Financing Tech Ventures – Investment Banking Perspective

By Linda Shiba, Investment Banker, RMB – Rand Merchant Bank, South Africa

The “2024 Umliba Youth Entrepreneurship Conference” shone a light on the potential of Eswatini’s youth tech entrepreneurs.

Investment banks play a crucial role in financing tech ventures. By providing capital, expertise, and strategic guidance, they enable startups to scale and disrupt industries.

We live in a time where it is almost impossible not to identify glimpses of technological advances in every space. From the 3rd Industrial Revolution, which was mostly electronics and nuclear, we are now in the era of 4th Industrial Revolution (4IR) where every initiative is driven by technology. This includes the use of technology in renewable energy.

The new dawn for renewable energy investments

We have seen an exponential growth in renewable energy investments, where investment banks are investing in projects, such as solar and wind power. These projects are helping to address Africa’s energy crisis and reduce reliance on fossil fuels. This involves very bespoke and highly structured purchasing power agreements where Independent Power Producers (IPPs) sell power to various off-takers with very little precedent. This means a new avenue has been opened for new companies to enter the energy space with the right financial backing from investment banks.

This is one of the proven models Eswatini can adopt to be self-sustainable in producing power. Eswatini is one of the countries that are still heavily reliant on importing electricity from neighbouring countries.

The underlying social challenge the country faces is the high unemployment rate. To address this, we need to harness the power of technology to create new jobs.

We need to increase our production, which can be sustained by consistent and reliable energy sources while also preserving our environment. The demand and supply dynamics are key to unlock new potential and create new opportunities that will absorb young people into the labour market.

RMB – Rand Merchant Bank originated and closed about 1500MW of renewable power from (IPPs) in the past year. There has been a lot of funding flowing into power generation, and going forward there will be a lot of investment into the grid connection and battery storage facilities in order to sustain the extra power being produced.

In Kenya, RMB and other banks supported a Kenyan climate-tech startup called KOKO, which addresses the demand for Charcoal by supplying bioethanol cooking fuel to over 1.1 million homes. The innovative distribution model involves a network of high-tech KOKO Fuel ATMs strategically placed in thousands of corner stores throughout urban Kenya. This approach does not only reduce reliance on traditional charcoal but also ensures convenient access to clean energy for households.

The unique aspect of KOKO’s business model lies in sharing the carbon revenues generated with households. This serves as a non-government energy subsidy, making it possible for even the most economically challenged households to make the switch to cleaner energy alternative.

The Future of Farming: Tech Takes the Lead

We have also seen a lot of investments going towards agri-tech. More intelligent farming is becoming a necessity, as the United Nations estimates a global population increase of two billion people to nine billion by 2050. Feeding this growing population will be a monumental challenge, and agricultural consumption will need to be about 60% higher than it was 20 years ago.

In this growing and developing world, farming is moving from mechanization to digitization. Today’s technological advances have the potential to improve aspects of the current food system.

Banks such as Nedbank CIB in South Africa, have made strides in this space through their Innovation Hub. They have taken interests in agri-tech startups such as Aerobotics, a disruptive technology company that uses advanced analytics and aerial drone and satellite imagery to deliver precision farming tools for clients. Data collection and analysis can save the agricultural sector millions from crop losses due to pests and diseases, boosting the sector and increasing food security.

It means that as Eswatini has a huge potential to increase food production using technology to become a food exporter instead of an importer. For startups in agri-tech, there is bank appetite to finance such initiatives.

Investment bank’s appetite for fintech startups

Investment banks are also investing in a wide range of fintech startups, including mobile payment solutions, digital lending platforms and insurance technology companies. These investments aim to capitalize on the growing demand for financial services in Africa, particularly among the unbanked and underbanked population.

In South Africa, there is a fast-growing payment solution called Yoco. This company already has more than 200,000 SMEs that it supports daily. This is replacing a lot of the traditional speed point payments in every business space.

YOCO’s success is a testament that the market is there; the funding and appetite is there. Young people need to apply their minds and innovate, then the rest is history.

Disclaimer: The opinions expressed in this article are solely those of the author and do not reflect the views or policies of RMB.