Off-grid solar startup companies in Africa have received more than $2.3 billion in funding over the past 10 years. This is according to the recently issued biennial Gogla-World Bank report, which stated that the majority of the funding has, however, gone to just seven pay-as-you-go (pay-go) scaleups based in Africa, leaving hundreds of others in the early stages unable to raise money.
According to the Gogla Investment database, the seven most backed solar startups are Sun King, Zola Electric, M-Kopa, Bboxx, d.light, Engie Energy Access, and Lumos. These companies have received a little over 70% of the sector’s equity, debt, and grant financing, while over 150 startups in the seed and startup phases have received the remaining funds.
Scaleups received investments totalling $600 million in equity funding between 2015 and i021, while early-stage businesses attracted $255 million in VC funding during the same period
Overall, most early-stage startups in Africa have had difficulty obtaining loans, especially after the COVIID pandemic, although scaleups have been able to do so while still operating in a challenging market.
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How Scaleups Are Able To Succeed
The aforementioned scaleups use asset-based finance (pay-to-own) pay-as-you-go methods for solar kits and lanterns, which are enormously popular in Sub-Saharan Africa, where millions of people are off the grid, and national electricity systems are still in the early stages of development.
Due to a lack of funding, early-stage startups are unable to purchase the solar kits and lanterns they need to expand and win over more customers and markets. Some of their important African markets include Ghana, Kenya, Uganda, Nigeria, Rwanda, and the DRC.
“Startup companies report that accessing equity capital has been challenging, resulting in some being overleveraged and others facing business difficulties. Lack of early-stage equity has resulted in the stifled growth of many companies,” said Gogla, a global association for the off-grid solar energy industry, in the report released a fortnight ago.
“This is a barrier to the expansion of off-grid solar in new markets; as equity, grants, or output-based incentives, such as results-based financing, are generally best-placed instruments for market expansion,” said the report.
Why This Trend May Continue
The pattern is likely to persist because, so far in 2022, several of the seven scaleups have raised the majority of the capital raised by the off-grid solar pay-go companies, according to statistics on disclosed agreements from the Big Deal database.
According to an analysis of the data, roughly 30 startups and scaleups have attracted millions in debt-equity fundraising so far in 2022. Of the total, 11 firms raised $367 million in equity capital, including SunKing, M-Kopa, and d.light, which accounted for 93% of the total equity amount.
The four scaleups currently account for 86% of the total debt-equity capital raised by companies in Africa’s pay-go solar sector when adding the $50 million in debt funding from D. Light and the $35.5 million in debt funding from Bboxx.
Due to their ability to seize huge markets throughout Africa and by using syndicated loans, these businesses can acquire capital. These businesses, some of which provide finance for other assets, have also been quick to develop new revenue streams, tapping into and growing their clientele.