In 2020 and the first half of 2021, energy access-related equity crowdfunding campaigns raised a record $11.2 million. This recent boom suggests that equity crowdfunding could be tapped as a significant channel of alternative finance within the sector. If so, what types of energy access companies are best placed to raise equity via crowdfunding? How can entrepreneurs go about preparing a campaign? And how can donors support the increased use of this alternative finance channel?

Delving in the equity crowdfunding sector for energy access companies in sub-Saharan Africa and Asia, the latest report from Energy 4 Impact’s Crowd Power programme Equity crowdfunding for energy access: Opportunities for scale-up? explores answers to these key questions. 

The reason for this acceleration may be recent pandemic-related constrictions in the flow of investment in start-ups which means that many entrepreneurs are turning to equity crowdfunding as a “last resort”.  Between 2012 and 2021, there were eighteen successful energy access-related equity crowdfunding campaigns, with ten of them closing in 2020 or 2021. The accelerated activity in 2020 and 2021 may be due to the obstacles and frustrations faced by companies trying to raise equity from other sources.

The analysis found that although successful campaigns have been run by companies operating across a range of business models, technologies and maturity levels, there are some common success factors: companies with proprietary technologies; having holding entities incorporated in “crowdfunding-friendly” jurisdictions such as Europe; offering crowd-investors high growth potential at an early stage, frequently pre-Series A; developing high quality pitch materials such as videos and the capacity to devote huge time and resources to the subsequent campaign; and securing substantial anchor investments prior to launch.

Research by Acumen, a non-profit impact investor, indicates that $210 million in early-stage equity is required annually to close the energy access gap, and only $16.5 million was deployed annually between 2015 and 2018. Equity crowdfunding has the potential to make a material contribution to the early-stage equity financing gap faced by the energy access sector. For the right companies, it can be an effective supplementary source of funding, and can be leveraged to attract grants, debt capital and equity investment from other funders. The report argues that it should be considered as an additional, supplementary financing option for energy access entrepreneurs examining their funding strategy, particularly in the early stages of their company lifecycle.

Finally, the report also claims that donors can play an important role by supporting companies with campaign preparation and implementation, alongside co-investment. It also presents priority interventions including deal origination and due diligence support to platforms, investment readiness support for companies or co-investment.

This report is accompanied by the Equity Crowdfunding Guide: How to execute a successful campaign, which provides practical guidance to founders and entrepreneurs interested to launch an equity crowdfunding campaign, from choosing a suitable platform to closing a campaign.

Supported by UK aid through the Transforming Energy Access platform and implemented by Energy 4 Impact, Crowd Power examines alternative finance for energy access markets, with a particular focus on crowdfunding.

For other reports on crowdfunding click here.