…because venture capital alone won’t get us out of the climate crisis.
Earlier this year, LACI announced a $6 Million Cleantech Debt Fund to provide loans of up to US$50,000 to help early stage startups serve their first customers, and bridge loans of US$250,000 for later stage startups. To make the financing more accessible to traditionally underserved populations, LACI is not requiring personal collateral or personal credit scores to underwrite the loans. This is a great example of building more equity into the clean energy startup ecosystem.
We’re proud to partner with LACI to grow this innovative debt facility as it created an entirely new pathway to debt capital for Nexus’ early stage portfolio companies in the US.
But it’s just one of several alternative financing vehicles that New Energy Nexus supports around the world, and proof that venture capital is not the only source of capital for climate entrepreneurs.
1. Affordable loans for community-based organizations
Bena and her sister Mystica using the solar light at home for their homework in Arua, Uganda
ENVenture, powered by New Energy Nexus, also provides affordable loans requiring no collateral for local Community Based Organizations in Uganda to start clean energy businesses. Banks typically do not lend to these entrepreneurs, given their low risk tolerance, and collateral requirements. These businesses are also not suitable for equity financing, thus they typically rely on grants and philanthropy to run their businesses. However, debt is appropriate because a loan in of itself, teaches financial literacy – the more timely repayment are, the higher the “credit” score, which gives the missing proof of credit worthiness for institutional lenders. The impact? 154 Community Based Organizations were able to launch clean energy businesses, reaching over 100,000 people with clean energy. Access to affordable loans = climate impact.
2. Bonds that support small distributed energy projects
In India, Nexus also invested $5 Million in cKers Finance’s Sustainable Energy Bond issuance for India. These bonds were a new instrument to allow impact investors to finance sustainable energy assets exclusively, as well as track the impact of their capital ongoing. The proceeds of the bonds scale-up decentralized solar segments, such as pay-as-you-go models for residential and commercial solar systems, solar pumps, and off-grid solar for micro-mini-grids. This financing also catalyzed the creation of over 45 megawatts of distributed solar energy assets across 100+ locations in India by being able to do smaller-ticket sizes, a key to inclusivity.
Supported by New Energy Nexus India, Solar Infra has installed more than 2.5MW of solar products and has reduced ~1.8 tons of GHGs which is equivalent to 1.2 tons of Co2 over the last three years.
3. Mobilizing retail investors in the energy transition
Also in India, New Energy Nexus India, a partnership with the Climate Collective, has launched Climate Seeders Club, which allows retail investors to invest small check sizes (starting at 2 Lakh INR / around US$2500) in Indian climate tech startups. By focusing on retail investors, Indian climate and energy startups get unique access to NRI diaspora investors (non-resident Indians) that may not be able to write large check sizes, but are interested in investing in homeland startups.
So how can investors continue to support local clean energy businesses?
1. Catalyze philanthropy
Low risk investors, such as philanthropic capital, can channel money in designing programs like LACI’s Cleantech Debt Fund to grow businesses. Echoing Green and Kiva both have loan facilities that have 0% interest rates to channel philanthropic dollars that support business growth.
2. Seek government partnerships
Governments have a vested interest in small business. Many have programs designed to support small business growth. International development agencies can also work with local nonprofit organizations to channel and create debt funds that are designed with impact in mind.
3. Create instruments to deploy smaller ticket sizes
Retail equity crowdfunding platforms are a great way to democratize investing and allow everyone to participate in supporting the growth of underrepresented founders and their clean energy startups.
Venture capital need not be the be all source of capital for climate entrepreneurs. There are a lot of different financing instruments available, but the availability and scale of capital remains limited.
If you’re a startup considering taking on debt, check out our CFO Christina Borsum’s helpful guide here.
Written by our COO, Aneri Pradhan.