for more investment in local energy startups

African entrepreneurs have called for greater venture capital investment in local sustainable energy startups — and called out funders for their lack of faith in local companies.

Speaking last week at the Sustainable Energy for All Forum in Kigali, Rwanda, entrepreneurs from across the continent said that although investor interest is increasing in Africa, the majority of funding in the sustainable energy sector still goes to foreign-owned companies.

Last year, African startups attracted a record $5.2 billion in venture capital — more than the preceding seven years combined. But none of this capital went toward funding the energy sector.

There is a “perception problem” within the sector, as funders tend to question the competence and expertise of local organizations, according to Alexander Obiechina, chief executive officer of ACOB Lighting Technology Ltd., a Nigerian renewable energy company.

“We need to change that narrative,” he said.

In addition to negative perceptions, Obiechina said African startups do not receive as much government support or technical assistance as their international counterparts. Foreign companies operating in Africa receive support from their governments to strengthen their business structures and build capacity — making them more attractive to investors, he said.

Investment companies and impact investors should make intentional efforts to diversify their portfolios and publicly share their diversity figures, according to Sandra Chukwudozie, chief executive officer at Salpha Energy, a Nigerian manufacturer and distributor of solar power.

“This kind of intentionality ... will begin to bring African companies at the table and not leave them behind in solving the African continent’s problem,” she said. “We want our African companies to solve African energy problems.”

Chukwudozie added that startups on the continent struggle to scale up their businesses due to a lack of support. There isn’t a lot of “patient” — or long-term — capital in Africa, she said, and banks are unwilling to invest or will only provide startups with short-term funding under strict terms.

“The banks are going to hedge their risk,” Chukwudozie said. “They're going to provide, … collateral requirements, high interest rates, and a short term.” She added that this forces founders to “bootstrap their businesses” and leads to situations in which “the founder is the chief marketing officer, is the HR [human resources], is the operations person.”

Even in cases where entrepreneurs are able to secure funding, they still need to contend with taxes, levies, and a lack of infrastructure, Chukwudozie said. That can be another strike against African entrepreneurs seeking international investors, as they may be forced to neglect some due diligence requirements in their quest for survival, she said.

“The continent is somewhat against you because you find yourself having to provide your own infrastructure. … The challenge now is, how are you able to maintain your cost of operations to allow you to scale?” she said. “You are in a rat race. It’s an ongoing cycle.”

Entrepreneurs should focus on building strong partnerships and an investment track record to attract funding, said Tariye Gbadegesin, chief executive officer at ARM-Harith Infrastructure Investment Ltd., an infrastructure private equity fund manager. She added that the individual nature of African entrepreneurship — with many companies founded and run by a single person rather than a team — is one of the biggest red flags for investors, as it increases the risk of the investment.

“Entrepreneurship, as I see it, is like playing chess. It is a game of pieces that have to come together. It’s not about an individual; it's about how that individual pulls these pieces together,” she said.