Q: First of all, congratulations on SunFunder’s recent Ashden Awards. You must be delighted to have received such recognition?
A: Thanks – we are! Winning the overall Ashden International award was a fantastic recognition. Both for what we’ve achieved but also for where we’re going next. It’s great to see that it’s now well understood that finance is a core bottleneck for scaling up energy access. Our new $50m Beyond The Grid fund will allow us to plug much more of the gap as we help solar companies grow – it’s a really exciting time.
Q: Unlocking Solar Capital takes place this November in Nairobi. How important are events like this for the off-grid solar sector? What does SunFunder hope to achieve by coming to such an event? How can such investor conferences help to accelerate investment into the sector?
A: We need these kinds of industry events for the same reason other industries need them: networking, making new connections and sharing knowledge about what’s happening in the sector. On top of that, as a young industry, there are quite a few areas that need a bit of extra effort – things like standardising the way we talk about company performance or impact. So we’re very supportive of GOGLA as an industry convener.
Q: SunFunder focus on providing finance to solar companies who need capital to scale up. From what you have seen, how hard can it be for successful start-ups to find the finance necessary to take the next step and continue growing?
A: It can be very hard, but that’s why we’re here. Debt finance for scale up is one of the core bottlenecks for off-grid solar. While companies of a certain size can attract finance directly from DFIs and other lenders, the minimum ticket size of these capital providers can be prohibitive for many solar companies, and the due diligence process is resource intensive and time consuming. We are unique in that we are able to issue both small (starting at $100,000) to large (up to $8 million) loans. We also have a reputation for moving quickly. Furthermore, because we’re in a highly innovative and fast-moving sector, there’s a need to innovate financial products around companies’ needs. For example, we just launched our first structured asset finance instrument (affectionately known as SAFI) which allows pay-as-you-go solar companies to refinance their customer receivables and redeploy capital. This is going to be an important way that we can help the sector grow.
Q: Has there been much interest from investors traditionally not involved in the impact investment space? How important is SunFunder’s ability to effectively evaluate and mitigate risk when speaking with potential investors for your Beyond the Grid Solar Fund? What are the processes and tools you use to evaluate risk?
A: We’ve built comprehensive tools for evaluating risk which we use for every off-grid financing we look at. They’ve been developed over the last four years from a deep understanding of the market. So, yes, that’s one of the advantages SunFunder brings – and coupled with our track record it means we’re starting to appeal to a broader investor base. The Beyond The Grid fund will reflect that. Alongside impact investors we’ll see more mainstream development finance coming in, the kind of money that typically gets deployed in larger energy infrastructure projects. Impact investors are still incredibly important to us and others though, and will continue to play a key role in the sector.
Q: SunFunder has been well involved with the off-grid solar industry in East Africa. Do you see a broadening of your network in the future, to West Africa for example?
A: We’ve already financed companies in West and Southern Africa, as well as in India, and we certainly expect to do more in all these regions. We have a strong pipeline outside East Africa. You’re right though that that’s where we’ve done our core business to date – Arusha is home! That also partly reflects where a lot of the growth of the market has been. Our VP Global Business Development, Andrea Griffin, is leading our work to expand into new markets and we foresee this will be a large part of our portfolio growth starting 2017.
Q: What 3 pieces of practical advice would you give to companies seeking investment in their off-grid solar business?
- The most important thing is to build the right management team with diverse relevant backgrounds that can deliver. Make sure they spend time on the ground, understand the complexities of distribution and servicing customers so that strategic decisions are not disconnected from reality.
- Early on when your track record is limited show potential investors milestones for growth and demonstrate you can meet these. Show them that you’ve tested various business models and validated why yours is innovative, scalable and poised for long-term success. Engage in regular, high-quality communication, be transparent with your investors about both the challenges you’re facing and your successes.
- Build a solid financial model but don’t over complicate it and make sure it tells your story.
Q: SunFunder is a proud GOGLA member. Why would you recommend other stakeholders in the off-grid solar space to join GOGLA?
A: GOGLA is really important for building the sector. Holding these conferences is just one side of it. As an industry we’re still establishing ourselves and figuring out how to talk about ourselves – GOGLA is central to coordinating the way we do that. We also appreciate the work that GOGLA’s doing to make the case for the industry as a whole, including with national governments whose policy choices don’t necessarily reflect the huge potential of off-grid solar for energy access.