In the past 10 years, startups in the off-grid solar energy sector in Africa have raised more than $2.3 billion in funding. However, most of the funding has gone to just seven pay-as-you-go (PayGo) African-based scale-ups, leaving hundreds of others struggling to raise funds in the early phase, according to the biennial Gogla-World Bank. report.
The seven most funded solar startups are Sun King, Zola Electric, M-Kopa, Bboxx, d.light, Engie Energy Accessand lumos which, according to the Gogla Investment database, have attracted 72% of the sector’s equity, debt and grant financing, while more than 150 early-stage and phase-based startups accounted for the rest of the amount.
In terms of equity funding, the scaleups received $600 million in investment between 2015 and last year, as startup startups raised $255 million in VC funding over the same period.
Overall, access to debt has not been easy for most startups in Africa, especially since the Covid pandemic hit, but the scale-ups continue to unlock more debt financing in a similar work environment.
The aforementioned scale-ups operate with pay-go models that provide asset-based financing (pay-to-own) for solar kits and lanterns, products that are hugely popular in Sub-Saharan Africa, where millions are off-grid as national electricity networks remain underdeveloped .
The lack of capital means that early-stage startups are unable to acquire assets such as solar kits and lanterns, which are needed to help them scale up and capture more consumers and markets. Kenya, Uganda, Nigeria, Rwanda and Ghana, DRC are some of their major markets in Africa
“Startup companies report that accessing equity has been challenging, leaving some overburdened and others facing business difficulties. A lack of equity early on has resulted in stifled growth for many companies,” Gogla, a global association for the off-grid solar industry, said in the report.
“This is a barrier to the expansion of off-grid solar into new markets; as equity, grants or output-based incentives, such as results-based financing, are generally the best-placed instrument for market expansion,” the report said.
The trend is likely to continue as disclosed deal data from the BigDeal database shows that so far this year, several of the seven scale-ups have been responsible for the bulk of the funding raised by the off-grid solar. Paygo companies.
An overview of the data shows that nearly half a billion dollars in debt capital financing has been raised this year by nearly 30 startups and scale-ups. Of the amount, $367 million is equity financing raised by 11 companies – including SunKing, M-Kopa and d.light, which claimed 93% of total equity. If we add the $50 million from d.light and the $35.5 million debt financing from Bboxx, the four scale-ups so far account for 86% of the total debt financing raised by startups in the African paygo solar sector.
The ability of these companies to raise funding is due to their ability to capture huge markets across Africa and by tapping syndicated loans. These companies, some of which offer financing for other assets, have also quickly added new revenue streams that have further tapped and expanded their customer base.