Powering the Crowd Into the Future

POWERING THE CROWD INTO THE FUTURE

KEY LEARNINGS & RECOMMENDATIONS

Davinia Cogan, Peter Weston POWERING THE CROWD INTO THE FUTURE KEY LEARNINGS & RECOMMENDATIONS FOR ENERGY ACCESS CROWDFUNDING AND P2P LENDING CONTENTS

BIOS 3 EXECUTIVE SUMMARY 4 INTRODUCTION 6 1 STATE OF THE MARKET 8 2 THE 6 CAMPAIGN ARCHETYPES 12 1. PARTNERSHIP MODELS 15 CASE STUDY: TAHUDE FOUNDATION 16 2. ONE-OFF FUNDRAISERS 17 CASE STUDY: RAFODE 19 CASE STUDY: SOLARIS OFFGRID 20 3. MEGA-CAMPAIGNS 22 4. P2P MICROLENDING 23 CASE STUDY: EMERGING COOKING SOLUTIONS 24 5. ONLINE DEBT-BASED SECURITIES 26 CASE STUDY: SIMUSOLAR 27 CASE STUDY: AZURI TECHNOLOGIES 29 5.EQUITY CROWDFUNDING 31 CASE STUDY: TRINE 32 3 INTERVENTIONS TO CATALYSE FUNDING 34 4 CROWD POWER UPDATE 37 CONCLUSION 39 REFERENCES 41

This material has been funded by UK aid from the UK government; however the views expressed do not necessarily reflect the UK government’s official policies.

Published December 2018 Design: www.dougdawson.co.uk Front cover by C.Schubert BIOS

Davinia Cogan Peter Weston Davinia Cogan is the Programme Peter Weston is the Director of Manager of Crowd Power at Energy Advisory Services at Energy 4 Impact. 4 Impact. She runs the UK aid He manages a team of consultants funded programme, which explores that advises off-grid SMEs in Sub the role of incentives to stimulate Saharan Africa and helps them to donation, reward, debt and equity implement new business models crowdfunding in the off-grid energy and technologies. He is an expert sector in Sub- Saharan Africa and in power, renewables and off- South Asia. Davinia is also a Research grid energy, with over 20 years of Affiliate of the Cambridge Centre for experience as an investor, lender Alternative Finance at Cambridge and strategic adviser, much of it Judge Business School. Davinia in developing countries. He is a joined E4I in 2013 to help launch non-executive director of Thrive their business advisory team in East Renewables, one of the first crowd- Africa, and managed the rollout of a funded investors in small-sized USAID funded programme bringing renewable projects in the UK, and a pay-as-you-go solar to Rwanda. Prior Board Member of Renewable World, to joining E4I, Davinia completed a an NGO which alleviates poverty in Microfinance fellowship in Tajikistan, developing countries through Micro with Kiva, and worked as a consultant renewable projects. Prior to Energy to non-profits and social enterprises 4 Impact, Peter was global head of including the Social Stock Exchange finance and investment for two power in London. She held positions in equipment suppliers: Siemens Wind investment management at ING Power and MAN. He led the European Australia before moving out of the energy lending team at GE Capital mainstream finance sector. She holds and was an executive director at a MA in International Studies from the Westdeutsche Landesbank. Peter has University of Sydney and a Bachelor a BA in Economics and Politics from of Business (Finance, International the University of Warwick. Business) from the University of Technology Sydney.

3 EXECUTIVE SUMMARY

Powering the Crowd into the Future is the fifth and final report in the Crowd Power series and captures the key learnings from three years of research into crowd-sourced financing for energy access businesses and projects. The report captures three years of data, from 2015 to 2017, on relevant campaigns. We provide recommendations for future research and interventions focused on crowd-sourced financing for energy access related businesses and projects. Data demonstrates that crowd-sourced financing for energy access businesses and projects has grown substantially – from $3.4 million in 2015 to $13.7 million in 2017. We anticipate similar growth trends reflected in 2018 data.

Over the course of the three- to receive a financial return,1 provide an explanation of year research period under as well as debt and equity the most orthodox version Crowd Power we have identified based models, where funders of each archetype and that six archetypes relevant to can reasonably expect a in reality models may differ businesses and projects financial return. In general from platform to platform. The crowd-sourcing finance. The terms, crowdfunding models archetypes we identify may six archetypes include non- are considered higher risk or may not reflect their legal investment based models, than debt based models. It definition as per the platform’s where funders do not expect is important to note that we resident financial regulator.

Over the course of the three-year research period under Crowd Power we have identified six archetypes relevant to businesses and projects crowd-sourcing finance.

4 Platform Application to the energy Archetype Model Amount raised type access sector

Non-profits raise funds to Non-investment Partnership Model Donation supplement fundraising, through $5,000 – $30,000 1 based recurring campaigns

Non-profits & businesses raise funds Non-investment Donation, One-off Fundraiser for a specific goal or milestone from $5,000 – $50,000 2 based Reward family and friends

A business raises funds, often in Non-investment the form of pre-sales, to support Mega-campaign Reward $100,000 – $500,000 3 based a specific milestone, from a wide, engaged network

Micro-entrepreneurs or consumers Non-investment raise funds for working capital or an P2P Microlending Debt $20 – $2,000 4 based asset purchase. Often facilitated by a MFI or other financial intermediary.

A business raises a working capital P2P Business Lending loan (often in tranches). The $10,000 – $1 million, and Online Debt- Debt based Debt 5 platform conducts due diligence on per campaign based Securities the borrower.

Business raises investment capital 6 Equity Crowdfunding Equity based Equity from equity platform members, $500,000 – $1 million which receive shares.

We find that each archetype Reward Crowdfunding platforms Transforming Energy Access is unique and that growth contracted by an average of (TEA) programme. TEA is a £65 trends are mixed across the 58% from 2015 to 2017. There million ($83 million) five-year six archetypes. P2P Business were no energy access Equity project designed to support Lending and Online Debt-based Crowdfunding campaigns in early stage testing and scale Securities is the fastest growing 2017, reflecting the lumpy and up of innovative technologies archetype, blooming from inconsistent nature of equity and business models that will less than $100,000 in 2015 to crowdfunding for energy access accelerate access to affordable, almost $10 million in 2017. P2P businesses. clean energy services for poor Microlending also grew steadily households and enterprises, over the period, with around Note especially in Africa. UK 47% year-on-year (YoY) growth. While this is the final report from aid continues to support The Partnership Model, a type the Crowd Power programme, the Energise Africa impact of Donation Crowdfunding, grew the programme will be moving investment platform in the UK, at similar rates over the period. into a second phase – Crowd which facilitates loans to energy The Mega-Campaign and One- Power 2 (CP2) – in the coming access businesses operating in off Fundraiser, common to months under the UK aid funded Sub-Saharan Africa.

5 INTRODUCTION

This report is the final in a series of five reports on crowd-sourced funding for energy-access businesses and projects. Powering the Crowd into the Future refines the key takeaways from the Crowd Power programme. Part 1 highlights market growth trends, Part 2 considers the key crowd-sourcing models relevant to off-grid energy businesses and projects, Part 3 explores the role and impact of interventions by philanthropic funders in the space, and Part 4 gives an overview of Crowd Power and learnings from the programme. Since 2015, Crowd Power has supported over 250 campaigns to raise $4.6 million in funding for energy access businesses and projects.

Part 1 examines trends in including non-investment, data aggregation platform, TAB. crowd-sourced financing debt and equity platforms We also utilise our own data over the three years from the – GlobalGiving, M-Changa, compiled over three years of beginning of 2015 to the end Pozible, Kiva, bettervest, research. of 2017. We use data compiled Energise Africa, Lendahand, from a range of sources TRINE and Crowdcube – and a

Crowd Power has supported over 250 campaigns to raise $4.6 million in funding for energy access businesses and projects.

6 Archetype Model Platform type Case Study Country

Partnership Model Non-investment based Donation TAHUDE Foundation Tanzania

Rafode Kenya One-off Fundraiser Non-investment based Donation, Reward Solaris Offgrid Tanzania

Mega-campaign Non-investment based Reward n/a n/a

P2P Microlending Non-investment based Debt Emerging Cooking Solutions Zambia

P2P Business Lending Simusolar Uganda and Online Debt-based Debt based Debt Azuri Technologies DRC, Kenya, Rwanda Securities

Equity Crowdfunding Equity based Equity TRINE Kenya, Sweden

Part 2 of the report is dedicated is still much to be discovered energy access crowdfunding as to understanding the six in the area of interventions and we announce the second phase of campaign archetypes relevant their impact; Crowd Power really the programme – Crowd Power 2 to energy access businesses just scratched the surface of (CP2). and projects. These archetypes our understanding. This section represent the common features examines the four incentive It is worth noting, for the purposes we observed among successful types we deployed during Crowd of this report we capture data energy access campaigns over Power and shows their different on crowd-sourced finance for the past four years and include: applications across the six energy access businesses and The second section of the archetypes: projects, which occurred on report explores each of these 1. Match funding relevant non-investment, debt archetypes by asking what are 2. Lump-sum contributions and equity platforms. Our focus they, how much can be raised 3. Gift vouchers is on platforms that facilitate using them and who are they 4. First-loss guarantees ‘citizen capital’ transfers – in the suitable for? For each archetype form of donation and investment we include a case study of a Part 3 concludes with learnings – rather than platforms that, business or charity that used from the programme and primarily, facilitate investment the archetype to crowd-source recommendations to funders on for institutional and accredited finance. future research and interventions. investors. While initial coin offerings (ICOs) are an important Part 3 of the report captures Part 4 of the report shares the and burgeoning form of capital our learnings on the role and progress and achievements of raising and have been leveraged impact of interventions designed the Crowd Power programme, by energy firms globally (including to support energy access which wrapped up in mid-2018. some operating in an off-grid businesses and projects to We also share an update on the context), they are beyond the crowd-source financing. There future direction of our work in scope of this report.

7 STATE OF THE MARKET

The first comprehensive analysis of crowd-sourced financing captured the state of the market in 2015, when non-profits and companies raised $3.4 million through non-investment, debt and equity models.2 By 2016, the market had grown to $8.7 million and in 2017 energy access related campaigns raised $13.7 million. While we are yet to compile figures for 2018, we know the total amount raised by energy access related campaigns in the first 6 months of 2018 exceeds the annual figure for 2017. It is clear that crowd-sourced finance is increasingly popular for energy access businesses and projects and the 1market is growing rapidly. Debt models are fast emerging Crowd-sourced Finance for Energy Access as viable financing options Trends 2015 – 2018 for a range of energy access companies and projects and $14m accounted for 96% of all crowd- sourced financing raised for energy access businesses and projects in 2017. P2P Business Lending and Online Debt-based $8.7m Securities are changing the financing landscape for energy access businesses, particularly for those operating pay-as-you- go (PAYG) models with high Eit working capital requirements. $3.4m Debt Businesses utilizing P2P Business Lending and Online Debt-based Reward Securities report that loan Donation amounts are substantial, costs are competitive and fundraising 2015 2016 2017 is fast; there is an additional benefit that it diversifies funding sources for borrowers. P2P Business Lending and Online Debt-based Securities Growth rates are promising; Trends 2015 – 2018 however a more granular perspective on market dynamics is critical to understand the nuances of this market. For starters, not all growth is created equally. Debt based models, $9.4m which include P2P Microloans, P2P Business Lending and Online Debt-based Securities, are the fastest growing within $2.4m the energy access space. Debt models grew five-fold from 2015 to 2017, from $2.5 million to $13.1 million respectively. P2P Business Lending and Online Debt-based Securities raised $100,000 $9.4 million for energy access 2 businesses in 2017, and raised 2 $4.8 million in 2016. Much of this 2 growth can be attributed to a surge in working capital finance provided on P2P Business Lending and Online Debt-based P2P Business Lending and Online Debt-based Securities | 2017 Security platforms such as Kiva, By Platform bettervest, Energise Africa, Lendahand and TRINE. Platform Total Raised

TRINE $2,412,606.50

bettervest $2,332,546.00

Energise Africa $2,160,750.00

Lendahand BV $2,056,067.42

Kiva DSE $390,000.00

$9,351,969.92

9 P2P Microlending also grew average YoY growth of 47%, and in 2017; three businesses substantially, from $2.5 million approximately $500,000 raised raised $3.4 million in 2016. in 2016 to $3.7 million in 2017 in 2017. Donation Crowdfunding This contraction appears to (48% year-on-year [YoY] growth). remains a small percentage of be relatively consistent with Almost all energy access related overall crowd-sourced financing the lumpy nature of equity Micro-lending activity was on the activity, accounting for 4% of crowdfunding deals in the Kiva platform. funds raised. energy access space. In 2015, there was one equity campaign Energy access related Donation In contrast, Equity Crowdfunding by Swedish debt platform TRINE Crowdfunding grew steadily contracted during 2017. Not one (Case Study on pg X), which over the three years since we energy access business raised raised $80,000. began tracking activity, with equity via Equity Crowdfunding

P2P Microlending | Top 5 Countries

PALESTINE

NICARAGUA

KENYA

TANZANIA

LESOTHO

Donation Crowdfunding | Trends 2015 – 2018 Equity Crowdfunding | Trends 2015 – 2018

$3.4m

$510,000 $235,000 $340,000 $80,000 $0 2015 2016 2017 2015 2016 2017

10 Energy access related Reward average campaign size was by Kitui Industries in Kenya, Crowdfunding also contracted smaller than in previous years which raised around $25,000 during 2017. Around 30 One- as no energy-access Mega- to purchase biodiesel water off Fundraiser campaigns were campaigns were launched pumps. In previous years, Mega- launched, however very few during the year. The largest campaigns, which tend to raise managed to reach or exceed fundraiser in 2017 was a Crowd $100,000 to $500,000 at once, their target (5 campaigns). The Power-supported campaign bolstered figures.

Crowd-sourced Financing for Energy Access | 2015 – 2017 by Model

Donation Reward Debt Equity Total

2017 $510,000 $75,000 $13,076,000 $0 $13.7 million

2016 $340,000 $335,000 $4,600,000 $3,400,000 $8.7 million

2015 $235,000 $551,000 $2,539,000 $81,000 $3.4 million

Note: Rounded to the nearest thousand with the exception of the Total, which is rounded to the nearest hundred thousand.

Top 5 Energy Access Companies Crowd-sourcing Finance | 2017

Company Amount Raised Country Platform

Raj Ushanga House $1,197,800 Kenya TRINE

Azuri Technologies $1,161,000 Kenya, Tanzania Energise Africa

SimGas $1,039,213 Tanzania Lendahand

Sollatek $607,986 Kenya Energise Africa, Lendahand

SolarWorks! $474,399 Mozambique Energise Africa, Lendahand

11 THE 6 CAMPAIGN ARCHETYPES

Since we began exploring the role of crowd-sourced finance for energy access businesses and projects, we have observed six campaign archetypes across the thousands of energy access campaigns we analysed. The following section takes a granular lens to relevant energy access campaigns from 2015 to 2017 and provides a description of the archetypes, in addition to case studies from a range of businesses 2and non-profits in the sector. We feature interviews with We draw on these archetypes Debt models are generally product distributors, foundations to outline the different considered lower risk than and financiers that have applications of crowd-sourced equity and non-investment successfully crowd-sourced financing in the energy access models (e.g. donation financing including: Tahude space. Crowd-sourced financing crowdfunding), due to the Foundation (Tanzania), Rafode is often observed under one fact debt capital is inherently (MFI), Solaris Offgrid (Tanzania), umbrella term – “crowdfunding” lower risk than equity GravityLight Foundation (Kenya), – although in reality there are capital and because non- Emerging Cooking Solutions three distinct models: non- investment models are usually (Zambia), Simusolar (Tanzania), investment models, debt unregulated. It is important Azuri Technologies (Kenya, models and equity models. to consider that other factors Rwanda) and TRINE (Kenya). We Each of the archetypes we (e.g. company profile, platform also list relevant platforms to identify falls into one of these integrity and due diligence) allow potential campaign-makers models. It is important to impact the risk profile of to identify the most suitable note that P2P Microlending is individual campaigns. platforms for their needs. more nuanced; although debt is provided to the borrower, The archetypes we observe The six archetypes explored in lenders typically make zero- form a template to understand this section represent clusters interest, and for this reason how crowdfunding and P2P of campaigns with similar we consider P2P Microlending lending can be applied and characteristics. They raised as a non-investment model. leveraged by businesses similar levels of funding, for Non-investment based models and non-profits working to similar purposes, from funders are typically unregulated extend energy access in Sub- with similar characteristics. The and funders do not expect to Saharan Africa and parts of archetypes considered are below: receive a financial return. Debt Asia. With an understanding 1. Partnership Model and equity models (e.g. P2P of these archetypes, we hope 2. One-off Fundraiser Business Lending and Online that businesses, non-profits, 3. Mega-Campaign Debt-based Securities) are accelerators, philanthropists 4. P2P Microlending regulated under existing or and practitioners develop 5. P2P Business Lending bespoke financial regulations.3 an understanding of when and Online Debt-based and how to harness crowd- Securities sourced finance to raise much 6. Equity Crowdfunding needed capital.

13 NON-INVESTMENT DEBT MODEL EQUITY MODEL MODEL

PARTNERSHIP MODEL P2P BUSINESS LENDING EQUITY ONE-OFF FUNDRAISER ONLINE DEBT-BASED CROWDFUNDING MEGA-CAMPAIGN SECURITIES P2P MICROLENDING

PARTNERSHIP MODEL Use: Non-profits raise funds to supplement fundraising, through recurring campaigns

ONE-OFF FUNDRAISER Use: Non-profits & businesses raise funds, for a specific goal or milestone, from family and friends

MEGA-CAMPAIGN Use: A business raises funds, often in the form of pre-sales, to support a specific milestone, from a wide, THE engaged network 6 CAMPAIGN ARCHETYPES P2P MICROLENDING Use: Micro-entrepreneur or consumer, which raises funds for working capital or an asset purchase. Often facilitated by a MFI or other financial intermediary.

P2P BUSINESS LENDING Use: A business raises a loan (often in a series), usually in the form of working capital. The platform conducts due diligence on the borrower.

EQUITY CROWDFUNDING Use: Business raises investment capital from equity platform members, which receive shares.

14 1 PARTNERSHIP MODEL What is the MODEL Partnership NON-INVESTMENT MODEL Model? This model allows RELEVANT PLATFORM TYPE non-profits and community DONATION organisations to become ‘accredited’ platform members, giving them the opportunity Who to raise funds periodically on is the the platform. The fundraiser Partnership is usually a local grassroots Model suitable organisation, sometimes with for? The Partnership Model is most an international network of frequently used by non-profits. donors, but typically these are Social enterprises rarely utilise this relatively small organisations this model, which could indicate form with modest operating budgets. an underutilised opportunity of donation While the organisation raising for social enterprises to raise crowdfunding for funds is responsible for outreach capital, particularly in the business projects that during the campaign period start-up phase of operations. have a direct impact on and building a donor based, the Demonstrating milestones communities, such as market platform also plays a significant and impact implies the model testing a prototype. Currently, role in attracting donors. may not be a natural fit for the main users of this model are Organisations will often focus social enterprises with a long locally based non-profits and their efforts on 2-3 campaigns lead-time to making sales and grassroots organisations with an throughout the year and use demonstrating impact (e.g. international donor network of donation crowdfunding to companies in initial R&D phase). some kind. supplement their income from Social enterprises could utilise other donors and grants.

How much can you raise? Grassroots organisations typically raise funds on a ‘project’ basis and put together a campaign for a specific undertaking, such as distributing 1,000 solar lights to families in refugee camps. Therefore the amount raised varies widely, Relevant Platforms although most campaigns tend GlobalGiving to have targets of $5,000 to Raisely, JustGiving, $30,000. It is important to keep Generosity by Indiegogo, GiveNow in mind that the Partnership Model is used for recurring fundraisers and organisations often run 2 to 3 campaigns per year. The average campaign size on the GlobalGiving donation platform, which operates a Partnership Model, is $9,000.

15 CASE STUDY TAHUDE FOUNDATION Photo: Tahude’

COUNTRY: TANZANIA PLATFORM: GLOBAL GIVING RAISED: $35,000 (ACROSS MULTIPLE CAMPAIGNS)

Tanzania Human Development Foundation be accepted on the GlobalGiving platform. To join, (TAHUDE Foundation) is a non-profit organisation TAHUDE Foundation was required to raise $5,000 working in rural Tanzania, headquartered in Arusha. from 40 different contributors in a very short span It is a locally led community organisation founded of time (about a month) – but we did it! With time by Tanzanian individuals whose ambition is to TAHUDE entered several crowd funding campaigns utilise ‘the talents of men and women who wish to and has raised over $35,000 so far. effect positive changes in the lives of people’. The organisation connects implementation partners What have you achieved with funds raised? with the communities they support. The funding has really allowed us to scale. At the beginning TAHUDE Foundation was just working Can you tell us about the status of TAHUDE in a small village in rural Tanzania, called Gongali Foundation prior to joining GlobalGiving? Village. But through the successful campaigns on TAHUDE Foundation did not have a track record GlobalGiving we have raised funds to reach more before joining GlobalGiving, it was just a registered than 3,000 people with our services. We provide non-profit. The organisation could not solicit solar lanterns, biogas and water filters in rural funds from potential sponsors due to an absence communities. of a track record, which is why we turned to GlobalGiving. Would you suggest donation crowdfunding to other non-profits looking to raise money? How did you go about deciding to partner Yes, I am strongly convinced that crowdfunding is with GlobalGiving and to use crowdfunding the best approach to support start-up organizations to raise funds? and those who are determined to impact the lives We found GlobalGiving online and were impressed of many people. We are so grateful to GlobalGiving by what they do, so we decided to partner with and its partners, and encourage other organizations them. It was challenging to get an opportunity to to consider joining the GlobalGiving platform.

16 2

What ONE-OFF FUNDRAISERS is a One-off MODEL Fundraiser? NON-INVESTMENT MODEL A One-off Fundraiser can be held on a donation RELEVANT PLATFORM TYPES or reward crowdfunding platform DONATION and is a way for entrepreneurs to REWARD formalise the process of raising operates funds from their family, friends and where and broader network. Early-stage the campaign- companies typically use one-off backers (e.g. the fundraisers to raise seed capital founders network is for a proof of concept. Unlike located). Campaigns supported typical reward campaigns that rely by Crowd Power raised between on pre-sales of a product to attract $5,000 and $50,000 from from funders, these campaigns rely their networks, inclusive of local largely on the founders’ network match funding or a lump-sum currency into and personal connection to secure contribution from UK aid. hard currency. funding. If the campaign is held on a reward crowdfunding platform, Who are One-off Companies with the reward is often intangible such Fundraisers suitable for? international management as a thank you on the campaign- A range of companies (local and teams are more likely to use makers website. international) has carried out platforms that target funders in successful One-off Fundraisers. advanced economies – mostly How much can you raise? Successful campaigns by local in Europe and the USA. These The amount raised is usually entrepreneurs have been in platforms have limited payment a reflection of the capacity of countries with a developed local options (some only accept the network of the founders to crowdfunding market, such as credit cards), which restricts contribute, and the campaign Kenya and South Africa, where the participation of businesses target should be set to align with payment mechanisms like with local teams and networks. expected contributions from mobile money are widely utilized. There are several examples of the network. There is a general Platforms in these countries fundraisers that have taken a misconception that ‘the crowd’ focus on local market users and ‘dual-listing’ approach, listing a miraculously appears when a are therefore well suited to local campaign on two platforms – one campaign is posted on a platform. businesses. Several platforms local platform (e.g. M-Changa, While this may be the case for integrate features that appeal to Kenya) and one in an advanced debt and equity based models, international donors also, such as economy (e.g. 1% Club, the where platforms conduct due the conversion of monetary units Netherlands). diligence and have a strong membership base, it is far less common for non-investment models like donation and reward Relevant Platforms crowdfunding, where funding is Donation Crowdfunding often motivated by a connection to M-Changa, StartSomeGood, Charidy the individuals raising funds. Our analysis of eight energy access-related One-off Fundraisers on donation and reward crowdfunding platforms over the past three years shows that the absolute majority of funders were personally connected to the founders raising capital. As a result Reward Crowdfunding we find the amount raised depends Indiegogo, Pozible, KissKissBankBank, on the market in which the platform Kickstarter, Thundafund

17 One-off Fundraisers for Energy Access | 2017

Platform Campaign Country Amount Raised

M-Changa Kitui Industries Kenya $30,000

M-Changa Rafode MFI Kenya $18,300

Launch Good Lighting Up Gaza Palestine $8,637

Eco Charcoal / Kisigua Tree M-Changa Kenya $5,472 Farm

StartSomeGood Shiriki Hub Rwanda $1,055

WHEN CAMPAIGNS FAIL

In late 2014, infoDev piloted a ‘crowdfunding During Crowd Power we found the number boot camp’ for entrepreneurs at the Kenya one factor influencing success for one- Climate Innovation Centre (KCIC) in Nairobi off fundraisers on donation and reward and supported six businesses to take their crowdfunding platforms is the capacity of the campaigns live (chosen from 73 incubatees at fundraisers’ network to contribute. This means the KCIC).4 All campaigns were to be launched the chosen platform, campaign target and on Indiegogo, a USA-based platform, and outreach strategy should be based on the the entrepreneurs were selected based on funders – where they are based, how much a range of criteria, including ‘the company’s they are likely to contribute and how they wish management team, legal status, maturity, to pay (e.g. mobile money, credit card). business model (including value chain), current accounts, capital needs, crowdfunding The infoDev pilot appeared to be based around aspirations, and social media presence’.5 the ‘Mega-campaign’ archetype, although businesses were better positioned for a ‘one-off While the above criteria may be plausible fundraiser’ on a Kenya-based platform. One-off indicators of business success, they may not fundraisers are focused on the entrepreneurs’ be useful proxies for crowdfunding success. network – the target and platform are set in All campaigns failed to reach their targets and alignment with this. Philanthropically motivated several of the selected companies did not match funding or lump-sum payments can be launch their campaigns following the failure of another effective way to catalyse funding into their colleagues’ campaigns. campaigns that raise seed capital from the entrepreneurs’ family, friends and network.

18 CASE STUDY RAFODE Photo: C.Schubert

COUNTRY: KENYA PLATFORM: M-CHANGA RAISED: $18,300

Rafode is a non-deposit taking Micro-finance How did you go about planning for the institution (MFI) based in Kisumu, Kenya that campaign? What was involved in launching and serves rural low-income earners. Rafode is a running a campaign? cashless bank, relying on mobile money to We contacted our donors via SMS and WhatsApp disburse loans and receive repayments. It supports and directed them to the website. We also sat down rural low-income earners. It supports Micro and as a management team and came up with a list of small businesses, energy access in off-grid rural potential contacts, emailing and calling to ask for communities and smallholder farmers through contributions toward the fundraise. the provision of loans to access farm inputs and improve indigenous food production. What did you achieve with the funds? The funds were important and enabled us to serve Can you tell us about the status of Rafode prior an additional 500 clients. The repaid funds are to launching your campaign on M-Changa? revolved to support more customers to access Rafode launched the renewable energy programme solar lamps and energy efficient cook stoves. in 2013, with funding from Hivos, a Dutch non- Currently Rafode is working with over 2,500 clients profit and in 2016 the US African Development who have taken out loans for renewable energy Foundation funded the program to expand into products. other areas. The programme provides loans for solar home systems, pico solar products and Would you utilise crowdfunding again? energy efficient cookstoves. I would utilise crowdfunding again, but the challenge is the limited amount we can fundraise. We raised about $18,000 including match funding, but we need to raise at least $200,000 to build our renewable energy programme.

19 CASE STUDY SOLARIS OFFGRID Photo: Solaris

COUNTRY: TANZANIA PLATFORM: KISSKISSBANKBANK RAISED: €10,000 ($11,667))

Solaris Offgrid develops pay-as-you-go (PAYG) How did you go about planning for the solutions to scale up affordable and sustainable campaign? What was involved in launching and energy access in off-grid areas. The company running a campaign? is one of the leading providers of cloud-based There was video production and editing, PR and PAYG software, enabling solar manufacturers social media activity. We had one person working and distributors to integrate and track customer on the campaign, part-time, from 2 weeks prior to repayments. In 2014, Solaris Offgrid launched the launch through till the end of the 40-day long a reward crowdfunding campaign on French campaign. The campaign was funded by close to platform, KissKissBankBank. 100 contributors – about two-thirds were friends and family and the remaining third came from Can you tell us about the status of Solaris people visiting the KissKissBankBank platform and Offgrid prior to launching your campaign on from people belonging to the networks of the first KissKissBankBank? donors who were sharing their donation on social Back in 2014, Solaris Offgrid – the parent company media. We ended up raising more than our €8,000 of Solaris Tanzania – was just a small project called ($9,040) target, and over performed by 27%. We Eternum Energy. Our three co-founders carried out chose KissKissBankBank because it was one of the project, with no employees, and only €50,000 the most popular in France and is social impact ($56,500) in grant funding from the Kenya Climate business oriented. Innovation Centre (KCIC). We were able to build a complete pilot around the newly formed “Pay-As- What did you achieve with the funds? You-Go Solar” industry. We decided to raise funds We managed to produce our first 100 units, buy a through crowdfunding because it is complicated to motorbike, hire our first technician and run market finance a pilot through traditional capital providers, studies in Tanzania for a few months. Without such without track record. funding we wouldn’t have been able to afford the

20 pilot and thus wouldn’t have built Solaris Tanzania. Photo: AngelList We have now installed over 3,000 household solar systems and are supported by an ecosystem of over 100 people in Tanzania.

Would you utilise crowdfunding again? Two years after our KissKissBankBank campaign we used Swedish P2P Business Lending platform, TRINE, for a debt campaign of €50,000 ($58,333). We are considering using a similar approach for an amount 6 to 10 times larger. While we are grateful for the funds collected during the reward campaign, and it was pivotal to the growth of our business, we would not revisit reward crowdfunding again given the amount of time it requires to raise such a limited amount – only €10,000 ($11,667). It takes as much effort to raise from professional investors, but for ticket sizes of hundreds of thousands of euros!

The campaign was funded by close to 100 contributors – about two-thirds were friends and family and the remaining third came from people visiting the KissKissBankBank platform

21 3 MEGA-CAMPAIGN What is a MODEL Mega- NON-INVESTMENT MODEL campaign? The most commonly RELEVANT PLATFORM TYPE known form of crowdfunding, REWARD Mega-campaigns in the energy access space seek to replicate the success of technology campaign- driven crowdfunding campaigns maker agrees that raise funds through pre- to ship the final sales – these funders have been product to the funder at described as ‘early adopters an agreed point in time – it is going shopping’.6 Often funders important for those considering are from beyond the campaign- a campaign to calculate the makers’ direct network and are costs associated with delivering usually directed to the campaign the reward. technologies through the campaign-makers’ in-house and outreach activities and/or Who are Mega-campaigns own their intellectual the platform itself. Successful suitable for? property, they are each campaigns are those that have There are few case studies of headquartered in Amsterdam an innovative, novel product successful Mega-campaigns in and London, respectively, they and technology that appeals the energy access space, which had a well-developed outreach to, largely, advanced economy makes it difficult to analyse strategy and quality pitch based campaign-backers, the profiles of successful materials during the campaign combined with strong outreach campaigns. Between the two period. In reality though, few materials and activities. In the companies that have raised energy access companies social impact space, rewards funding successfully, there are are suitable for this type of that utilise a buy one-give one a number of commonalities crowdfunding and the model model are popular. For example, – both developed innovative offers limited opportunity to a campaign-backer may pay replicate or scale. $100 to purchase two solar lights, one for themselves and one for a user in an off-grid community.

How much can you raise? These campaigns are rare and difficult to scale and Relevant Platforms replicate; over the past 5 Reward Crowdfunding years, two companies in Indiegogo, Kickstarter the energy access space – WakaWaka and GravityLight Foundation – have raised capital successfully through a Mega-campaign. Campaigns usually raise between $100,000 and $500,000 per campaign, although both companies have used Mega-campaigns multiple times, raising over $1 million each through the model. Given Mega-campaigns are based on honoring a pre- sales arrangement – where the

22 4 PEER-TO-PEER (P2P) What are P2P MODEL Microloans? NON-INVESTMENT MODEL P2P Microloans are small loans to individuals RELEVANT PLATFORM TYPE or groups that are funded by a P2P LENDING group of individual borrowers that lend ‘loan-parts’ to a Direct borrower through a microlending P2P platform (e.g. Kiva). Microloan Microlending borrowers can post loans platforms therefore directly onto a platform (e.g. tend to operate a Zidisha) – true P2P lending ladder system of lending, – although this model is less where loans start small (e.g. common in the emerging $20) and gradually increase, market context. The typical for subsequent loans, as a P2P microloan model relies on credit record is established. P2P financial intermediaries, such 2. Working microlending platforms rely as microfinance institutions capital more on the credit assessment (MFIs), to originate loans, for Micro- and loan terms of their financial which are then funded through entrepreneurs. Where intermediary partners that a partnership between the a micro-entrepreneur, such originate loans. The average loan financial intermediary and the as a distributor of pico-solar size on microloan platform Kiva P2P platform. The financial products or energy efficient is approximately $250. intermediary usually submits the cookstoves, borrowers funds loan to the P2P lending platform, Who are P2P Microloans to purchase inventory. including the borrower’s profile suitable for? and loan terms, when it is then These applications are useful in In the energy access context, vetted by the platform and certain situations. For example, P2P Microloans have two main posted live. Microloans are early-stage companies may applications: often posted to the platform choose to offer consumer 1. Asset-financing for post-disbursement so funds financing to their customers customers. Where a P2P raised on the platform reimburse through a P2P Microlending microlending platform is the financial intermediary that platform. However, there are used to raise funds for a initially provided the loan. P2P limits to the scalability of this borrower to purchase an microlending platforms often model given the administrative asset such as a solar home have a philanthropic leaning and burden of posting individual system or energy efficient lenders may earn zero interest loans to the platform, along with cookstove. (like on the Kiva platform) to the small size of the loans. avoid financial regulation on interest-bearing instruments.

How much can a borrower raise? Relevant Platforms The amount raised via P2P DEBT microlending platform varies Kiva, Milaap, Zidisha from $20 to over $2,000. Microloan platforms that operate through financial intermediaries tend to have larger loan sizes than those on direct P2P Microlending platforms, which don’t have an in-country intermediary (or representative) to assess credit worthiness.

23 CASE STUDY EMERGING COOKING SOLUTIONS Photo: Emerging Cooking Solutions Zambia

COUNTRY: ZAMBIA PLATFORM: KIVA RAISED: $121,100

Emerging Cooking Solutions (ECS) is a social Who are the borrowers you work with? enterprise, based in Zambia, and sells solar home We mainly work with rural communities, both systems, clean cook stoves and sustainable fuel groups and individuals. Many are farmers, others pellets. ECS targets low-income populations in are teachers in rural schools. We work with both urban areas, aiming to convert them from charcoal men and women, in about equal proportions, as to sustainable fuel pellet cooking. ECS distributes well as many young adults. We typically market our Mimi Moto cookstoves and Greenlight Planet products by participating in events such as farmer products. trainings or savings group meetings, where people have already congregated. We light up our stoves, How did ECS become involved in P2P lending? often cook some food as well, and show the solar Since our company was founded, we have products. Most of the time, it is the group’s first struggled to balance the need to provide exposure to clean cooking and renewable energy consumer financing – since very few people can for the home. buy our products upfront – while also saving precious working capital. We heard about KIVA at How do you explain to borrowers that their loans a conference and applied to become a partner. are funded on a P2P lending platform? In essence, the KIVA partnership has increased Most of our customers are financially excluded. our working capital, which has meant that we can They do not have a bank account, nor a extend favorable, interest free, financing to our smartphone and they live a life far away from the customers. internet. It is therefore not always easy to explain the concept of crowdfunding or P2P lending, but it often helps when we show pictures of some of the lenders and explain that it is similar to a group loan (a concept people are familiar with) except that it is a group of people lending rather than borrowing.

24 What are the advantages and limitations of P2P We struggled tremendously and seriously microloans? considered phasing out these loans due to the Mobile money has changed our life as a company. administrative burden. We have now invested Now all our transactions are cash-less, electronic, considerably in creating integration between this and directly and accurately tied to the right system and our accounting platform. By doing so, customer from the moment of payment, through we can create a similar automated process for KIVA our Management Information System (MIS). Before loans as well. So nowadays, the administrative this, we struggled to know where some payments burden of managing loans is much less and at an were coming from, which created a lot of confusion. acceptable level.

We struggled tremendously and seriously considered phasing out these loans due to the administrative burden. We have now invested considerably in creating integration between this system and our accounting platform.

25 5 P2P BUSINESS LENDING & ONLINE What is P2P DEBT-BASED SECURITIES Business Lending? MODEL P2P Business Lending DEBT BASED MODEL is where a business borrower obtains a loan from a group of RELEVANT individual investors via a P2P PLATFORM TYPE Business Lending platform. P2P LENDING The borrower typically has a demonstrate contractual agreement with the adequate platform, which acts on behalf of servicing and sales investors. Loans can be secured history. Currently Kiva is or unsecured. In the energy the only platform providing access sector, solar home such loans. Initial loans systems and other inventory is are $10,000 to $50,000 working often used to secure the loan. and subsequent loans are capital Loans may rank senior, meaning $100,000. loans are they take priority over other 2. Commercial working intended for earlier unsecured debt, or it could capital facilities. Facilities stage companies and be used to raise mezzanine or of $300,000 to $7 million, allow borrowers to establish a subordinated debt. typically raised in tranches track record with a debt provider, of $100,000 to $1 million. which can be leveraged to raise What are Online Debt- debt from a P2P Business Lending based Securities? Borrowing is usually in hard currency, at commercial or Online DBS platform. Online Online Debt-based Securities rates (10% p.a. – 15% p.a.). DBS platforms are suitable for (DBS) are typically self-issued Online DBS may be issued companies that have reached bonds sold at a fixed interest and sold to investors. sufficient scale and require rate to retail and institutional meaningful sums (typically a investors via an online platform. Who are P2P Business $500,000 – $1 million facility). In the energy access context, Lending and Online Debt- These are usually companies platforms act as a financial based Securities suitable with a 2 – 3 year track record, a intermediary – originating the for? robust back-end system tracking loans and performing due These loans are suitable for customer repayments and a diligence on borrowers – before companies with a proven track sound repayment rate (e.g. low selling what are effectively record that can demonstrate delinquencies) on the underlying ‘business bonds’ to platform loan servicing. Zero-interest portfolio. members. Platforms are subject to financial regulation and borrowers are subject to high levels of due-diligence and disclosure. Relevant Platforms DEBT How much can a borrower Kiva Direct to Social Enterprise (DSE) raise through these instruments? Energy access companies accessing finance through P2P Business Lending or Online DBS have two options when raising capital: 1. Zero-interest working capital loans. Loans of Online Debt-based Securities $10,000 to $100,000 to bettervest, Energise Africa, social enterprises that can Lendahand, TRINE

26 CASE STUDY SIMUSOLAR Photo: Simusolar

COUNTRY: UGANDA PLATFORM: KIVA DIRECT TO SOCIAL ENTERPRISE (DSE) RAISED: $50,000

Simusolar provides and finances productive use How did you hear about the Kiva DSE pilot? technologies to off-grid businesses in Sub-Saharan I had heard about it as I volunteered with Kiva at Africa. Energy-efficient equipment, such as solar one point and have followed their work. Diligence irrigation systems and fishing lights, is designed to was thorough, with numerous follow-up questions meet the needs of rural smallholder farmers and about our funding plan, risks, and risk-mitigation fishing communities. plans. The process was conducted via email with document sharing. Can you tell us about the status of Simusolar prior to launching your campaign on Kiva? How has the campaign impacted the business? Simusolar had proven interest from funders, and What financing gap (if at all) does the Kiva DSE impact in the market, with the help of a prior grant address? from the DOEN Foundation and investments from The campaign was critical in allowing us to the founding team and friends, but the ability to continue to serve the market during the early grow was limited by a lack of working capital. stages. Funds were used to backfill working capital for loans we made to low-income clients to How did you go about planning for the purchase solar fishing equipment and solar water campaign? What was involved in launching and pumps. The funds freed up capital to support staff running a campaign? and operations. More importantly, the funding was We shared it on personal and professional social a stepping-stone to scalable commercial sources media: Facebook, Linkedin, and Twitter being the of finance, from other platforms that offer larger primary vehicles. Facebook had the strongest working capital facilities through the issue of impact as Marianne, our CEO, has many friends and securities to investors. Without Kiva, I don’t know followers. that we’d have been able to make that step. The DSE pilot is a critical stepping-stone.

27 Where is Simusolar at in the fundraising journey? Photo: Simusolar’ Will you utilise P2P lending again? We have signed loan agreements with other P2P Business Lending and Online DBS platforms Lendahand and TRINE to date. We are in the due diligence process with a large institutional investor for convertible securities, a precursor to equity. We would use Kiva again for pioneering products and markets – the high-risk areas that are harder for us to finance commercially. Loans via P2P Business Lending and Online DBS platforms are slower than some other sources, but the availability of funds makes up for it. Also, we appreciate the educational component of it – the fact that it allows a wide audience to learn about the ways businesses can address social issues.

The campaign was critical in allowing us to continue to serve the market during the early stages. Funds were used to backfill working capital for loans we made to low-income clients to purchase solar fishing equipment and solar water pumps.

28 CASE STUDY AZURI TECHNOLOGIES Photo: Azuri Technologies’

COUNTRY: KENYA, TANZANIA PLATFORM: ENERGISE AFRICA, LENDAHAND CAMPAIGN TYPE: DEBT RAISED: £2 MILLION ($2.56 MILLION) ACROSS MULTIPLE CAMPAIGNS

Can you tell us about the status of Azuri Can you tell us about your activity on impact Technologies (Azuri) prior to launching your first investment/debt-based security platforms campaigns? to date? Azuri launched its first campaign in 2017 and since Azuri and our local distribution partners have then we have partnered with platforms TRINE, been using lending platforms to unlock scalable Energise Africa, and Lendahand to raise over £2 capital and supply pay-as-you-go (PayGo) solar million ($2.56 million). These funds have enabled home systems to off-grid households in Africa Azuri to deliver clean energy to over 100,000 on a commercial basis. From this, we are able to people across sub-Saharan Africa. Azuri is an manufacture a solar home system for less than the innovative company not just with our technology cost of the kerosene lamps and the mobile phone but also in finance. We previously developed charging fees that it replaces. Access to alternative financial solutions to fund our business through finance has allowed Azuri to remain at the forefront private investment and debt facilities, including of the PayGo solar sector. our innovative off-balance-sheet debt financing program. Since Azuri began in 2012, we have sold over 150,000 systems in 12 countries across sub- Saharan Africa and generated over 5,000 jobs throughout the region.

29 How has access to capital through platforms like What are the future plans for Azuri in terms Energise Africa, Lendahand and TRINE impacted of raising finance? Would Azuri ever consider Azuri’s performance and growth? other forms of alternative finance such as equity Having access to capital through lending platforms crowdfunding? like Energise Africa, Lendahand and TRINE has Azuri is a pioneer in the pay-as-you-go (PayGo) enabled Azuri to scale rapidly. From these funds, solar space and a thought leader in the we are able to build our solar systems at a rapid development of innovative financial solutions. As pace and deliver them to market. Azuri has a company, we have explored alternative finance delivered solar home systems to 12 countries and will continue to do so to stay at the forefront in sub-Saharan Africa and changed more than of the sector. Scalable capital is essential for 750,000 lives in the process. Our innovative accelerating growth, developing new technology approach to financing ensures the cost of clean and maximising social impact. energy is affordable for the millions who lack access. Crowd-sourced finance is providing access to capital that helps drive the transformation of rural Africa and enables retail investors to support the sector while making a return on their investment.

Azuri has delivered solar home systems to 12 countries in sub-Saharan Africa and changed more than 750,000 lives in the process.

30 6 EQUITY CAMPAIGN What is Equity MODEL Crowdfunding? EQUITY BASED Equity Crowdfunding is the sale of securities, usually issued RELEVANT PLATFORM TYPE by a start-up, to investors via an EQUITY equity crowdfunding platform. The platform acts as a fiduciary and conducts due diligence on Who potential investees. Platform is Equity members, who may be individual Crowdfunding or institutional investors, suitable for? The regulatory treatment purchase shares via the platform. of Equity Crowdfunding is How much can a company one of the biggest barriers to raise? participation for off-grid energy companies. Companies looking The UK has one of the most to raise equity via crowdfunding developed equity crowdfunding typically need to have an entity markets worldwide and the domiciled in the country where top 3 equity crowdfunding the equity platform is based, platforms globally (Crowdcube, such as in the UK or Europe. Seedrs, Syndicate Room). In There are currently few equity these markets, the typical raise crowdfunding platforms based is usually somewhere between in Sub-Saharan Africa, although $500,000 and $1 million. The anecdotally we understand average campaign size on regulators in some East African the world’s largest platform countries are open to the idea. Crowdcube was $900,000 Apart from getting over the in 2017. Few off-grid energy regulatory hurdle, successful companies have raised funds fundraisers tend to have a novel through this method – six product, own their intellectual equity campaigns have been property and have a compelling successful in the sector and narrative. the average amount raised is $450,000 per campaign.

Relevant Platforms Crowdcube, Seedrs, Syndicate Room, OurCrowd, Uprise Afric

31 CASE STUDY TRINE Photo: TRINE

COUNTRY: SWEDEN PLATFORM: FUNDEDBYME CAMPAIGN TYPE: EQUITY RAISED: €70,000 ($79,000)

TRINE is a Online Debt-based Security platform How did you go about planning for the that facilitates loans to off-grid solar companies campaign? in Sub-Saharan Africa. In December 2015 they We planned the campaign in-house and got a launched an equity crowdfunding campaign as a professional videographer to make a video for the proof of concept, before launching their platform in campaign. In order to reach the campaign goal February 2016. TRINE has raised over $10 million for (€30,000/ $33,900) we needed a convincing story off-grid energy businesses in the two years since and narrative, as well as good marketing materials their launch. – like a video, infographics etc.

Can you tell us about the status of TRINE prior to What did you achieve with the funds? launching the campaign on FundedByMe? We ended up overfunding in 24 hours and We had been working on the idea for a bit over a ultimately raised €71,000 ($80,234). These funds year. At that time we were a team of five people were invested into a Special Purpose Vehicle (SPV) and the plan was to test the market with a simple owned by TRINE, which lent to the borrower RVE. way of investing, without coding and launching our SOL to implement a solar project in Kenya. As the own platform. FundedByMe was our first choice as borrower repaid the loan, investors were repaid. they operate in Sweden and have a big crowd that The successful funding was for us the start of the invests in different campaigns. Our objective was real TRINE product and gave us the needed validity to see if, and how fast, our campaign gets funded to raise a seed round in order to build the product to decide if we should continue with that specific and company. business idea. And the campaign went very fast; it was fully subscribed to after less than 24 hours.

32 Would you recommend equity crowdfunding to other start-ups looking to raise capital? Equity crowdfunding is a good way for start-ups to raise capital where building a product for public use as you not only get equity capital, but ambassadors for your business that help you reach out to more early adaptors. In our case though we did not raise equity for the company (TRINE), we used the equity portal FundedByMe in order to raise money for a loan to a solar company. The equity investment was ultimately in the SPV, which provided the loan. So this was really a quasi-equity product in the end. If there would have been a platform where we could have raised debt easily for the campaign we would have preferred that – but this was a work around.

We ended up overfunding in 24 hours and ultimately raised $80,234. These funds were invested into a Special Purpose Vehicle (SPV) owned by TRINE

33 INTERVENTIONS TO CATALYSE FUNDING

Since 2015, the Crowd Power programme has co- funded over 250 campaigns with around £400,000 ($513,000) in grant funding from UK aid. Funding has been deployed using four main intervention types: match funding, lump-sum contributions, gift vouchers and first-loss guarantees. As the Crowd Power programme was intended to be an experimental programme, testing various intervention types on different platforms was an important component of the design. We assessed the crowd’s appetite for various interventions and found preferences were correlated with the platform 3archetype. Interventions explained when 50% of the campaign provided by a donor or an Match Funding target has been reached. investor, who agrees to bear first Where a funder matches loss in an investment, in order to donations or investments from Gift Vouchers catalyse the participation of co- the crowd. Funds are usually Often used to attract new investors that otherwise would matched dynamically (i.e. live) platform members, this may not have entered the deal. for a specific window of time be in the form of a coupon or up to a particular threshold, code, which can be redeemed We find the archetype used by for example 25% or 50% of the upon investment (e.g. a bonus the crowd-investor determines campaign target. investment of $50, when you the preferred incentive type. invest $200) or an electronic The following table captures Lump-sum contribution voucher with a specific value results from an Energy 4 Impact A one-off lump-sum donation (e.g. $25). survey of over 900 respondents, or investment into a campaign. and in-person interviews where The payment may be linked to a First-loss Guarantee aggregate quantitative data was funding milestone, for example A socially- and environmentally- unavailable. a $10,000 contribution is made driven credit enhancement

Lump-sum First-loss Crowdfunding Archetype Match funding Gift Vouchers contribution guarantees

Partnership Model

One-off Fundraiser

Mega-campaign*

P2P Micro-lending

P2P Business Lending and Online Debt-based Securities

Equity

* Data not available for this campaign archetype. This is an assumption based on data from respondents that contributed to One-off Fundraisers on reward crowdfunding platforms, combined with historical utilisation of match funding during Mega-campaigns

We find the archetype used by the crowd-investor determines the preferred incentive type.

35 Interventions were not applied controlled manner (rather than lump-sum payments to close under controlled conditions, the relatively ad hoc applications campaigns, particularly for meaning many variables were to date) to test the impact of One-off Fundraisers and Equity at play (e.g. campaign target, specific interventions. Crowdfunding could also be investment terms, seasonality), explored, in addition to the role making it difficult to ascertain Future interventions in crowd- of the co-funders brand in market the impact of these mechanisms sourced finance for the energy- signaling. For example, does a in isolation. The nature of crowd- access sector could look to lump-sum investment from a sourcing is such that no two explore new incentive types, venture capital fund decrease campaigns are alike – funding beyond the four described time to fund and/or increase the rates vary depending on the above. Online DBS platform, average investment amount? time of year and it is difficult TRINE, has experimented with There is still much to be explored to stabilise all variables (e.g. ‘bonus interest’ for individual and understood with respect campaign timing, campaign investments of €20,000 to deploying interventions in a target, platform, rate of return, and €50,000 during some meaningful way – both in terms of company risk rating, country, campaigns. Our analysis of value-for-money and the impact impact) to assess the impact of a the market shows outstanding of the intervention on campaign given incentive type. loans to off-grid companies are success (as well as their role in denominated in hard currency long-run business success!). Future research into this area (GBP, EUR, USD), while the of financing could focus on income servicing these loans Top 3 Recommendations intervention design with the aim is typically denominated in for Future Research of implementing more controlled local currency. Funders looking 1. Invest in research design. experiments; for example to support the role of crowd- Reduce and control for tracking the performance of sourced financing in the energy variables as best (and as different tranches (of the same access sector could support practical) as possible. Thorough size, with the same terms) of the creation of local currency intervention design allows a loan by one borrower and lending facilities. Possible platforms and funders to test applying a series of different interventions include funding the impact of different funding interventions. The data we set-up costs and/or providing a approaches on the crowd’s captured on interventions during partial subsidy to local currency behavior and assess value-for- the Crowd Power survey is borrowers (in the form of a money. based on recall, thus it would reduced interest rate). 2. Test actual vs. claimed be interesting to test this in investor behavior. Test the comparison to actual user There is also potential to explore crowd’s actual behavior behavior – perhaps through the the four existing interventions through the use of controlled use of simulations or by tracking outlined above in a more simulations to compare investor/donor behavior through granular fashion by examining survey responses to a real-life the use of codes. A number of the impact of match funding environment. archetypes, most notably P2P at particular intervals; for 3. Test more interventions and Microlending, P2P Business example, is match funding more existing ones in new ways. Lending and Online Debt-based effective when applied from Experiment with existing, Securities, are reaching sufficient the inception of the campaign and create new, incentive scale in the energy-access as a cornerstone investment or types to better understand market, allowing interventions as a bridge at the 50% raised the impact and value-for- to be deployed in a more milestone. The application of money proposition of different interventions.

36 CROWD POWER UPDATE

Crowd Power began in April 2015 and aimed to research the role of crowdfunding in the off-grid energy sector. Crowd Power has supported over 250 energy access related crowdfunding campaigns raise close to $4.5 million. UK aid provided £400,000 ($513,000) as direct support to energy access campaigns, in addition to budget to support the 4research agenda. £400,000 deployed 252 campaigns 29 countries Top 3 Countries – Crowd Power supported Kenya, Tanzania, Direct Support Zambia By Campaign Type

300,000+ Co-funding 120+ jobs 56,000+ tonnes individuals with leveraged 6X created CO2 reduced access to clean private capital energy

Funds were deployed through 1. To support early-stage start- delivers the most value-for- four intervention types: ups raise seed capital from money when applied at around 1. Match funding. Funder their networks via donation 25% of the campaign target. matches donations or and reward crowdfunding 2. The ‘multiplier’ on funds – investments from the crowd platforms. the amount the incentive 2. Lump-sum contribution. 2. To encourage sustainable catalyses in donations/ One-off lump-sum donation or growth of P2P business investments from the crowd investment into a campaign lending through exploring – varies depending on the 3. Gift vouchers. A coupon code increased provision of first-loss incentive type used. Gift or electronic voucher used to guarantees and the support of vouchers, where deployed attract new platform members local currency lending. effectively, tend to have higher 4. First-loss guarantee. Credit 3. To better understand the role multipliers than match funding enhancement provided by a of equity crowdfunding for for example, although there donor or investor to catalyse energy access related start-ups is still much to be understood participation of co-investors and support eligible companies on the impact of these to explore this method of interventions on campaign Findings on the role and best fundraising. performance. application of each of these 4. To broaden participation in 3. Keep programme design agile mechanisms are shared in Part energy access crowdfunding and flexible. Crowd Power’s 3 of this report, Interventions and P2P lending by targeting design was driven by research, to Catalyse Energy Access underrepresented groups such market dynamics and strong Crowdfunding. as millennials and diaspora. platform partnerships. When In September 2018, UK aid working in the fast moving agreed to provide Energy 4 Top 3 Learnings from world of fintech enabled Impact with an additional £1 Crowd Power technologies, it is important million ($1.28 million) as part of 1. Match funding levels should to have a flexible, innovation- the Transforming Energy Access be set to an appropriate level. focused programme design. (TEA) programme [link], to The match level should be Strong partnerships, and an support a next phase of action relevant to the platform type assumption that platforms research into energy access and the average campaign know their market best, were related crowdfunding under the size. Match funding tends to be integral to an innovative Crowd Power 2 (CP2) programme. most suitable for donation and market-led design. CP2 will focus on four key areas: reward campaigns and likely

38 CONCLUSION

Crowd-sourced finance for energy access businesses and projects is growing in popularity, quadrupling from 2015 to 2017. Growth rates vary across platform types and the six archetypes we identified during the three-year Crowd Power programme. Debt based models, P2P Microlending, P2P Business Lending and Online Debt-based Securities had high growth rates over the period, while equity based models contracted and showed inconsistent growth. Non-investment models had varied performance; One-off Fundraisers and Mega- campaigns on Donation and Reward Crowdfunding platforms contracted, while Partnership Model campaigns on Donation Platforms, grew steadily (47% YoY growth), although it remains a small percentage of overall fundraising activity (~4%).

Archetype Model Suitable for Typical Raise Market Share 2017

Partnership Model Non-investment based Non-profits $5,000 – $30,000 3%

Companies, individuals, One-off Fundraiser Non-investment based $5,000 – $50,000 1% non-profits

Mega-campaigns Non-investment based Companies, non-profits $100,000 – $500,000 0%

Micro-entrepreneurs, P2P Microlending Non-investment based individual and groups of $20 – $2,000 27% consumers

P2P Business Lending $10,000 – $1 million, and Online Debt-based Debt based Companies 70% per campaign Securitites

Equity Crowdfunding Equity based Companies $500,000 – $1 million 0%

39 P2P Business Lending and was raised the previous year, million. To put this into context, Online Debt-based Securities reflecting the limited pipeline off-grid solar companies raised a popularity are growing at rapid of energy access companies total of $175 million debt in 2017.8 speed – with less than $100,000 suitable for equity crowdfunding. We anticipate P2P Business raised in 2015 and $9.4 million in Lending and Online Debt-based 2017. P2P Business Lending and We expect P2P Business Securities will be an increasingly Online Debt-based Securities Lending and Online Debt- important component of debt now account for 70% of all based Securities to continue financing for energy access crowd-sourced financing for to dominate crowd-sourced businesses over the coming energy access businesses and financing for energy access in years. In the first four months of projects; they accounted for the short to medium-term based 2018, energy-access companies 3% of crowd-sourced funds on growth rates over the past raised $10 million on Online for energy access businesses two years and particularly given Debt-based Security platforms and projects in 2015. P2P the announcement of portfolio alone. Microlending grew at an average guarantees on platforms like annual rate of 48% from 2015 to TRINE, which can protect over There is still much information 2017 with $3.7 million raised in 60% of the amount invested by to be gleaned on the role and 2017. the crowd.7 As P2P Business impact of interventions such Lending and Online Debt-based as match funding, lump-sum Powering the Crowd into the Securities grow in popularity contributions, gift vouchers Future provides a deep-dive there is mounting interest and first-loss guarantees on into six core energy access from agencies, corporates and campaign performance. With crowdfunding archetypes. foundations to understand the growing participation of funders These archetypes are helpful role they can play in bolstering in the space, we recommend to understand growth trends the market – Virgin Unite, Good a considered approach to and allow future campaign- Energies Foundation, Swedish interventions that monitor makers to identify suitable International Development impact metrics (e.g. time to crowdfunding and P2P lending Cooperation Agency (Sida), GP fund, private funds catalyzed, opportunities. We find that Batteries, UNDP and UK aid average investment size). The reward crowdfunding activity are already active in the space, need for robust data should be (one-off fundraisers and Mega- while many others are exploring balanced with the reality that campaigns) has contracted by it. There is also increased crowd-sourced finance is part an average of -58% in the two awareness of debt based models of the fast moving fintech world, years since 2015. Only $75,000 as viable fundraising tools for where it is important to be agile was raised in 2017, compared to companies; 30 energy access and flexible in order to promote, $550,000 in 2015. There were no companies utilised P2P Business rather than impede, innovation. equity crowdfunding campaigns Lending or Online Debt-based in 2017, while $3.4 million Securities in 2017 and raised $9.4

40 REFERENCES

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