Why are VCs and angels wary about investing in green startups?

Apr 06 2021

In 2020, VCs and angel investors made 49 investments in Egyptian startups, according to our internal tracker — a near 50% increase from 33 in 2019. Most of these investment rounds were directed towards digital payments, fintech, and e-commerce. As for startups operating in the green economy — including renewables, agritech, waste and water management — zero rounds were announced throughout 2020.

But why is that? A combination of startup pipeline scarcity, a lack of scalability and exit possibilities, and good old covid could provide the answer, sources tell us. Back in 2014, there was a “green surge” in the entrepreneurship scene, with about 130 startups founded in the sector, Ahmed Zahran, CEO and cofounder of solar-dependent power company KarmSolar explains. Back then, the topic of climate change was hot, but today, many of these startups have gone cold or ceased to exist. Today, we look into why green economy startups make some investors wary of injecting funding.

The big problem lies in the lack of a pipeline of startups and investors in the green economy. “The whole supply chain of the green economy is not there, neither at the level of investors nor at the level of startups,” Khaled Ismail, managing partner of early-stage fund HIMangel tells us. Unlike tech startups, the startup pipeline in the green economy sector is scarce and does not provide enticing local success stories, in terms of impact and ROI, making it seem less profitable.

Then there’s the lack of exit and scalability options in these types of startups. “Social impact investments need a lot of awareness and there is not a lot of scale at the beginning,” said Hassan Mansi, program director of incubation program StartEgypt, powered by Flat6Labs.

Source: Egypt Innovate