Secondary funds, once a niche concept in Africa’s startup investment landscape, are gaining traction across various sectors. While fintechs have historically led the charge, Africa’s cleantech sector is emerging as the next frontier. Investors are now raising specialized funds to address the unique challenges and opportunities within the continent’s clean energy and sustainability ecosystems.
Secondary markets have traditionally offered a mechanism for early-stage investors to exit, providing liquidity and enabling capital recycling. In mature markets, this approach is well established, but in Africa, it remains nascent. In fact, traditional institutional investors have, reportedly, often frowned upon secondary exits in African startups. But its growling influence is now inevitable. A recent report by African Entrepreneurial Ecosystem Investors, Aspen Network of Development Entrepreneurs (ANDE), and the Criterion Institute says that 86% of African angel investors prioritize secondary exits, akin to the popular “10x return” strategy pursued globally. This desire reflects growing sophistication among African investors, even as barriers to such exits persist.
The fintech sector has already demonstrated the potential of secondary markets. Moniepoint’s $110 million Series C round, led by Development Partners International, provided an example of how early investors could achieve partial exits through secondary share sales. Angel investors in companies like Nigeria’s Kuda Bank and Côte d’Ivoire’s Julaya have also successfully exited via secondary rounds, marking milestones in Africa’s maturing investment ecosystem.
However, the cleantech sector, with its emphasis on long-term impact and infrastructure development, presents distinct challenges requiring innovative approaches to secondary funding.
Cleantech (ClimateTech)— The Newest Focus
Africa faces an urgent need to accelerate its transition to clean energy. According to the International Renewable Energy Agency (IRENA), while global investments in renewables totaled $2.8 trillion between 2000 and 2020, Africa received just 2% of this amount. By 2021, this figure dropped to less than 1%. Despite being home to 60% of the world’s best solar resources, Africa accounts for just 1% of installed solar PV capacity, leaving 600 million people without electricity.
Early-stage investors in renewable energy projects, particularly in sub-Saharan Africa, often find themselves trapped, unable to exit and reinvest. This bottleneck impedes the growth of the cleantech sector and slows the development of critical infrastructure.
To address these challenges, a new wave of secondary funds is emerging. Just recently, Gaia, the Cape Town-based impact investment firm, announced it is fundraising for its $200 million Gaia Africa Climate Fund (GACF). The fund aims to acquire secondary equity stakes in renewable energy, water, and sanitation projects, enabling early investors to exit while ensuring capital is recycled into new greenfield infrastructure.
Jon Marius Hønsi, Gaia’s partnership manager, highlights the importance of such mechanisms: “The secondary market in infrastructure brings long-term investors, like pension funds, into projects, releasing early-stage investors and accelerating the clean energy transition in Africa.”
Gaia’s approach underscores the potential of secondary markets to attract more institutional investors, providing them with stable, inflation-linked cash flows through long-term power purchase agreements (PPAs). These agreements, which secure fixed tariffs for energy projects, align well with the investment horizons of pension funds and other institutional players.
Other players are also entering the secondary cleantech market. Blue Earth Capital, in partnership with British International Investment (BII), recently acquired stakes in three funds across Africa and Asia, including Novastar Ventures Africa Fund II and Adenia Capital Fund IV. This marks the first portfolio secondary transaction by BII, designed to strengthen the secondaries market in emerging economies.
These initiatives are not without challenges. Misperceptions about risk and return in Africa persist, deterring investors. However, advocates like Hønsi argue that the default rates for African energy projects are comparable to European and American counterparts, dispelling outdated stereotypes.
Secondary markets offer a pathway to de-risk investments and unlock capital for critical infrastructure projects. In cleantech, they can fast-track the development of renewable energy assets while enabling early-stage investors to reinvest in new ventures.
Gaia’s fund, domiciled in Luxembourg to attract international capital, is also seeking listings in Kenya, Botswana, and Ghana to mobilize African private capital. Regulatory constraints remain a hurdle, as many African pension funds are restricted from investing in non-publicly traded instruments. Addressing these barriers could further unlock local capital, fostering a sustainable cycle of investment and reinvestment in cleantech projects.
The fintech sector’s experience with secondary markets offers valuable lessons for cleantech. Early secondary sales in startups like Moniepoint and Julaya demonstrate the potential for investors to achieve meaningful returns while supporting the growth of high-impact sectors.
Aaron Fu, former partner at Catalyst Fund, notes that while secondary exits may not achieve the astronomical returns, they offer significant value for angel investors and micro-VCs. “A 10x or 20x return is remarkable for early investors, and most importantly, it’s cash in the bank,” he says.
The emergence of secondary funds for Africa’s cleantech sector signals a pivotal shift in the continent’s investment landscape. By providing liquidity to early-stage investors, these funds can catalyze the development of renewable energy and other critical infrastructure, supporting Africa’s broader economic and environmental goals.
As secondary funds markets mature, they could become a cornerstone of Africa’s investment ecosystem, driving sustainable growth across sectors and addressing the continent’s most pressing challenges.