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May 28, 2014

Will SunFunder Unlock $1 Billion in Off-Grid Solar Venture Debt?

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In a recent piece on early stage cleantech investing, Rob Day of Black Coral Capital had some excellent advice - look beyond traditional venture capital.

It turns out 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 wave of new investment largely outside traditional venture capital players. From high profile institutions like SolarCity and Bloomberg Philanthropies, savvy investors are enjoying the pick of the litter thanks to a space literally exploding with cash-starved companies. With a new investment from Khosla Impact, SunFunder is not only joining the fray, it’s planting a flag for perhaps the most important financial innovation to date: venture debt.

SunFunder is based in San Francisco and Tanzania and seeks to unlock capital for emerging market solar. With a goal of catalyzing over $1 billion for financing  solar companies and projects in emerging markets by 2020, SunFunder has its work cut out for it.

Ambitious as this goal is, SunFunder is led by seasoned solar finance veteran Ryan Levinson who cut his financial teeth as the vice president for Wells Fargo’s environmental finance division and oversaw hundreds of millions of dollars in solar finance deals. If there is anyone who can bridge the world of big finance and off-grid solar, it’s Levinson and his team, which includes Tanzania-based Audrey Desiderato of E+Co and GOOD, and Sameer Halai of the Microsoft Corp and other tech start-ups.

That team began by raising capital through a crowdfunding platform with incredible success. In less than two years, they have financed 24 project loans with 10 solar companies in six different countries. This has already helped over 115,000 people gain access to affordable solar energy. On top of all that, they’ve 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 and the off-grid solar market -- it’s  SunFunder’s evolution toward more sophisticated financial offerings that could be truly revolutionary. Their progress has allowed them to bridge the institutional investing world and the off-grid market by providing the last piece of 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 they are opening a new solar empowerment fund and have already raised $1 million with a goal to close $5 million by the end of the year and $20 million by 2015.

All told, SunFunder offers two types of important 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 social return. Though with 100 percent repayment rates, the risk is clearly perceived, not real.

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 sophisticated 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 India’s new Prime Minister's goal of providing solar for all 400 million Indians lacking power. Unsurprisingly, the company’s new investment from Khosla Impact will help increase the focus on investment growth in India.

All said and done, SunFunder’s investment marks a milestone in the rapidly expanding off-grid solar market. This market is maturing rapidly, but companies like SunFunder are just beginning to scratch the surface. The opportunities that will be created by the off-grid solar market hold the promise of addressing both climate disruption and energy poverty by disrupting the systems that produce them and replacing them with equitable outcomes for people and the environment.

The smart money is on SunFunder, and the hundreds of off-grid solar companies it seeks to bankroll, to do just that.

--Justin Guay, Associate Director, International Climate Program


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