Adeyemi Adegbayi on how he picks and invests up to $2 million in climate tech startups

Adeyemi Adegbayi, a senior investment associate at Catalyst Fund, first knew that venture capital was the career for him after an old schoolmate, who could build almost anything, could not build at scale because of a lack of funding. Adegbayi’s frustration at the time was that investors did not know how to find the right startups. 

That frustration became his first, clumsy attempt at solving the problem: Adegbayi launched a structured pitch competition, a pipeline machine in disguise. The goal was simple: find very early founders, help them sharpen their value propositions, and then put them in front of investors. 

But the more he worked with founders, the more he realised his initial hypothesis was only half-true. The issue wasn’t just that investors couldn’t find startups; there were also far more entrepreneurs than the ecosystem was built to support, and many of them needed hands-on help long before they were “VC ready”.

Realising this, he entered tech through financial services at ARM, where his day job was figuring out how technology could make traditional businesses run better. Tinkering with small ventures on the side while learning how institutional finance works from the inside eventually set up the tension he would later resolve in VC: how to use capital and software to make real businesses more efficient. 

Leaving ARM, Yemi, as he likes to be called, told himself he would give a role at the $154 million fund TLcom a 12-month trial. If it didn’t feel right after a year, he would pivot, get a master’s in computer science and disappear into a more technical career. Instead, “from the first days, it just felt right.” His first transaction, Pula’s Series A, locked that in.

The deal showed him that you could design business models that scale access to things that simply don’t exist for most people in emerging markets: crop insurance, real safety nets, and reliable risk transfer. It also gave him a mental model for how VC behaves differently depending on where it operates.

In our conversation, Adegbayi talks about two non-negotiables for his investment thesis: a large commercial opportunity and clear, traceable impact. He’s not romantic about it; he’s sceptical that the classic VC fund structure even fits Africa perfectly, and he has no interest in doing philanthropy in disguise. But he’s convinced that pursuing returns without caring who gets hurt will produce extractive models that leave people worse off, and that chasing “impact” without a viable business underneath simply doesn’t scale.

Five years on from that one-year test at TLcom, he now works at Catalyst Fund, a firm that marries his two non-negotiables. The firm’s initial investment is around $200,000 and it can invest in subsequent rounds up to Series A for portfolio startups. “We can invest up to about $2 million in winners across multiple rounds,” Adegbayi told TechCabal.

Catalyst plans to invest in 40 pre-seed businesses and then double down into winners as they scale. The firm has already invested in more than twenty businesses and still has the dry powder to back 10 more startups. 

For this week’s Ask an Investor, I spoke to Adegbayi about climate tech investing, his firm’s thesis and support to founders, the ignored sector he thinks every investor should be looking at, and what founders should be doing after investment. 

This interview has been edited for length and clarity.

Can you give me an example of the ideal company that represents your thesis?  In an African context, and not necessarily a portfolio company.

I’ll touch maybe three companies, and it’s easier to touch three because I don’t think there’s a perfect fit yet. 

An important piece of Pula’s thinking at the point where I worked at TLcom—when I came in to work on this deal—was finding the best way to sell insurance to African farmers. The answer to that was bundling, because insurance just doesn’t sell already. In scenarios where they’re not bundled, let’s find the people who need farmers to have insurance the most and get those people to pay for the services, because the farmers just may not. That’s one solution, I think hits the nail on the head.

Another, which I’ve seen more in East Africa, is M-KOPA and their approach. They’ve figured out how larger asset financing—more like mid-value asset financing—should work on the continent where a lot of people are focused on microloans. Microloans are great, but you need to start pushing higher up for credit to get to a point where it makes sense, and then also find alternative ways to make this worth it.

The final one, and this is fairly new in the portfolio. They’re called Swap. This is a Nigerian company. For the first time in forever, in Nigeria, power is at cost, and this has led to shifts I didn’t think were possible. For the longest part of my life, there was a low willingness to retrofit—people were sceptical about adjusting what was in their engines. Now, there are a bunch of people with different types of vehicles that are running on CNG.

What Swap is doing is they found a model that works for tricycles, and these are everyday people who are constantly squeezed. There’s a direct impact on the keke riders. One is they have vehicles that are more affordable to operate; cleaner vehicles; easier to operate; less hassle from a maintenance perspective, and less hassle from an “is there going to be fuel?” perspective. You look at all of these: your costs are going lower, your ability to earn is improved, and the quality of your life improves.

These are three very different opportunities in three different verticals that say, “This is what the pinnacle of my thesis looks like in solution.” There’s a strong impact, but the impact is baked into the business. It’s not, “Okay, I’m going to have to shave off part of my margins for this impact to work, and if I get squeezed on COGS for some reason, the impact goes away.”

Impact is part of the business, and my margins work well with impact being part of the business.

Most non-climate investors say there’s very little commercial opportunity in climate tech. How do you think about climate tech investing and recouping your investments?

When you look at the landscape of African startups that have raised substantial capital, first, a lot of them are climate companies. M-KOPA, Spiro, BasiGo. These are all climate businesses, and they are scaling quite well. They’re raising capital, and they’re deploying,  expanding across other verticals.

It’s hard to say climate businesses don’t scale.

At Catalyst, we’re finding problem spaces tied to climate change for consumers and businesses and trying to find solutions that enable them to thrive. These, very often, are tied to the profits and losses of small entrepreneurs. This can be anything from providing resistant inputs to farmers and providing farmers with visibility on what pest and disease outbreaks could look like to providing insurance companies with infrastructure to allow them to underwrite farmers better, like finding the right finance models for EVs.

There are strong business cases for all of these. It’s about finding the right model, because these are hard models to solve for. I’m not going to lie and say, “This is an easy model, and you just do this.”

On average, agriculture employs more than half of Africa’s population. It may be a difficult market to sell to and scale in, but when you’re able to find the opportunities that scale well in this space with models that work, it equals a large commercial opportunity. I want large commercial opportunities.

I know that for investors who aren’t primarily in climate, there’s the risk that a lot of people haven’t spent a lot of time thinking about climate. It’s my job to educate you on why you should think about some of these, and it’s also my job to sell my portfolio companies to you so you can come in and then see what real impact and strong growth look like on the climate side. 

How do you make your investment decisions? How do you decide, “Oh, this is a fantastic company for me or for the fund to invest in”?

We look at a bunch of things together. We have a very structured and very detailed due diligence process. Our approach is we come in, and if we see a strong climate and a potentially strong commercial opportunity—preferably both together—then it’s interesting enough to spend more time doing work.

We need to make sure you have a good idea of what you need to scale. We need to make sure your customers like your product and your customers want your product. I will not invest in a business without knowing what the customers think about it. When we do investments, we make it a habit to speak with every stakeholder involved with this business. It’s to understand if your customers like the product and you are very important to your customers.

If you’re one of five and you take 5% of your customers’ flows, and this is something we’re seeing across all your customers, it’s not as exciting to me as you being one of three taking 30%, for example. It is important to understand how you serve the customers and whether we think this customer base is scalable enough.

It is down to the team, product, market opportunity, and then your ability to tap into this market opportunity. 

What are the things outside of capital that Catalyst offers founders?

There’s something called venture building, and it’s pretty much baked into the core of how we invest. In our first investment, we always call it venture building. Think about this as a team of C-suite execs who are able to come into the startup, agree with the founders on key things they want to drive value in, and then help them drive value there. This is not just operational deliverables. These are strategic deliverables and also around building frameworks.

We have a team of really strong venture builders who have experience across different sectors and different markets in Africa. Thankfully, across our portfolio, feedback is positive. Sometimes, entrepreneurs may be a bit hesitant at firs,t but one of the best pieces for me is when a hesitant entrepreneur starts to preach about the benefits that come from this. 

Outside venture building, in terms of investment team support, first, we’re a very founder-friendly team. We are not a venture studio, but we are one of the closest investor partners to most of our portfolio companies because we are partners who have built businesses and who understand the perspective of the founder. We try to ensure we’re always there to give a listening ear and give strategy sessions where we need to.

Also, we have one of the early investment teams with the widest bandwidth in terms of deals done. We’ve led deals from pre-seed all the way to Series B. What this means is we’re coming into pre-seed businesses knowing the range of what’s going to happen. We’ve seen situations where businesses that look like this have done certain things and had some gaps.

We’re able to start speaking with our entrepreneurs about what they need to do to get to that point. Rigour in due diligence helps us build confidence and also helps the founders understand the things they need to have in place.

What do you expect from the founders post-investment?

A growth mindset tied to intellectual curiosity first. Those are two important things that have to work together.

You need to be focused on growing the business, but then you need to be intellectually curious enough to have conversations, figure out what may happen, modify the model if you need to, and that’s just more on the business side.

You need to be open to suggestions and very happy to communicate things as they happen rather than at some point in the future. I do think sometimes when businesses fail, investors have a part to play. But I think very often there’s still the piece where founders may not communicate early enough.

Finally, and this is a very important piece, reporting. I’m coming into your business; I need reports. You’re building a great business, and you’re building a great team, but I need to know everything that’s happening. I think a great reporting structure first covers financials, but then covers everything else. 

Investors like Ido Sum, your former boss at TLCom, argue that Africa’s venture capital investment market is very early compared to other ecosystems. In your opinion, how early do you think Africa’s VC ecosystem is, and what do you think the future is like for Africa’s VC ecosystem?

Ido is someone I really respect, and I think he’s right in this regard. It may be growing faster, or we expect it to grow faster, than a bunch of these other markets have grown. But from a maturity perspective, there are still huge gaps.

We don’t have investors who can lead certain rounds. There are a few African investors, for example, who can lead a Series B. You can probably count them on one hand, and probably half of them can write one Series B check, maybe, because it’s an outlier in their strategy.

When you cancel out the people that have Series B as outlier strategies, for example, all your later-stage deals are primarily driven by DFIs. It’s a very early market in that regard.

Even when we think about the exit landscape, there are very few local acquisitions yet. When we think about stereotypical VC—and this is thinking about the Silicon Valley model—the reasons the Silicon Valley model thrives are: one, there’s cheap capital available in the US; two, there are so many potential acquirers.

I do think we’re starting to get some good early winners, and hopefully, the only way is up. What needs to happen is we need more patient capital. We need more capital that understands the market. That’s one of the advantages of development finance institutions: They’re not the investors that are going to run away because it’s unfair to invest in Africa and then use the US as a benchmark for performance.

We’re seeing really good tailwinds, like the rise of more managers and the rise of more funds. We’re also getting towards phase three of founders. I look at Nigeria as a market, and I look at a bunch of other markets where there are a lot of growth-stage entrepreneurs who have shared a lot of their experiences and are happy to mentor earlier founders. It means you get a higher quality of earlier founders.

Before the market can scale substantially, we need to see development in what I like to tag the “next markets”. I define these as the smaller-but-still-big markets. These are markets like Ghana, for example. I think Ghana is very undercapitalised in the venture space.

How do you personally think about exits and how exits should happen?

I think we’re going to see an emergence in secondary markets soon in Africa. Unfortunately, secondary valuations from secondary funds may not be the best thing for venture capital funds because secondary investors are typically very price sensitive. 

Maybe not immediately—it’s probably going to take a while, maybe closer to the end of the decade or even next decade, before we see structured secondary markets—but that will need to happen for exits.

I think we also need smaller-ticket acquisitions. We need more startups that raise at decent valuations, don’t go too aggressively, and get some of these exits in the bank.

It’s like raising as a pre-seed startup, as a seed startup—raising maybe at a £10 to 20 million valuation—and getting an exit early. It may not be a rocket ship, but we need evidence that these exits can happen.

We need more cash rather than equity, also, because that helps to spur out our new products and helps spur out a bigger market. I think most of the ones we’ve seen so far have been primarily equity buys, but then you need some that come with cash. We need cash flow.

I believe in all forms of exit, so I’m not picky. I just want to see exits, and I’m trying to ensure that as I’m talking with my founders from day zero, we’re thinking about: what do exit scenarios look like? We’re thinking: who wants to buy you?

What under-the-radar sectors do you think will gain investor traction here in Africa, but right now, they’re not getting enough traction?

Climate. I think the carbon markets are an important piece. The carbon markets are important globally and also in spaces where we’re trying to find the right way to subsidise access to certain products. There’s a lot of capital willing to go through this, where you’re able to build a strong use case. So I think the carbon markets are a very big piece.

There’s this really nice report from Novastar that covers some bits and pieces about the carbon markets. I think everyone should read that report.

From a founder’s perspective, if I want to get capital from Catalyst, what’s the single most persuasive thing I can do? 

Prove that you’re building a strong business, you can build a strong business, you understand your market as well as or better than I do, and you have some unfair advantage. Unfair advantage can be defined in a lot of different ways. You need to figure out what your unfair advantage is. This could be tech. This could be market access. 

Prove to me why you will win where other people may not, because that’s the power law. That’s the venture capital game also. This is in addition to everything else: prove to me why I should believe that you will win. I need to understand that.