Successful capital raises can mean the difference between a good-but-unrealised idea and a thriving business. Early-stage capital allows companies to build prototypes, test ideas in the market, and prove business models. Early fundraising also lays the foundation for future raises by allowing companies to develop traction and proof points. However, raising capital can be challenging for early-stage energy companies focused on developing economies, as they often don’t “fit the mold” for many investors. They must make extra effort to cultivate relationships with investors and tell a compelling story.

Finding the right investor

One of the most common finance questions we hear from early-stage energy companies is “how do I find the right investor for my company?” Engaging investors is time-consuming, but finding well-aligned investors is critical for a successful long-term fundraising strategy. With so many potential investors, it can be challenging to know where to begin. Charm Impact—a crowdfunding start-up that invests in early-stage clean energy enterprises in developing markets—recently completed its own equity raise. The team first organised a long investor list into groups of investors with similar profiles then tested a small number of investors within each group to quickly “pulse check” suitability and eliminate whole groups of investors. Through this process, they ultimately decided to leverage equity crowdfunding, where investors had comfort with Charm’s business model, were happy to take early-stage equity risk, and could provide long-term value to Charm as a large team of "champions" willing to spread Charm's story across multiple audiences. Companies can take such a systematic approach to quickly narrow down to a smaller set of investors who are worth dedicating extra effort to. Said Gavriel Landau, co-founder of Charm, “It’s not necessarily true that you need to knock on 100 doors before you find the right investor…it was about finding the right doors to knock on.”

Playing the long-term relationship game

It’s not all about finding the right investor immediately, or even during the current capital raise. Every investor relationship can pay off down the road. Mobile Power provides affordable electricity in the developing world through its MOPO battery rental platform. Mobile Power COO Luke Burras describes how their fundraising team focused extensively on establishing and cultivating investor relationships during their equity raise, recognising that developing trust takes time. “We [told our equity investors] what we were going to do that year, and then [delivered] on it before we came back to them for funding.” This type of trust can create a reinforcing cycle that will continue to support businesses through successive capital raises, each potentially requiring a new set of investors.

Telling the right story

It’s also important that businesses tell investors a compelling story to justify investment. Connected Energy is a provider of provider of smart metering hardware and software platforms for off-grid solar and biogas. For Vijay Bhopal, their Managing Director, the company’s successful seed funding round was due in large part to the demonstrated robustness of the business model. At the pre-revenue stage, the team focused on extensive data collection, early product monitoring, and partnerships documentation. In doing so, the team showed investors that they “were credible and thoughtful in [their] approach.” This story resonated with two micro venture capitalist firms, in particular, who valued Connected Energy’s ability to demonstrate results despite the company’s early stage.

While every company must pursue a capital raise strategy unique to its needs, model, and mission, placing a strong emphasis on understanding investors and engaging them in a compelling and consistent way is critical to almost every successful raise.

Written by Thomas Ewing and Harry Masters, Finance Specialists, Energy Catalyst Accelerator Programme

NRECA International has played many key roles in successful energy access initiatives since it was established in 1962. Today, the team is venturing into new technical assistance relationships with enterprises that are introducing creative and practical ways to finance projects that hope to grow local talent, speed up connecting people to power and boost achievement of electrification targets.

With a partner like NRECA International, young and high-potential energy companies can leverage decades of knowledge, insight, and skills into their operations to reduce the early-stage investment risk to financiers. This form of capacity building is being financed through technical assistance grants by private equity firms who seek to play a role in providing power – specifically renewable power, to developing countries.

Such is the case with an agreement that was struck between three entities: Energy Access Ventures (EAV), a venture capital fund keen on investing in businesses in Sub-Saharan Africa who work on providing power and its benefits to that region; SolarX, an up-and-coming off-grid solar energy developer and financier operating in West Africa, and NRECA International, known for deep experience in developing and implementing national rural electrification programs for more than 50 years. This project was funded by the EAV technical assistance facility, whose donors include the CDC Group’s Grant Facility (CDC Plus), which is funded by UKAid from the UK Government, Fonds d’Investissement et de Soutien aux Entreprises en Afrique S.A.S (FISEA) and Fonds Francais Pour L’Environnment Mondial (FFEM).

SolarX has successfully raised its series A financing round, led by EAV, to fund its business in Mali, Burkina Faso and Ivory Coast. Now, the SolarX team is looking to build capacity and grow its engineering and construction oversight capabilities. To do that, NRECA International was brought in to provide engineering and management capacity-building assistance during construction of SolarX’s first five solar energy projects in Mali. NRECA’s scope included an assessment of SolarX’s technical capacity, quality assurance practices, safety procedures, business model viability, existing capabilities and future plans to strengthen their operations for long-term solar energy projects.

With global COVID-19 travel restrictions in place, NRECA International remotely gathered data and conducted an in-depth assessment SolarX’s technical capacity. The results of this assessment combined with the impact of the pandemic, revealed the need for SolarX to develop and strengthen much of its engineering, procurement and construction services in-house, and making sure these services are in line with industry best practices.

The project was completed in March 2021, and a report was provided to EAV and SolarX, with a detailed report of the company’s technical capabilities, accompanied by a gap analysis and areas for improvement and strengthening. A comprehensive Quality Management Plan was also presented to guide the development of future sites in the SolarX portfolio, promising a clear path for growth.

“Awarding a Technical Assistance contract to NRECA International in tandem with an equity investment with SolarX seemed the best way to ensure success on many levels,” said Vladimir Dugin, Principal at EAV. “These types of partnerships can help mitigate the risks of early-stage investors in volatile solar and mini-grid sectors in African countries and strengthen these companies that have the capacity to be market leaders in the future.”

SolarX hopes to expand into Cote d’Ivoire within the next year. For NRECA International, it is becoming clear that financing technical assistance for small young companies in private-sector rural electrification initiatives can lead to smart growth, making investments more valuable and sustainable.

“By working closely with NRECA International, I’m confident now that SolarX can reach our full potential to provide access to power for people in communities who need it,” said Karim Gammache, CEO of SolarX.

In light of this change in the importance of technology, companies operating in these markets face a number of challenges - from ensuring that the often highly customised customer journeys can be supported by the chosen software, to the technical considerations of tech solutions scaling and growing in an effective manner. These challenges are by no means unique to energy access ventures - indeed they are faced in other last-mile distribution sectors, and across emerging markets. Whilst aggressive growth is a mandatory inclusion in pitch decks from companies, often an understanding of these technological aspects is noticeably absent.

This lack of information is further compounded in the Due Diligence reports undertaken by investors. These reports have traditionally focused on P&L, cash flow and other financial and market-based factors. What they do not include is a detailed understanding of the IT underpinning those companies - including whether the software can scale, if the IT team is ready for the additional load that growth will bring, and issues relating to data security and integrity. 

Using Enable’s experience in the energy-access sector, we have been working with both investors and their portfolio companies in providing analysis and reviews into their technology and IT. These reviews have been key in providing investors with the insights they need to make informed investment decisions, and also in providing the end-clients with the action-focused recommendations and areas that they need to improve on to ensure their business succeeds. 

Impact Investors are undoubtedly aware of the tremendous potential that digital solutions can unlock. By claiming the insights which are there waiting to be understood, they will be able to make better, more informed decisions, and deliver on their lofty ambitions.