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Crowdfunding as a source of capital

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Crowdfunding, particularly through debtbased models, has become an important source of financing in the energy access sector. It accounted for an average of 16% of total investment volumes from 2018 to 2021. In 2021, energy access companies and projects raised $62 million on crowdfunding platforms; over $55 million of this was on debt platforms.

The energy access crowdfunding market has different characteristics to the overall energy access investment market. The energy access crowdfunding market is significantly less concentrated amongst the seven scale-up companies (Bboxx, d.light, ENGIE Energy Access, Sun King , Lumos, M-KOPA and ZOLA) that account for 72% of the $455 million raised by companies in the sector. These seven companies account for just 11% of crowdfunding volumes. The top seven companies fundraising via crowdfunding platforms are REDAVIA, Altech, Sun King, BBoxx, Daystar Power, Oolu and Solarise, which together raised 45% of the $62 million raised on crowdfunding platforms. This data suggests that crowdfunding is playing an important role in addressing the financing gap faced by companies raising less than $100 million each year.

Crowdfunding volumes in the energy access sector are on the rise, and 2021 marked an increase in volumes above pre-Covid levels. Volumes have grown seven-fold over the last five years ($7.8 million was raised in 2016) and doubled since 2018. 90% of volumes remain debt investments, a proportion that has hardly fluctuated over the years. Debt volumes seem quite resilient to external crises, such as Covid-19.

While the pandemic created uncertainty and led to a drop in volumes, investors largely kept cash in their platform “wallets”, which may help explain the quick recovery of 2021 volumes. Rising concern about climate change is also increasing demand for triple-bottom-line investments, which will continue to create demand for impact investments.

Crowdfunding can be a powerful tool to resolve wellknown market gaps, such as the lack of financing for earlier-stage companies in the energy access market. The speed and flexibility of crowdfunding also makes it attractive to companies in the scaleup phase. Debt crowdfunding, in particular, is an increasingly sustainable and profitable investment alternative for crowd-investors, and platforms are becoming trusted partners of traditional finance players. More support is needed to increase access to smaller ticket size investments, and to build initiatives that are frontier, and inherently more risky (e.g. local currency hedging). New donor initiatives, such as Crowd Power, can also support platforms to reach smaller companies by covering the costs of origination and due diligence.

 

Excerpt of: Crowdfunding Energy Access: State of the Market Report 2021-22 (Energy 4 Impact, 2022)

 

Download the full document here.

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