This is a guest blog for the Energy Catalyst knowledge programme by Thomas Ewing and Harry Masters, finance specialists at Open Capital Advisors, a management consulting and financial advisory firm focused on Africa.
Successful capital raises can mean the difference between a good-but-unrealised idea and a thriving business. Early-stage capital allows companies to build prototypes, test ideas in the market, and prove business models. Early fundraising also lays the foundation for future raises by allowing companies to develop traction and proof points. However, raising capital can be challenging for early-stage energy companies focused on developing economies, as they often don’t “fit the mould” for many investors. They must make extra effort to cultivate relationships with investors and tell a compelling story.
Finding the right investor
One of the most common finance questions we hear from early-stage energy companies is “how do I find the right investor for my company?” Engaging investors is time-consuming, but finding well-aligned investors is critical for a successful long-term fundraising strategy. With so many potential investors, it can be challenging to know where to begin. Charm Impact—a crowdfunding start-up that invests in early-stage clean energy enterprises in developing markets—recently completed its own equity raise.
The team first organised a long investor list into groups of investors with similar profiles then tested a small number of investors within each group to quickly “pulse check” suitability and eliminate whole groups of investors. Through this process, they ultimately decided to leverage equity crowdfunding, where investors had comfort with Charm’s business model, were happy to take early-stage equity risk, and could provide long-term value to Charm as a large team of “champions” willing to spread Charm’s story across multiple audiences.
Companies can take such a systematic approach to quickly narrow down to a smaller set of investors who are worth dedicating extra effort to. “It’s not necessarily true that you need to knock on 100 doors before you find the right investor… it is about finding the right doors to knock on” said Gavriel Landau, co-founder of Charm.
Playing the long-term relationship game
It’s not all about finding the right investor immediately, or even during the current capital raise. Every investor relationship can pay off down the road. Mobile Power provides affordable electricity in the developing world through its MOPO battery rental platform. Mobile Power COO Luke Burras describes how their fundraising team focused extensively on establishing and cultivating investor relationships during their equity raise, recognising that developing trust takes time. “We told our equity investors what we were going to do that year, and then delivered on it before we came back to them for funding”. This type of trust can create a reinforcing cycle that will continue to support businesses through successive capital raises, each potentially requiring a new set of investors.
Telling the right story
It’s also important that businesses tell investors a compelling story to justify investment. Connected Energy is a provider of smart metering hardware and software platforms for off-grid solar and biogas systems. For Vijay Bhopal, their Managing Director, the company’s successful seed funding round was due in large part to the demonstrated robustness of the business model. At the pre-revenue stage, the team focused on extensive data collection, early product monitoring, and partnerships documentation. In doing so, the team showed investors that they “were credible and thoughtful in their approach”. This story resonated with two micro venture capitalist firms in particular, who valued Connected Energy’s ability to demonstrate results despite the company’s early stage.
While every company must pursue a capital raise strategy unique to its needs, model, and mission, placing a strong emphasis on understanding investors and engaging them in a compelling and consistent way is critical to almost every successful raise.
Featured image: A solar installation in a Nigerian market, produced by a Charm Impact investee. Credit: Charm Impact