Why Holocene raised a $3 million fund to solve Africa’s climate-tech exits

After raising $3 million to fund African climate tech startups, Josh Romisher thinks he can solve the sector’s biggest problem: the lack of exits. His approach has become popular among African tech investors: they write cheques at deliberately low valuations so as not to price out eventual buyers.

Romisher, the general partner at Holocene, a South-African climate tech venture capital firm, said he has raised $3 million from 32 investors, 60% of them based in Southern Africa, and has deployed most of it across 11 investments in cheques of $100,000 to $200,000. 

Holocene buys a 10% to 20% stake in each startup while its valuation is still low. If Holocene pays little going in and gets a sizeable piece of the company, even a modest sale later can create outsized returns. If a company is acquired for $30 to $50 million, his stake can return 20 to 30 times what he put in.

With this math, Holocene is not trying to build the next billion-dollar climate company in Africa but is trying to build several worth $30 to $50 million each and sell them within three to five years. 

Holocene’s portfolio is roughly 60% Southern Africa, 20% Kenya, and 20% Uganda, weighted toward energy and e-mobility, according to Romisher, with companies including Yongeza Capital, an e-mobility charging infrastructure player; ScootHero, a two-wheeler delivery company; and circular-economy retailer FARO.

Romisher argues that the African venture capital industry is exit-starved because the rest of the market has been doing the opposite. Seed and Series A valuations, he says, have been priced too high, leaving funds with paper markups and no buyers. His response is to go earlier and cheaper and to keep equity valuations down by stacking debt, grants, carbon, and asset finance so every dollar of equity does the work of five to ten.

His thesis is based on his experience before becoming an investor, as Romisher spent almost a decade as an entrepreneur, including a stint that produced one of the few climate-tech exits the continent has seen, the sale of Fenix International, an off-grid solar company that delivered solar power in East Africa, to ENGIE, a French multinational utility company, for an undisclosed amount in October 2017. 

In our conversation, Romisher explains why a $3 million fund can still be run with institutional rigour, who he expects to buy these companies, and what threatens the model most. 

This interview has been edited for length and clarity. 

You raised $3 million for African climate-tech startups. How much did you raise at final close, and how does it compare to the target you set?

The final close was $3 million, which was our target. We were able to hit it, and the fund was always sized in a manner where we believe we can return capital. We started by asking, where do we think we can turn a dollar into three and create climate impact? 

That is really the focus for us: proving that the climate sector in Africa can return commensurate capital. We have deployed most of the fund already across 11 investments. Those investments are performing well; so far, everything has gone the way we wanted.

Capital raising is always harder than one expects, especially given that it did not seem like a lot of money. But it falls into an interesting bucket in Africa, where it is a little too small for institutions and sometimes a little too big for individuals. I am really proud to say we have 32 investors, 60% of them from Southern Africa. I am proud that people with a real passion for climate stepped up and put their money into the fund, including ourselves.

Who are your investors, and what did it take to get commercial money into a relatively new asset class in an emerging market like Africa?

It takes both trust and passion. When you are raising primarily from high-net-worth individuals and family offices, most of it is about trust and personal relationships and helping people understand our investment thesis. I also want to add that just because it is a small fund does not mean it is not institutional. I have worked on much bigger things in my career, but we wanted to bring the same rigour and institutional process you would have at a $300 million fund to a $3 million fund. We just believe $3 million is where you can return capital, given the state of the ecosystem at this time.

The people who invested want to do good and do well. The point of doing good is to create positive climate impact, jobs, income upliftment, and more gender equality. But we also want to do well; if people are putting money with us, our goal is to turn a dollar into three and get them liquidity. It takes trust, it takes professional rigour even for small ticket sizes, and it takes a belief that we can both do good and do well.

You mentioned $8 of follow-on capital for every $1 you invest. Is that across the entire portfolio, or just a few standout companies? How does your follow-on policy work?

Our goal is to be the first investor, at least the first institutional investor, in most of our companies. That comes from a belief that in order to return capital, we need to get in early, at valuations that make sense, and find that commercial moment. Most of our companies are post-revenue. We feel like there is a fire starting to burn, and our goal is to push that fire into a full-fledged inferno. That is what venture capital is about: finding the moment when you are not buying the future growth; you are buying the opportunity to push something to the next level of scale.

Of our 11 portfolio companies, four have now raised follow-on capital. To be clear, in climate tech, you do not need to raise tons of equity. If you are smart about how you build, you can raise off-balance-sheet debt, think about asset finance, and use grants effectively. One dollar of our capital is leading to at least eight dollars of follow-on. But I want to be clear that follow-on is not the metric we should focus on. It is really about capital efficiency, unit economics that make sense, and realising exits at valuations where companies can be sold. Those are the most important metrics.

What is your typical first cheque size and target ownership?

Our ideal investment profile is generally a two-to-three-person team that has been working at something for at least two to three years, has put in some of their own cash, and is post-revenue, with anywhere between $50,000 and $200,000 of trailing 12-month revenue. They have proven there is something commercially happening and shown they are willing to put in the hard work.

Our initial ticket is somewhere between $100,000 and $200,000. We then work with teams extensively; our model is very much focused on post-investment value creation, working with teams for at least 12 months after we invest, helping build out the commercial piece. We are happy to follow on with another $100,000 to $200,000 if things are working well and they need capital.

Our average founder is 35 to 50 years old, passionate about something, post-revenue, has been at it for two or three years, and has something commercial starting to bubble. We put in $100,000 to $200,000, work with them with another $100,000 to $200,000 available, and our goal is to end up with a stake somewhere between 10 and 20% at a valuation we believe can deliver a 20 to 30x return multiple while still allowing an exit. We are really solving for $30 to $50 million exits, so the entry valuations have to make sense.

Climate businesses are typically capital-heavy and take time to scale. Why anchor your fund at pre-Series A, the earliest and least proven stage, rather than coming in after the risk has been reduced?

There are two things. One is that we do not believe the ecosystem is moving fast enough, and there are not enough climate solutions being generated, because there is no early-stage capital. You cannot have innovation without early-stage capital, so it is a missing link in the market. With Africa set to double in population and consume during our lifetime, if we do not get the climate space going now, we will be too late as the continent grows. There is a necessary additionality in the market.

Secondly, because no one is down here, we think we can find great value. I would much rather come in a bit early and take some commercial risk, knowing that my job is to help grow the company and de-risk it, at a valuation where I can get a 20 or 30x multiple and still build towards an exit. There is a problem in the market now where seed and Series A valuations are too high, and thus, there are no exits. I would rather come in early at a valuation commensurate with the stage, de-risk the investment, and still know I can get a 30x on a $20, $30, or $40 million exit. Our exits in climate do not have to be hundreds of millions of dollars for our fund to do well.

This is what venture capital is all about: finding the best entrepreneurs who are passionate about a space, who are at that critical commercial inflexion point, and helping them galvanise the company through that point while building the systems, people, and processes so that when the business starts to go commercially, it can also scale operationally.

Can you walk me through some of the companies in your portfolio?

The portfolio now is 60% South Africa, 20% Kenya, and 20% Uganda. We are about 60% energy and e-mobility, with the remaining 40% being a climate grab bag—carbon project development, biotech, and circular economy.

One company we are really excited about is Yangeza, an e-mobility infrastructure company in Uganda. They provide the physical infrastructure for groups like Spiro, ARC Ride, Zembo, and Gogo—the two-wheeler companies. Yangeza is becoming their preferred provider to own the physical swap station and ensure riders know how to swap effectively. That is a critical part of the value chain.

Scoot Hero is a Southern African two-wheel e-mobility company. Southern Africa has not historically been a two-wheeler market, but post-COVID, we have had a real boom in e-commerce, and e-commerce needs delivery. Groups like Takealot, Amazon, and Checkers have moved towards using two-wheelers for delivery, and Scoot Hero has done an incredible job working with groups like Takealot. We believe all two-wheelers in Southern Africa should be electric within the next couple of years—the economics make sense— and ScootHero will lead that movement.

Faro takes merchandise from Europe that is going to be dumped in a landfill or burnt and sells it in Southern Africa, giving people access to brands like Hugo Boss and Calvin Klein. They keep things out of landfill and use incredible technology, including AI, to turn a store over in eight weeks. 

They are doing incredibly well in revenue and are looking to raise their Series A. We are really trying to find this nexus of commercial viability, social impact, job creation, and income upliftment. I am also happy to say that 40% of our portfolio has at least a female founder or a female in a leadership position — that came simply from finding teams where the dynamic between a strong male and female founder has been beneficial for scale.

Your central theme is that impact and return go hand in hand. Have you ever had to choose between the two?

So far, we have not. We are pretty devout in that we have to find a climate-positive angle in an investment, or we will not even look at it. In e-mobility and energy, the best commercial value proposition is electric or decarbonisation, so we really have not had issues there. 

Sometimes, in sectors such as agriculture, cold storage, or others we have looked at, the climate angle gets a bit blurry, but we have not invested in many of those. We try to find sectors where almost anything you do is climate-positive, and we will make numerous investments there. If a sector overall is questionable and we cannot draw a hard climate angle, we probably will not look at it too deeply. But it has not been an issue so far.

What type of support do you give to startups in your portfolio?

I was an entrepreneur for almost a decade before I became an investor, and much of becoming an investor was really becoming a financial intermediary. I still think like an entrepreneur. I love entrepreneurs; it is in my blood. I just did not see enough local entrepreneurs getting access to capital, so I felt Holocene could be that intermediary, sourcing LP capital and giving it to local founders. Our entire portfolio is local.

The part I love is post-investment support. If you talk to any of our companies, we really roll up our sleeves;  we consider ourselves the confident commercial co-builder that works alongside our entrepreneurs. Most of our teams are still small, with two or three senior people doing the job of 10 or 12. Where we focus, first, is strategy—helping companies be clear on what they want to achieve over the next three, six, and 12 months. 

We think of venture capital as a series of experiments and a startup as a series of untested hypotheses, so we help entrepreneurs become clear on the hypotheses they need to test and the metrics that signal success, then track them, and put advisory boards in place that hold us accountable and bring expert insight.

We do a lot of work getting the commercial engine going – sales operations, website, sales collateral, and ideal customer profiles. In the end, all our companies need to 10x their sales. Alongside that, we work on culture because when companies scale, things move faster, and if your culture is not set, it dissipates. We also do a lot of executive hiring and run that process for our entrepreneurs. We build websites and are rolling out a lot of social media work.

My background and the real value proposition of Holocene in climate is blended capital. We believe that climate companies, while asset-heavy, can have innovative capital structures that make every dollar of equity worth five to ten dollars of capital, if we think about capital as a mix of carbon, human capital, debt, grants, and other forms. We do a lot of blending to make sure these companies scale operationally and financially. And from day one, we talk to founders about how we are exiting the business and who we are exiting to. Most of our work is post-investment—the investment process highlights the key risks, and post-investment, we do our best to de-risk them.

What is the criteria to get funded by Holocene?

You have to be climate-positive, operating in Africa, and a local founder or, if not a local founder, someone who has shown they are committed to Africa. I was born in America, but I have been here for half my professional career, so I consider myself as African as anyone. We want to invest in people dedicated and devoted to the continent.

We generally invest in post-revenue companies because the sales data is some of the most important data we have. We like founders who have been working on something for a couple of years, because it shows they have earned insight and are dedicated to the problem. We love male-female founding teams;  that dynamic is really important. Overall, we are looking for entrepreneurs who are passionate and mildly obsessed with solving a specific problem. It is not about building a certain product or accessing a certain customer; it is about solving a problem they have dedicated their lives to.

The last piece: because we work so closely with teams. You can think of Holocene as a consulting firm that buys into companies and does a lot of work;  we want to work with people who inspire us, whom we believe in, and who can teach us new things. We are going to be working elbow to elbow for at least a year after we invest. We also like to spend time in nature; it is part of the Holocene brand and how we connect with people, so we hope our entrepreneurs love nature too.

African climate tech has almost zero exit track record. Who buys these companies, and what timeline are you looking at for exits?

Through Phoenix International, I was able to go through one of the only climate-tech exits in Africa—the sale of Phoenix International to Omgy. So exits can happen. We are very realistic and smart about how we engineer for them. We believe that we are building into corporate acquisitions. Around Series A or Series B, you want to be selling your company to a corporate that can give you scale, distribution, and a lower cost of funds. Those exits will not happen at hundreds of millions of dollars—even in fintech, some of the biggest exits are $30, $50, $100 million—and that needs to happen within three to five years of initial investment, given how funds are structured.

What we are looking to do is be smart about our capital structure, keeping valuations low enough while securing capital through asset finance and grants, so that when we look to be acquired at Series A, the valuation is reasonable for a corporate to acquire. Our portfolio is 60% Southern Africa, which is very strong in private equity and M&A, but it has to be done at multiples that make sense. 

The gift is that when you have assets in your capital structure, you must have good unit economics;  you cannot be selling at a loss and still service debt. Most of our companies have strong unit economics, attract debt, have a strong impact, and attract grants, which lets us keep equity valuations low enough to think about a corporate acquisition around Series A. Just because it has not been done before does not mean it will not happen. We need people like Holocene willing to walk the hard road to prove the sector can work.

What is the biggest risk to Holocene delivering the returns you promised your LPs?

Probably the timeframe necessary to build these businesses. Funds are structured with a limited lifespan, which is fine because LPs need liquidity. But a lot of these businesses have historically taken one or two generations to build, and we are trying to build in five to seven years what might have taken one or two generations. You have to be deliberate, efficient, and smart, and deliberate about the exit route from day one.

I also believe grant capital is starting to dry up, and debt financing is tightening with the way global capital markets are going. We have still been able to access grants and asset finance for almost all our companies, but the market is getting tougher, and that capital is very necessary. There has been a general pullback in venture capital in Africa, and we need co-investors. Between finding the necessary capital, doing so within the fund’s timeframe, and having enough innovators willing to build — maintaining a new pipeline every year of entrepreneurs in the space — those are the key risks. The pipeline sometimes does not fill as fast as we would like because of the lack of capital and the lack of risk-taking.

If you held a microphone to African investors, what would you say?

Africa is about to double in population, urbanise, and consume. This is either a huge climate catastrophe or a massive innovation opportunity. We need more people building from the ground up and proving the model can work. 

We are building a robust climate community around this because it is going to take a movement—thousands of people putting their heart, soul, and passion into building here—to turn this into a major innovation opportunity. We welcome people to join the Holocene community and to submit an application. We feel we are at the front of the wave, and more people must come along so we can prove that climate in Africa can deliver both returns and impact.

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