Climate tech funding drops as AI booms

Funding for climate tech startups in Africa dropped sharply to just $900,000 in the third quarter of 2024, a stark decline from the $325m raised in the first half of the year.

This significant downturn reflects a broader global trend, with investors increasingly turning their attention to artificial intelligence as a more attractive, faster-return investment.

This information was disclosed in the State of Climate Technology Q3’24 report by CB Insights, a research firm that analyses investments.

Earlier in 2024, climate tech accounted for 45 per cent of the $721m raised by African startups, surpassing fintech’s 22 per cent, the report said.

This highlighted strong investor enthusiasm for solutions addressing urgent environmental challenges such as drought and desertification.

However, the third-quarter drop indicates a shift in priorities as global venture capital flows pivot toward sectors like AI, which promise quicker commercialization and returns.

“Climate tech funding fell to $4.8B in Q3 ‘24, marking the lowest point since Q2’20. Venture capital has shifted away from the sector as high interest rates impact climate tech’s capital-intensive projects and as investors pivot toward AI, which tends to feature more rapid developments and shorter commercialization timelines,” the report stated.

Despite these challenges, the report points to a potential rebound. Kenya’s Octavia Carbon raised $3m in seed funding in October, surpassing the total funding raised by the African climate tech sector in Q3.

This funding round, according to the research company, signals a possible recovery, as investor interest in scalable climate solutions may grow in the coming months.

On a global scale, climate tech investments fell to $4.8bn in Q3 2024, marking a 55.5 per cent drop from the first quarter and the lowest quarterly total since 2020, the report revealed.

Despite the decline, the sector demonstrated resilience, with four new unicorns and five major exits, including a $2bn acquisition of Neo Fusion in China.