Crowd Power Crowdfunding & P2P Lending for Energy Access State of the Market 2018
IMPACT Crowd Power 2 | State of the Market 2018 1 Contents
1 2 3 Crowd Power 2 Understanding Top 5 Trends Crowdfunding and 2018 P2P Lending 4 5 6 State Of The P2P Business P2P Market 2018 Lending Microlending
7 8 9 Donation Reward Equity Crowdfunding Crowdfunding Crowdfunding
10 Initial Coin Offerings (ICOs)
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This material has been This report has been peer Cover image Morgana Wingard funded by UK aid from the reviewed by our programme UK government; however partners at Cambridge Centre for the views expressed do not Alternative Finance. necessarily reflect the UK government’s official policies.
Crowd Power 2 | State of the Market 2018 2 Authors
Davinia Cogan Peter Weston Programme Director of Manager Programmes
Davinia Cogan is the Programme Manager Peter Weston is the Director of Programmes of Crowd Power 2 at Energy 4 Impact. She at Energy 4 Impact. He manages a team runs the UK aid funded programme, which of consultants that advises off-grid SMEs researches the role of financial innovation in in sub-Saharan Africa and helps them the capital raising process of energy access to implement new business models and companies. technologies. He is an expert in power, renewables and offgrid energy, with over Davinia is also a Research Affiliate of the 20 years of experience as an investor, Cambridge Centre for Alternative Finance lender and strategic adviser, much of it in at Cambridge Judge Business School. developing countries. Davinia joined Energy 4 Impact in 2013 to help launch their business advisory team He is a non-executive director of Thrive in East Africa, and managed the rollout of a Renewables, one of the first crowdfunded USAID funded programme bringing pay- investors in small-sized renewable as-you-go solar to Rwanda. Prior to joining projects in the UK, and a Board Member of Energy 4 Impact, Davinia was a Kiva fellow Renewable World, an NGO which alleviates in Tajikistan, and a consultant at the Social poverty in developing countries through Stock Exchange, London and School for Life, micro renewable projects. Prior to Energy Uganda. 4 Impact, Peter was global head of finance and investment for two power equipment She held positions in investment suppliers: Siemens Wind Power and MAN. management at ING Australia before moving out of the mainstream finance sector. She He led the European energy lending team at holds a MA in International Studies from GE Capital and was an executive director at the University of Sydney and a Bachelor of Westdeutsche Landesbank. Peter has a BA in Business (Finance, International Business) Economics and Politics from the University from the University of Technology Sydney. of Warwick.
Crowd Power 2 | State of the Market 2018 3 Introduction
Crowdfunding & P2P Lending for Energy Access The report aims to provide entrepreneurs, - State of the Market 2018 captures the growing practitioners, governments and donors with importance of financial technology (fintech) based knowledge on fintech financing models and how financing models for energy access companies. they can be used to raise debt, equity and donations We examine data from two financing channels – for energy access companies. Dedicated research on crowdfunding and peer-to-peer (P2P) lending. Energy this niche area of energy access company fundraising 4 Impact (E4I) has been tracking crowdfunding and is scarce, however fintech-enabled fundraising is P2P lending activity in the energy access sector since growing fast – the amount raised via these channels 2015, and began tracking energy access related initial grew from $3.4 million in 2015 to $31.3 million in coin offerings (ICOs) in 2018. 2018. While this report focuses on the energy access sector, many of the learnings shared here may be The report disaggregates data by fintech financing relevant to other impact sectors. model and explores six models: P2P business lending, P2P microloans, donation crowdfunding, reward crowdfunding, equity crowdfunding, and ICOs. We share the key trends, by fintech financing model, as they relate to energy access companies, which include solar home system distributors, mini-grid developers and cookstove distributors.
Buffalo Grid
Crowd Power 2 | State of the Market 2018 4 1 Crowd Power 2
Crowd Power 2 is a research-led that examined the role of Mapping the market for programme designed to explore crowdfunding and P2P lending energy access the role of innovative technology- in the financing of energy access driven financing solutions, such companies and projects. Crowd The programme will also support as P2P lending and crowdfunding, Power played an instrumental role P2P business lending platforms, in the energy access sector. The in the growth of P2P lending and by assisting with the set-up costs programme seeks to understand crowdfunding for energy access of capital guarantees and local the impact of innovative forms of businesses, and supported over currency lending facilities. Crowd capital raising on energy access 250 energy access campaigns to Power 2 will also encourage companies, and the appetite of raise £3.4 million ($4.53 million) in investor participation in the investors in high-income countries funding. sector, through investor outreach for investment opportunities with activities. environmental and social returns. Crowd Power 2 seeks to continue The Crowd Power 2 programme researching crowdfunding and is managed by E4I a UK-based P2P lending, while supporting charity, which supports market- energy access companies to raise driven solutions to clean energy pre-seed, seed and growth-phase access in off-grid communities in capital via crowdfunding and P2P sub-Saharan Africa. lending platforms. Crowdfunding & P2P Lending for Energy Access Crowd Power 2 is funded - State of the Market 2018 is the through the UK Government’s first of three annual reports on Transforming Energy Access (TEA) the state of crowdfunding and P2P programme. TEA is a programme lending activities in the energy from the UK Government’s access sector. In addition to Department for International publishing three annual reports, Development (DFID), designed E4I will conduct and publish a to support the progress of clean white paper on the feasibility energy access in developing of equity crowdfunding for countries in sub-Saharan Africa the energy access sector, with and South Asia. TEA seeks to publication planned for Q3 2019. identify regional issues, and solutions, relating to energy Earlier research papers can be access. TEA aims to lead the found below. development of innovative technologies, business models, Powering the crowd into the partnerships and skills designed future to have a transformative impact on the progress of clean energy Who is the crowd? access. Up to £100 million will be invested until 2024. Success & failure: the key to
a winning campaign Crowd Power 2 began in 2018, following the successful Can the crowd close the Crowd Power programme, a financing gap? pioneering research programme
Crowd Power 2 | State of the Market 2018 5 Crowd Power 2 focuses on five key areas
+ Donation & Equity P2P 1/ Reward 2/ Crowdfunding 3/ Lending Crowdfunding The programme supports seed and The programme will support P2P growth-phase companies to raise business lending platforms to The programme supports seed-stage equity on equity crowdfunding establish foreign exchange hedging companies to raise seed capital platforms by providing lump-sum facilities to enable local currency from their networks via donation investments to eligible campaigns. lending. In addition, CP2 aims to and reward crowdfunding platforms Lump-sum investments tend to support the creation of guarantee through the provision of match be $10,000 to $25,000 and usually facilities, which protect investors on funding. Match funding is typically account for <10% of the campaign P2P lending platforms in the event of 20 to 25% of the campaign target, target. Relevant equity campaigns default. CP2 can assist platforms with but not more than $10,000. Relevant tend to have targets of $100,000 the set-up costs of these facilities. donation and reward campaigns tend to $1 million. In addition, CP2 will to raise $5,000 to $50,000. conduct an equity crowdfunding feasibility study, which examines the opportunities, challenges and suitability of equity crowdfunding for energy access companies.
Investor 4/ Outreach 5/ Research The programme will fund outreach The programme will continue to activities designed to attract millennial publish industry-leading research on and diaspora investors (and donors) the energy access crowdfunding and to energy access crowdfunding and P2P lending market. Three annual P2P lending. Outreach activities reports will be published, based on include events, podcast interviews, fundraising activity in 2018, 2019 and influencer marketing and other 2020. In addition, CP2 will publish channels. E4I seeks to understand three white papers over the duration the effectiveness of various channels of the programme, which examine key in converting new investors, with a issues impacting the market, such as particular focus on millenials and the availability of local currency loans diaspora. from P2P business lending platforms.
Crowd Power 2 | State of the Market 2018 6 Crowd Power 2 Goals
Crowd Power 2 is a three-year programme, and will run through to August 2021. The programme aims to achieve the following outcomes:
Focus Area Intervention Anticipated Outcome
+ Support 8 energy access Provide match Donation & Reward companies raise funding Crowdfunding early stage capital
a a Publish equity Conduct study on market crowdfunding and policy requirements to increase participation of feasibility study energy access companies Equity Crowdfunding b b Make lump-sum Support 5 energy access investments companies raise equity
Support creation of 1 local currency lending facility on platform/s; support Pay set-up costs P2P Lending creation of 2 guarantee facilities on platforms
Encourage Attract 500 new millennial diaspora and and diaspora investors to millennial investor energy access P2P lending Investor Outreach participation and crowdfunding
Publish three annual reports on energy Share market access P2P lending and crowdfunding; publish three Research analysis white papers on key issues impacting the sector
Crowd Power 2 | State of the Market 2018 7 Crowd Power Achievements 2015 - 2018
raised for energy access $4.5M companies and projects
Co-funding 300,000+ 120+ 29 56,000+ 252 individuals leveraged jobs countries campaigns tonnes 6X private with energy created CO2 reduced supported access capital
Platform Partners
CP2 continues a number of partnerships formed during Crowd Power and seeks to expand the partnership base by onboarding new platforms as relevant campaigns arise. The partners we currently work are highlighted below, although we are open to working with new platforms. If you are interested in becoming a partner please contact [email protected]
Crowd Power 2 | State of the Market 2018 8 2 Understanding Crowdfunding and P2P Lending
Fintech-enabled financing energy access. Factors such as a models, such as P2P lending, are company’s financing needs (e.g. 2/ becoming a valuable component capital type, ticket size), stage in Crowdfunding, which includes of the financing mix for energy the business lifecycle and investor donation crowdfunding, access companies. The increased network capacity, will determine reward crowdfunding and significance of alternative the suitability of certain fintech equity crowdfunding. It also financing in the energy access models to meet a company’s includes ICOs, a new method of sector reflects several trends. financing objectives. crowdfunding which entails the issuance of tokens (or crypto- Firstly, the growth of the energy There are two broad financing assets) to investors, who typically access sector is occurring at the models, which we focus on in invest with cryptocurrencies (e.g. juncture of innovation in both this report: Bitcoin). Crowdfunding is generally product technology and financial considered a much higher risk technology. Given the sector’s activity than P2P lending, although roots, innovative financing 1/ it is important to note that in the channels, such as P2P lending, energy access context, a large P2P Lending, which includes P2P number of donors and investors are a natural fit for these forward microlending and P2P business thinking companies. are motivated by more than lending. We use the term P2P financial return. lending to refer to debt-based Secondly, access to finance is fintech credit models, however one of the most frequently cited it is important to note this is a barriers to growth by energy simplification of a diverse range of access companies, and fintech- models adopted by fintech credit enabled financing channels open platforms. P2P lending models up opportunities to obtain funding have evolved from their traditional outside of traditional financiers roots, as strictly peer-to-peer. (e.g. banks, impact investment Many platforms have retail and funds). institutional investors, and offer various financing instruments (e.g. Thirdly, demand for triple-bottom- bonds, securitised loan-parts). line investments from investors in high-income countries is increasing as investors look to mitigate climate change and reduce energy poverty, while potentially earning a high rate of return on their investment.
The rate of growth, and the suitability of company profiles, varies across fintech financing models, thus it is important to understand the relevance of each model in the context of
Crowd Power 2 | State of the Market 2018 9 Fintech Financing Models Explained The below classification represents the various fintech financing models used by energy access companies.
P2P Business P2P Lending Microloans Individual or institutional Individual or institutional P2P Lending investors provide a loan investors provide a loan to a business. to a consumer. Campaign size Campaign size $10K-$1M $50-$1K
Donation Reward Crowdfunding Crowdfunding Individual donors provide Backers provide funding funding to individuals, to individuals, companies companies or projects based or projects in exchange for on philanthropic or civic non-monetary rewards or motivations with no expectation products. of monetary reward. Campaign size Campaign size $5K-$20K $5K-$50K Crowdfunding
Equity Initial Coin Crowdfunding Offering (ICO) Individual or institutional Individual or institutional investors purchase equity investors purchase tokens issued issued by a company. by a company. Investors may use cryptocurrencies or fiat1 to invest.
Campaign size Campaign size $100K-$3M $100K-$3M
Source: Cambridge Centre for Alternative Finance,2 Energy 4 Impact
1 Currencies that a government has declared to be legal tender. 2 T. Ziegler, R. Shneor, K. Garvey, K. Wenzlaff, N. Yerolemou, B. Zhang, R. Hao, ‘Expanding Horizons: The 3rd European Alternative Finance Industry Report’, Cambridge Centre for Alternative Finance, February 2018, https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/expanding-horizons/#.XLZ0J-szZE6 (accessed 14 March 2019)
Crowd Power 2 | State of the Market 2018 10 3 Top 5 Trends 2018 P2P Lending and Crowdfunding
1/ P2P Lending landscape shifts dramatically
When we began data collection in 2015, P2P microlending dominated energy access P2P lending and crowdfunding activity, making up 70% of all funds raised. P2P business lending made up just 4% of fundraising activity. Over the past three years, P2P business lending activity has ballooned – it now accounts for 88% of all funds raised. Growth is driven by demand for impact investment opportunities from retail investors in high-income countries, and the significant unmet debt needs of energy access companies.
Shifting P2P Lending Landscape
P2P Microloans as % of all crowdfunding 70% 23% 13% 4% & P2P lending activity
P2P Business Lending as % of all crowdfunding & P2P lending 4% 26% 82% 88% activity
2015 2016 2017 2018 $3.4M $7.9M $11.4M $31.3M
Crowd Power 2 | State of the Market 2018 11 2/ Energy Access P2P $27.5M Business Lending P2P Business Doubles Lending 2015 - 2018 P2P business lending is growing at an explosive rate as energy access companies are drawn to the flexible nature of P2P business lending, while investors are drawn to the relatively high $9.4M return offered – at the same time as making an impact on climate change and energy access. Returns on GBP and EUR denominated investments range from $2.1M 4% - 10% p.a.. $146K
2015 2016 2017 2018 Morgana Wingard, Power Africa
Crowd Power 2 | State of the Market 2018 12 3/ Six Active P2P Business Lending Rachel Couch, Platforms Power Africa The number of active P2P business lending platforms grew in 2018 as Solar Home, Myanmar announced they had raised a syndicated debt facility, which included Japan-based P2P business lender Crowdcredit. Five out of six lending platforms are focused on growth phase companies. The Kiva Direct to Social Enterprise (DSE) programme is the only P2P business lender focused on earlier stage companies.
P2P Business Lending by Platform 2018
Lendahand 18% $5,04,5353
Energise Africa 24% bettervest $6,473,333 13% $3,455,333 Total Kiva DSE 2% $27.5M $430,000
TRINE 40% Crowdcredit $11,086000 4% $1,000,0003
3 E4I was unable to obtain accurate data pertaining to Crowdcredit campaigns due to financial regulations, which prevent disclosure. This is our best estimate, based on market intelligence.
Crowd Power 2 | State of the Market 2018 13 P2P Business Lending Platform and Campaign Map
Netherlands Lendahand EUR UK Germany Energise bettervest Africa EUR GBP Sweden TRINE EUR
Japan Crowdcredit Fiat, crypto
1 PAKISTAN SENEGAL 1 1 PHILLIPINES USA 1 KIVA DSE 1 1 USD 3 INDIA 1 1 SEIRRA 2 4 UGANDA PANAMA LEONE GHANA 18 KENYA MYANMAR BENIN 6 TANZANIA 2 NIGERIA
2 3 NAMIBIA MOZAMBIQUE
ZAMBIA
Key
1 Number of campaigns
Platforms
Crowd Power 2 | State of the Market 2018 14 4/ Energy access P2P P2P Microlending 2015 - 2018 Microlending trends downward $2.4M
P2P microlending activity in the energy access space has decreased by 20% $1.8M year-on-year over the past three years, in absolute terms. P2P microlending has $1.4M also become a much smaller component of the overall energy access P2P lending $1.2M and crowdfunding space. Between 2015 and 2017, an average of $1.8 million was raised each year for energy access microloans; in 2018, $1.2 million was raised. The dip in activity appears to be a result of a handful of previously active Kiva field partners (which originate loans) reducing loan activity on the 2015 2016 2017 2018 platform.
5/ Equity crowdfunding remains stagnant
The current state of equity crowdfunding is not an ideal fit for the typical energy access company profile. Most equity platforms, which operate at scale, are based in the UK and Europe. The regulatory frameworks that govern equity crowdfunding tend to restrict investment to companies domiciled in the platform’s country or region of incorporation. Equity Crowdfunding 2015 - 2018 Further, the profile of companies that successfully raise funds tends to be early-stage companies that are $3.3M ‘disruptive’ and have a strong innovation focus. While this description aligns with several energy access companies, articulating the business model in a way that appeals to investors can prove a real challenge. There was one energy access campaign on Crowdcube during 2018, by ECOPOW3R, Rwanda, however the campaign failed to reach its target.
Encouragingly, we see increased interest in equity crowdfunding from policy makers in sub-Saharan Africa. We anticipate future interventions to $81K support local companies to raise funds via equity crowdfunding. 2015 2016 2017 2018
Crowd Power 2 | State of the Market 2018 15 4 Crowdfunding and P2P State of the Lending for Energy Access 2018 Market 2018 P2P Lending 92% Fintech financing models are now $28,702,000 commonly used by energy access companies to raise capital, from early stage companies raising seed capital from Reward family and friends via donation and reward Crowdfunding crowdfunding, to growth phase companies 0.5% raising multi-million-dollar debt facilities $180,000 via P2P business lending platforms. The landscape is dynamic and P2P business lending, in particular, is evolving rapidly. ICO 5% $1,600,000 Back in 2015 the energy access Total crowdfunding and P2P lending market was dominated by microloans, which $31M Donation accounted for 70% of the $3.4 million Crowdfunding raised that year. Fast forward to 2018, 2.5% and we see microloans accounted for $794,000 4% of the $30 million raised for energy access campaigns on P2P lending and Equity crowdfunding platforms. P2P business Crowdfunding lending, on the other hand, grew from 4% 0% of all fundraising activity in 2015 to 88% of $0 all fundraising activity in 2018. The growth of P2P business lending is the result of a confluence of factors, including demand from investors in high-income countries for impact investment opportunities, demand from energy access companies $27.5M for working capital facilities to support P2P Business Lending their growth, and the rise of P2P business 2015 - 2018 lending platforms to serve the market. P2P business lending is the primary source of growth in energy access related crowdfunding and $9.4M P2P lending.
$2.1M $146K
2015 2016 2017 2018
Crowd Power 2 | State of the Market 2018 16 P2P business lending is where solutions that are flexible and Perhaps even more intriguing is individual (or institutional) investors that closely match the cash flow the fact that some of the largest provide a loan to a business, cycles of the business. While P2P companies in the sector – such facilitated by an online platform. In microlending is where individuals as BBOXX and Azuri Technologies the context of energy access related seek consumer loans (of say, – are also using P2P business P2P lending, the borrower is typically $200), P2P business lending lending to raise capital. a solar home system distributor allows energy access companies P2P business lending is not selling units to off-grid populations to bundle a group of consumer just financing companies in sub-Saharan Africa or South Asia. loans into the one facility (of say, marginalised by established The investors are often individuals $1 million) leading to greater lenders and investors; it is based in Europe, or the UK, who efficiency and access to capital. attractive across a broad range of earn a return on their investment company profiles due to facility of 4% to 8% per annum. Active P2P P2P business lending platforms flexibility, transaction speed and business lending platforms include have tapped into the opportunity competitive pricing. TRINE (Sweden), Energise Africa (UK), to connect investors in high- Lendahand (Netherlands), bettervest income countries – hungry (Germany) and Crowd Credit (Japan). for environmental, social Kiva (USA), one of the largest P2P and financial returns – with microloan platforms globally, has companies working to end also started lending directly to energy poverty in sub-Saharan businesses through the Kiva Direct to Africa and South Asia. In 2018, Social Enterprise (DSE) pilot; although 139 campaigns raised $27.5 these loans tend to be smaller than million on P2P business lending on other platforms (<$50,000) and platforms, compared to 49 attract no interest. campaigns in 2017, which raised $9.4 million. So why, exactly, has P2P business lending grown so rapidly?
P2P business lending emerged partly, in the energy access sector, as a response to a critical gap in financing faced by energy access companies. Industry data consistently shows that investment is highly concentrated, with four companies accounting for 67% of all investment in pay-as-you- go (PAYGO) solar companies from 4 2012 to 2017. Access to finance is frequently cited as a barrier to growth for energy access companies, and even companies that can access capital may not be able to obtain the right type of capital, on suitable terms.
The financing needs of the PAYGO solar business – the dominant model in the energy access space – are unique and require tailored Pollinate Energy
4 Dalberg Advisors and Lighting Global, ‘Off-Grid Solar Market Trends Report 2018’, World Bank Group, January 2018, https://www.lightingafrica.org/wp-content/uploads/2018/02/2018_ Off_Grid_Solar_Market_Trends_Report_Full.pdf (accessed 14 March, 2019)
Crowd Power 2 | State of the Market 2018 17 Little Sun
2018 | Top 5 $7.3M $1.5M BBOXX Solarworks Which energy access TRINE + Energise Africa Lendahand + Energise Africa companies use P2P business lending? $1.9M $960K Azuri Technologies OOLU P2P business lending is typically TRINE + Energise Africa + Energise Africa used on an ongoing basis, unlike Lendahand equity crowdfunding where a firm may subsequently gain access to $1.7M venture capital or private equity Sollatek investment. Lendahand + Energise Africa
Both reward and equity years. Equity crowdfunding has But, why is crowdfunding for energy been erratic, with a range of reward and equity access companies appear to be $3.4 million over the past four contracting, however it’s important years, reflecting no successful crowdfunding to consider each of these models campaigns in 2017 or 2018, and shrinking? make up a small percentage the $3.4 million raised in 2016. of overall activity (1% and 0%, The infrequent nature, and large respectively, in 2018). Reward size, of campaigns means growth crowdfunding campaigns have rates often fluctuate as a single raised an average of $300,000 campaign can greatly impact per annum over the past four results.
Crowd Power 2 | State of the Market 2018 18 form of cryptocurrencies (e.g. Bitcoin), but may also accept fiat currencies. In the energy access context, ICO proceeds may be used to fund a particular project (e.g. capital expenditure associated with developing mini-grids), however it is important to note that the ICO Crowdfunding & P2P $31.3M landscape is relatively unregulated. Lending 2015 - 2018 ICOs can be an alternative to the traditional capital raising process and allow companies to raise funding without relinquishing ownership.
In 2018, the most prominent energy access ICO was from South Africa- based solar micro-leasing platform, Donation $11.4M Sun Exchange, and Kenya-based $7.9M mini-grid developer, Powerhive. Reward The token issue aimed to raise $23 P2P Lending $3.4M million to build 150 new mini-grids, however the raise fell short of Equity expectations and raised $1.1 million. E4I will continue to track the status ICOs 2015 2016 2017 2018 of ICOs in the energy access space over the duration of Crowd Power 2, however the programme is unlikely to provide financial support to ICOs.
Within reward crowdfunding, we Donation crowdfunding for see an increase in campaigns by energy access has grown steadily early-stage startups raising seed over the past four years (46% capital ($10,000 – $50,000) from average year-on-year growth), family and friends. However, with the majority of activity we have seen fewer larger scale on micro-donation platforms campaigns ($100,000 – $500,000) such as GlobalGiving (UK, than in previous years, such USA) and GoFundMe (USA). as those by GravityLight and Donation crowdfunding remains WakaWaka. a small component of overall activity, accounting for 2% of The growth of equity all funds raised. We anticipate crowdfunding for energy access philanthropic micro-donations will companies remains constrained continue to support grassroots due to regulatory reasons, which organisations in the delivery of contribute to the concentration of energy solutions to the poor, platforms in only a few countries, however it is unlikely to be an and to the mismatch between the area of high growth for market- typical energy access company based approaches. profile and that of successful equity campaigns. However, as This is the first year E4I has financial regulators begin to take tracked data on ICOs, which interest in equity crowdfunding – are sales of tokens or ‘crypto- including regulators in East Africa assets’ to individual and – we anticipate a ramping up of institutional investors. ICOs activity over the coming years. typically raise funding in the
Crowd Power 2 | State of the Market 2018 19 5 P2P Business Lending
$27.5M P2P Business Lending P2P business lending is 2015 - 2018 where a group of individuals lend money to a business. The lender usually receives a financial return on their investment. Individual $9.4M investors own ‘loan-parts’, which may in fact be securitised, and receive loan repayments from the $2.1M $146K borrower over the duration of the loan. Lenders are 2015 2016 2017 2018 typically motivated by social and environmental impact, as much as financial return. P2P business lending accounts for facility via a P2P business lending Business loans tend to raise 88% of all energy access related platform, in 2018, borrowing over working capital or project crowdfunding and P2P lending $7.3 million through the TRINE finance. activity. P2P business lending and Energise Africa platforms. has emerged as an important financing tool for energy access Growth rates are impressive, businesses seeking to obtain however we note that P2P meaningful sums of debt finance. business lending platforms In 2018, $28.7 million was raised currently offer debt facilities in by energy access businesses GBP and EUR. For P2P business across 139 campaigns. lending to continue on this high growth trajectory there may be Since 2016, P2P business lending a need to introduce USD and has grown 3 to 4 times per local currency lending facilities, annum. Specialist platforms, particularly as the attractiveness such as TRINE and Energise Africa, of borrowing in GBP declines as a have emerged that are focused result of Brexit uncertainty. on the off-grid energy market in low-income and middle-income countries. The average campaign size has also grown steadily, from $80,000 in 2016, to $168,000 in 2017, to around $200,000 in 2018. BBOXX raised the largest
Crowd Power 2 | State of the Market 2018 20 BBOXX
P2P Lending 2018
P2P Business Lending 96% Total $27,490,020 $28.7M P2P Microlending 4% $1,212,000
Top 5 P2P Business Lending Platforms For Energy Access 1/ 2/ 3/ 4/ 5/ TRINE Energise Lendahand) bettervest Kiva DSE Africa
Crowd Power 2 | State of the Market 2018 21 P2P Business Lending Across the Business Life Cycle
$20M
$15M
$10M
TRINE Company Revenue Company Energise Africa $5M Lendahand
bettervest
Kiva DSE Crowdcredit
Pre-seed Seed Series A Series B Series C
Company Stage
Source: Shell Foundation5, Energy 4 Impact
5 Catalyst Off Grid Advisors, ‘Achieving SDG 7: The Need to Disrupt Off-Grid Electricity Financing in Africa’, Shell Foundation, October 2018,https://shellfoundation.org/app/ uploads/2018/10/Achieving-SDG-7-The-Need-to-Disrupt-Off-Grid-Electricity-Financing-in-Africa.pdf(accessed 7 May 2019).
Crowd Power 2 | State of the Market 2018 22 6 P2P Microlending
$2.4M P2P Microlending 2015 - 2018
$1.8M P2P microlending is where $1.4M a group of individuals lend $1.2M money to an individual, group or entrepreneur. The lender effectively holds a ‘loan-part’ and expects to be repaid by the borrower over the agreed loan term. Lenders on microlending platforms tend to be motivated by 2015 2016 2017 2018 social impact and, due to legal and administrative considerations, often do not While P2P lending accounts for occur on the Kiva platform, which receive repayments inclusive 92% of all energy access related has maintained steady overall crowdfunding and P2P lending growth from 2015 to 2018. of interest. In the eyes of the activity, P2P microlending has However, Kiva partners that were lender, microlending may be reduced in both absolute and previously active in energy access viewed as a more effective relative terms. Energy access lending appear to have reduced form of donation – which related P2P microlending declined lending in this area. These offers capital preservation at an average rate of 20% each partners include microfinance alongside impact. year from 2015 to 2018. P2P institutions in the Philippines and microlending raised $2.4 million Peru, and a bank in Kyrgyzstan. for energy access campaigns We are unsure of the reasons for in 2015, while $1.2 million was reduced activity, however note raised in 2018. that the majority of energy access campaigns are concentrated with The reasons for the decline in just a few partners, which can activity are less clear. The bulk result in fluctuations in activity. of P2P microlending campaigns
Top 3 P2P Microlending Platforms for Energy Access
1/ 2/ 3/ Kiva Milaap Zidisha
Crowd Power 2 | State of the Market 2018 23 7 Donation Crowfunding
$794K Donation Crowdfunding for Energy Access 2015 - 2018 $518K Donation crowdfunding is where individuals, non-profits or businesses $340K raise capital, in the form of donations, from a group of $234K individuals via a crowdfunding platform. Individual donors are usually motivated to give because of a personal connection to the fundraiser or for philanthropic reasons. 2015 2016 2017 2018
Energy access related donation campaigns are run by non-profits campaigns raised $794,000 in that join the platform to raise funds 2018, demonstrating steady periodically. Campaigns are for growth since 2015, when we began specific programmes or initiatives, tracking energy access related such as solar lanterns for school donation crowdfunding data. children or installing energy Donation crowdfunding accounts efficient cookstoves. In 2018, there for 3% of all energy access related was also a successful campaign on crowdfunding and P2P lending. the Charidy platform, by India- Energy access related donation based solar latern and cookstove crowdfunding grew at an average distributor Pollinate Energy, which annual rate of 46% year-on-year raised around $50,000. This was between 2015 and 2018. a 24-hour campaign, which had match funding from three sources GlobalGiving is the dominant – resulting in a quadroupling of platform for donation fundraising individual donations. of this kind and accounts for 64% of the amount raised. Typically,
Top 5 Donation Platforms for Energy Access 1/ 2/ 3/ 4/ 5/ GlobalGiving) GoFundMe betterplace Just Giving M-Changa
Crowd Power 2 | State of the Market 2018 24 8 Reward Crowfunding
$551K
Reward Crowdfunding for Energy Access $337K 2015 - 2018 Reward crowdfunding is when a non-profit or business raises capital from a group of individuals, in $180K return for a reward. Reward crowdfunding is sometimes referred to as a ‘pre-sale’ as $75K it is often used to fundraise the development of new technologies (e.g. pico-solar lantern). Reward campaigns 2015 2016 2017 2018 for social causes will try to minimise the cost of reward Reward crowdfunding accounted In 2018, the average campaign delivery by including rewards for less than 1% of energy access size varied greatly across with a low monetary value, crowdfunding and P2P lending platforms. The average energy such as a thank you posted activity in 2018, and raised a access campaign on the Indiegogo to their website. Individual total of $180,000. While a small platform was $35,000, while on contributors are usually component of overall activity, Kickstarter it was just over $100. reward crowdfunding represents The discrepancy in size may motivated by a connection an opportunity for early-stage reflect the low success rate on to the fundraiser or the value companies to raise seed capital. Kickstarter; the five campaigns we of the reward offered. For start-ups in ideation phase examined raised around 1% of – or that have completed initial their targets. The most successful market scoping and testing – reward campaign of 2018 was by but don’t have an established the makers of GravityLight, and business model and track-record, raised close to $150,000. This this can be one of the few represents GravityLight’s third available options to raise finance. campaign in recent years, with $850,000 raised in total.
Top 5 Reward Platforms for Energy Access 1/ 2/ 3/ 4/ 5/ Indiegogo Charidy Kickstarter) StartSomeGood Pozible
Crowd Power 2 | State of the Market 2018 25 9 Equity Crowdfunding
$3.3M Equity crowdfunding is where individual investors provide funding to a company in exchange for shares in the company. The equity crowdfunding platform may also operate a secondary market, which allows shareholders to sell their shares, however in most cases, shares are fairly illiquid. Start-ups typically raise equity capital for $81K product development and growth. 2015 2016 2017 2018
In 2017 and 2018, there were no markets globally, and most energy suitability of equity crowdfunding successful equity campaigns by access campaigns have been on is currently limited in the off- energy access companies, while UK-based platforms. Financial grid context, due to regulatory in 2016, energy access companies regulators can restrict participation restrictions and company profile raised $3.4 million via equity of fundraising companies to suitability, however this may crowdfunding. There was one those domiciled in the platform’s change as regulators in low- unsuccessful equity campaign jurisdiction. Several platforms and middle-income countries during 2018, by ECO POW3R, in the UK restrict fundraising to explore equity crowdfunding. Rwanda, which failed to reach companies domiciled in the UK or Equity crowdfunding may also be its target of £250,000 ($333,333). certain EU countries. bolstered by increased energy Equity crowdfunding campaigns access company awareness on typically operate on an all-or- Successful equity campaigns what is required for a successful nothing basis, so if the campaign are often by highly innovative campaign and the increased does not reach its target no funds companies. Investors are buying awareness of platforms on will be disbursed. a vision, and the product and untapped opportunities in business model must appeal to emerging markets. The UK has one of the most investors (largely based in the mature equity crowdfunding UK, Europe and the USA). The
Top 5 Equity Platforms for Energy Access 1/ 2/ 3/ 4/ 5/ Crowdcube Syndicate Seedrs) Uprise.Africa FundedByMe Room
Crowd Power 2 | State of the Market 2018 26 10 Initial Coin Offerings (ICOs)
E4I began tracking energy access which effectively securitises solar Initial coin offerings (ICOs) related ICOs in 2018, and thus PV cells and allows token holders are where a project or cannot compare fundraising to earn revenue over the life of company sells tokens to the activity with previous years. the project. The SunExchange public (typically international Energy access ICOs are a niche platform provides token holders investors) in exchange for component of energy and utility with real-time access to solar cryptocurrencies or national related ICOs, and raised just cell performance and revenue $1.6 million in 2018, through two generation, from their projects currencies. ICOs offer an offerings. in South Africa and Kenya. opportunity for project CryptoLeaf is a platform for developers and companies The Powerhive X SunExchange investors to fund ‘green’ projects to raise funds for project ICO used the Ethereum platform globally, which include projects development costs. ICOs to raise $1.1 million through the in low-income countries; the ICO provide an alternative source sale of the SUNEX reward token, raised $500,000. of capital to traditional equity and debt investments.
Energy Access ICOs 2018 1/ 2/ Powerhive X Cryptoleaf SunExchange Powerhive
Crowd Power 2 | State of the Market 2018 27 Success Story. Mee Panyar Natasha Allen Myanmar Founder & Managing Director
Mee Panyar is an early-stage Why did you start Mee Panyar? a pitch competition, where I won a social enterprise focused In 2016 I was working in Myanmar £5,000 ($6,667) award. I used the on improving the efficiency on a research project focused on funding to visit roughly 40 villages, of locally managed diesel community-based electrification. selecting a site for the pilot project. I also used my own savings and a mini-grids in Myanmar. During this time, I learnt about the local practice of self-help small loan from family to support myself during this time. Mee Panyar’s mission is to electrification and I spent time learning from local electricians give communities the tools to that had built mini-grids for their Why did you decide to use hybridise and maintain energy- villages. They told me that they crowdfunding to raise funds? efficient mini-grids to reduce needed more skills and training Prior to our campaign, we had household energy costs, increase to help them provide better been working with our target operator income and reduce and cleaner electricity to their customers - rural electricians carbon emissions. Myanmar communities. So I started working in Myanmar - to identify their has over 13,000 community run to develop the training idea, needs and to discuss appropriate brownfield mini-grids. behind Mee Panyar, and started solutions. We believed we had the company officially in July 2018. found a good opportunity, but because we are working with In February 2019, Mee Panyar mini-grids, which inherently have raised $47,500 in seed capital How did you finance Mee Panyar in the early days? a high upfront cost, we could not on StartSomeGood, a reward test the concept. We decided to I participated in and won a startup crowdfunding platform geared launch a crowdfunding campaign pitch competition at University toward social enterprises. Crowd to raise funds for a pilot, which we College London, through the can then demonstrate as proof of Power 2 provided $2,500 as University College London concept to future investors. an anchor-sum to begin the Hatchery incubator program. It campaign and $10,000 in match was a 6 week program with weekly funding during the campaign. workshops and mentoring to develop your idea and prepare to pitch. The programme ended with
Crowd Power 2 | State of the Market 2018 28 Mee Panyar How did you decide which platform to use? We decided to use StartSomeGood because we appreciated the time and effort they put into answering questions and providing input into our campaign. There is a lot that goes into executing a successful campaign and their suggestions helped us navigate the process. The platform is also geared toward social enterprises.
How did you plan the campaign, manage outreach and reach your target? Setting up the campaign was a lot of work but very rewarding! We started by setting our target and making a detailed budget. This helped us determine the minimum amount required to launch a successful pilot.
From there, we mapped out our network, starting with the immediate, first-circle personal connections of our team, to see how much of our target could be raised from that network. The idea behind this process was to determine how and to whom we Xaume Olleros, Power Africa would do our outreach. We found that we could probably get 30% How did the funding from buying equipment, developing a reliably from our first circle, which Crowd Power impact coherent training program with meant that we had to be really campaign performance? our partners, and hiring local staff to be on the ground, working diligent about our outreach. The funds definitely gave non- closely with the village we have family and friend contributors chosen for the pilot, as well as Moving forward ambitiously (and confidence in our mission and monitoring the project’s progress. admittedly a little nervously!), team. It acted as a sort of approval As we move through the process, we put together a plan for social stamp. Even for family and friends, we are already talking to potential media posts throughout the the cornerstone funding [$2,500] equity investors to turn our pilot campaign, drafted emails to send at the beginning of the campaign results and lessons into a scalable to friends and family, and did gave the campaign a good boost, business model in a seed round. our best to personally contact as and gave us confidence, as a team, many people as possible. Learning that we could reach our target. to be ok with bothering people was really important during this Now that you've reached your process. This only ramped up once target, what are your plans for the campaign was live and was a 2019 in terms of operations lot of work, but it paid off! and financing? The funds we raised during the campaign will see us through building out and evaluating our pilot project. This includes
Crowd Power 2 | State of the Market 2018 29 Energy 4 Impact Davinia Cogan Fifth Floor - Totara Park House Programme Manager IMPACT 34-36 Gray’s Inn Road [email protected] WC1X 8HR Crowd Power 2 | State of the Market 2018London, United Kingdom 30