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

For Josh Romisher, the general partner at Holocene, a South-African climate tech venture capital firm, the biggest problem facing African climate-tech startups isn't a lack of funding, it's a lack of exits. Romisher believes that by writing cheques at deliberately low valuations, he can create a pathway for African climate-tech companies to achieve modest exits, generating outsized returns for investors. This approach, which has gained popularity among African tech investors, hinges on the idea that by buying a significant stake in startups at low valuations, Holocene can create a lucrative exit opportunity even if the company doesn't become a billion-dollar giant.

Romisher's strategy is built around the math of low valuations. By paying little going in and securing 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, Romisher's stake can return 20 to 30 times what he put in. This is a far cry from the traditional venture capital model, which often prioritizes building billion-dollar companies. Instead, Holocene is focused on building several climate-tech companies worth $30 to $50 million each and selling them within three to five years.

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 have been priced too high, leaving funds with paper markups and no buyers. In contrast, Holocene's low valuation strategy is designed to keep equity valuations down by stacking debt, grants, carbon, and asset finance. According to Romisher, this approach allows every dollar of equity to do the work of five to ten.

Romisher's thesis is based on his experience 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, is evidence of Romisher's understanding of the climate-tech sector. This experience has given him a unique perspective on the challenges facing African climate-tech startups and has informed Holocene's strategy.

Despite the relatively small size of the fund, Romisher believes that Holocene can still be run with institutional rigour. The firm has deployed most of its $3 million across 11 investments, with cheques ranging from $100,000 to $200,000. Romisher's approach is designed to create a sustainable model for African climate-tech investing, one that can be replicated by other funds.

While Romisher is optimistic about Holocene's prospects, there are several threats to the model. The first is the risk of overvaluing companies, which could lead to a collapse in the market. A second threat is the lack of buyers for African climate-tech companies. If the market for climate-tech exits dries up, Holocene's strategy will be rendered useless. Finally, there is the risk that other funds will adopt a similar strategy, flooding the market with low-valued investments and reducing the potential for returns.

Despite these threats, Romisher is confident that Holocene's strategy can create a sustainable model for African climate-tech investing. By prioritizing low valuations and creating a pathway for modest exits, Holocene is attempting to create a new paradigm for African climate-tech investing. If successful, this approach could help to unlock the potential of Africa's climate-tech sector, creating a new generation of sustainable companies and generating returns for investors.

As the African climate-tech sector continues to grow, it's clear that the traditional venture capital model is no longer sufficient. Holocene's low valuation strategy offers a new approach, one that prioritizes sustainability and modest exits. Whether this approach will succeed remains to be seen, but one thing is certain: the African climate-tech sector is in need of innovative solutions like Holocene's.