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Creating a Pipeline of Local Entrepreneurs: Reducing Risk in Energy Access Investments

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Local Kenyan entrepreneurs are developing profitable energy access businesses, but these investable opportunities are a blind spot for impact investors.

WRI, with support from the DOEN Foundation and Wallace Global Fund, has sought to make these businesses more visible by conducting interviews with both local entrepreneurs and investors, documenting barriers and opportunities for investment and exploring ideas for shifting approaches to investing.

Learn more at https://www.wri.org/events/2019/06/creating-pipeline-local-entrepreneurs

Published in: Environment
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Creating a Pipeline of Local Entrepreneurs: Reducing Risk in Energy Access Investments

  1. 1. CREATING A PIPELINE OF LOCAL ENTREPRENEURS: REDUCING RISK IN ENERGY ACCESS INVESTMENTS World Resources Institute
  2. 2. The Magnitude of the Problem • 7,000-20,000 enterprises needed to meet consumer demand • $1 billion in early-stage capital required to scale energy access enterprises …. All these issues in aggregate illustrate the need to diversify the field of enterprises 0 1 2 3 4 5 6 7 8 9 10 Foreign or Expat Founder Kenyan Founder Top 10 Companies Receiving Funding Companies in Kenya
  3. 3. Growing Consensus on Problems & Investment Gap Placing off-grid enterprises in historical context • “Today the same local traders that built the supply chains in the 1980s and 90s still dominate the consumer off-grid solar market. But they do not feature in the international solar discussion. Their sales are invisible to consultants and undercounted in global reports.” - Mark Hankins, CEO, African Solar Designs Recalibrating social & financial return tradeoffs in impact investing • “Patient capital can allow smaller enterprises to thrive over the longer term. […] Alongside investment that seeks a return on capital, we need more patient capital that seeks to maximize impact but will accept a return of capital.” - Mara Bolis, Senior Advisor, Oxfam Bringing to light disparities in investing • “There has been recent noise, and thankfully action, to address the pitiful reality that less than 1% of American Venture capital funding goes toward black founders. […] What I find more disheartening, is that the same trend is well underway in the world of impact investing in Africa.” - Abdul Mohamed, Investment Manager, Grand Challenges Canada
  4. 4. Interviews with Impact Investors Question Themes: • Understanding the stated investment criteria (sectors, returns - both financial & impact) • Analyzing current portfolio • Challenges in investing in local entrepreneurs *Annex I contains a list of all interviewees Impact Investors Interviewed Viktoria Ventures SIMA Funds CAMCO Shell Foundation Ariya Capital Gray Capital Matters Kenya Climate Ventures Gray Ghost Ventures Acumen Rockefeller Foundation Zohari Leasing Ltd. Treehouse Investments Novastar Ventures OPIC Factor [E] responsAbility AlphaMundi SunFunder Africa Enterprise Challenge Fund
  5. 5. Why Do Local Entrepreneurs Lack Access? Through the course of our interviews with investors and fund managers, we identified several key trends: StructuresSkillsNetworks 2 31
  6. 6. Measuring the Impact of Local Entrepreneurs Economic and social impacts for target customers Means and resources for positive impacts Business plan and target customers Entrepreneur interviews • Intention for social goods • “Infrastructure for impacts” • Self assessment of impacts Customer interviews • Define impacts at local context • Verification of self-assessed impacts Three questions for impact assessment 2 Rounds of Interviews
  7. 7. Expanding PAYG at the Last Mile: Mwezi Solar Teddy Odindo • Kenyatta University & University of Nairobi • Was working at a cookstove NGO • UK equity-based investors: Mike Sherry • Last mile distributor mainly in the Lake Victoria region • PAYG solar products: Biolite & Greenlight Planet • Cookstoves (cash sales): BURN • Fishing lights: Omnivoltaic • Mwezi Solar takes the credit risk for PAYG sales • Sales are booming • Late 2017: About 200 units a month • Mid-2018: About 1500 units a month • Currently: About 2000 units a month • Raised equity from international angel investors • Will be seeking to raise a larger institutional round A player in the PAYG ecosystem with the ability to create a broad impact with its product portfolio
  8. 8. Expanding PAYG at the Last Mile: Deevabits Green Energy David Wanjau • Biomedical Science from Egerton University • 6 years at a farm inputs non-profit • Started a meat business in 2013 • Began energy business in 2016 • Last mile distributor now present in 5 counties • PAYG solar products: Greenlight Planet • Through village-level, women entrepreneurs • Deevabits Green Energy takes the credit risk for PAYG sales • In less than 2 years, sold more than 10,000 systems • Developed 150 village entrepreneurs • Received an initial grant from Powering Africa • Supported by the Miller Center, Santa Clara University • Would need institutional capital for expansion A player in the PAYG ecosystem with the ability to create a broad impact because of a unique distribution model
  9. 9. Innovating in Other Technologies: Zyn Agro Taher Zavey • Family business in cotton ginning • Management Accountancy from the UK • Stanford SEED program alumni • Manufactures biodiesel from cotton seed waste, which is used to run the plant • Excess biodiesel is supplied to farmers for irrigation • Helps farmers sustain drought-caused, four-fold decline in yields • 105 pumps by about 1200 farmers used today • Also supplies a drought-resistant seed (imported) • Byproducts are also sold: animal feed & detergents • Transformed the 80-year-old business: 40% of revenues come from biodiesel, animal feed and detergents • Institutional capital for farm linkages & value addition A player in the productive energy use space, which can create substantial impact toward drought resilience
  10. 10. Innovating in Other Technologies: LeJan Energy Jane Wangari • Bachelors degree in IT from Jomo Kenyatta Univ • Previously worked in media in Dubai • Currently completing a Masters in Business • Manufactures briquettes, mainly from sawdust waste • Started her business in 2014 in her courtyard • Sells to industries (consumer goods & textiles) • Customers replace firewood at a ratio of 4:1 • Regular orders from several large companies • Assured supplies of sawdust waste from timber suppliers • Has raised angel investment from international investors • Plant is running at full capacity and expanding • Institutional capital for innovation in “mobile multi-waste” briquetting units A player in the waste-to-energy business, which prevents massive deforestation in Kenya
  11. 11. Creating Socio-Economic Impact: Astonfield Solar Ameet Shah • Undergraduate degree from Cambridge University • International finance in New York and Hong Kong • Completing Stanford SEED program • Solar rooftops for the commercial & industrial sectors • Delivers solar power at 1/3-1/2 of grid price • Customers include floriculture farms, schools and businesses • Focus on quality & end to end service • Regular orders from several large companies • Does not take credit risk • Raised a working capital loan from SunFunder • Relationships with major solar rooftop project financiers • Installing about 40 new projects every year • Needs institutional capital to expand sales and engineering A clean energy company that is creating socio- economic impact in terms of employment
  12. 12. Creating Socio-Economic Impact: Sun Transfer Gathu Kirubi • Doctorate from University of California, Berkeley • Previously a lecturer at Kenyatta University • Co-founder: Dr. Harald Schützeichel • Indigenous pay-as-you-go company • Apart from households, sells larger systems to schools, hospitals and small businesses • Also has been piloting solar pumps • About 6,000 customers • Been EBIDTA positive with high PAYG payment fidelity • Has raised debt capial from DOEN & DEG • Need institutional capital to compete with other highly capitalized PAYG companies A PAYG company that can create broad impact by focusing on a range of users and products
  13. 13. The type of impact from local entrepreneurs? 1 2 3 DEEPENING the potential of the pay-as-you-go industry at the last mile INNOVATING in technologies other than solar CREATING socio-economic impact in household electrification 3 impact areas in a local entrepreneur based investing approach:
  14. 14. Solutions Identified Solution 1: Creating a Network of Diaspora Angel Investors • For local entrepreneurs to grow and scale their businesses, they will need networks and skills. How can an underutilized but powerful resource (the diaspora) be better tapped? Solution 2: Increasing Capital in Local Fund Management • Local fund managers are closer to the markets where they are looking for investment opportunities. How do we encourage more general partners to put capital into locally-managed funds? Solution 3: Developing the Incubation Ecosystem • Several investors mentioned the need to better develop fundraising pitches for local entrepreneurs. What steps can be taken to develop and enhance the incubation ecosystem in East Africa?
  15. 15. Next Steps Expected from this meeting: Generate interest in a Nairobi trip for face-to-face meetings and site visits Other next steps: • An upcoming event in September to be held in Nairobi with ANDE showcasing investment opportunities • SOCAP event proposal focused on investment disparities • Working Paper: The Impact Investor’s Blind Spot: Local Distributed Renewable Energy Entrepreneurs in Kenya

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