In a recent piece on early-stage cleantech investing, Rob Day of Black Coral Capital had some excellent advice: look beyond traditional venture capital.
That is sound advice for off-grid solar companies as well. In just the past four months, the off-grid solar market has seen a $45 million surge of new investment, largely coming from investors outside of traditional venture capital. From SolarCity to Bloomberg Philanthropies, early movers are finding a space filled with promising, cash-starved companies.
Now with a new investment from Khosla Impact, SunFunder is harnessing another important source of capital: venture debt.
SunFunder, which is based in San Francisco and Tanzania, has set a goal of catalyzing over $1 billion for financing solar companies and projects in emerging markets by 2020. The company certainly has its work cut out for it.
Ambitious as that goal is, SunFunder is led by solar finance veteran Ryan Levinson, who was the vice president for Wells Fargo’s environmental finance division and oversaw hundreds of millions of dollars in solar finance deals while in that role. If anyone can bridge the world of big finance and off-grid solar, it’s Levinson and his team.
That team began by raising capital through a crowdfunding platform, achieving remarkable success. In less than two years, SunFunder has financed twenty-four project loans with ten solar companies in six different countries. This has helped more than 115,000 people gain access to solar energy. On top of all that, the company has done it with a 100 percent repayment rate.
While it was this rapidly growing crowdfunding platform that first got us excited -- and taught us four simple lessons about the value of crowdfunding for the off-grid solar market -- it’s SunFunder’s evolution toward more sophisticated financial offerings that could be the true catalyst for change.
The company's progress has allowed it to bridge the institutional investing world and the off-grid market by providing a new piece to the finance puzzle: $20 million in venture debt by 2015.
SunFunder’s empowerment fund provides that debt by tapping into the large pools of capital sitting with accredited and institutional investors. The empowerment fund serves as a private debt offering for these investors who seek exposure to a diversified, vetted, and high-impact portfolio of solar projects in emerging markets. SunFunder has already raised and deployed $250,000 through its first offering. Now it is opening a new solar empowerment fund and has already raised $1 million. The goal is to close $5 million by the end of the year and $20 million by 2015.
SunFunder offers two important types of capital: “catalytic” first-loss capital and senior capital.
Catalytic capital is a subordinate debt that assumes slightly higher risk of default in return for a slightly higher return. This capital helps unlock senior debt and is perhaps most attractive to foundations and others willing to take higher risk for societal gains. With 100 percent repayment rates, the risk has not materialized so far.
Senior capital is protected by the first-loss capital and offers a lower-risk investment opportunity that appeals to a larger audience of investors.
Combined, these new offerings demonstrate SunFunder’s ability to bring off-grid solar offerings to institutional investors. Bridging the worlds of big money and small solar could finally unlock solar for all. This fortuitously aligns with the new Indian Prime Minister's goal of providing solar for all 400 million Indians now lacking power. The company’s new investment from Khosla Impact will help increase the focus on investment growth in India.
SunFunder’s investment is more proof that the off-grid solar market is hitting a new phase of growth, one that is partly driven by innovations in financing. But companies are only just beginning to scratch the surface.
Justin Guay leads the Sierra Club's international program. Vrinda Manglik is an associate campaign representative for Sierra Club's energy access program.