Abe Cambridge pitches his South Africa based startup Sun Exchange to Adam Draper of Boost VC and Sheel Mohnot. Then something happens on our show that’s never happened before.
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Episode transcript
You’re listening to The Pitch, a podcast about startups, I’m Josh Muccio.
Abe Cambridge: I firmly believe we are entering into an era of solar powered money.
Abe Cambridge, founder of Sun Exchange. He believes we will see unprecedented growth and opportunity in Africa.
Abe: There’s 650 million people in Africa right now with no electricity tool, all of these guys are going to need electricity and finance in the next 50 years, and there’s going to be 3 billion more people in Africa by 2100.
He’s betting the solar farm, that digital currencies like Bitcoin will fund his solar projects.
Abe: I’ve seen that digital currency is where Africa is going.
But as you’ll hear not everyone agrees.
Adam: Bitcoin is really, really good for getting money from here to here but on the liquidity side it’s better to have currency.
That’s Adam with Boost VC. On the second half of today show Sheel, my cohost gets really excited.
Sheel Mohnot: This is cool, this is the first time this has happened…
Let’s get started. Here is the founder, Abe.
Abe: The Sun Exchange is a collaborative economy asset financing platform. We transacted the world’s first digital currency to solar energy investment transactions. We also delivered the first crowdfunded solar plant in Southern Africa. We are implementing internet-of-things, smart meters which distribute revenue generated by solar electricity by the kW hour in real time back to investors. We are looking for seed investment of $650,000 which will enable us to increase our marketing and operational capacity which will enable us deliver us a multi megawatt pipeline of projects.
Adam: Ok you said a lot of words.
Adam with Boost VC, an accelerator focused on blockchain and virtual reality startups.
Adam: And there are a lot of words like the average human being probably didn’t understand. So I wanted to understand who’s your customer?
Abe: Ok on the B2B side we work with SME’s throughout the developing world who are in a funding gap.
SME’s – small to medium sized enterprises – is a term typically used outside the U.S. but has similar meaning to the commonly used acronym, SMB, used here in the U.S.
Abe: The economies in Africa are the fastest growing economies in the world, they just don’t have energy to sustain the economic growth. Due to the government issues or lack of infrastructure or just the geographies.
Adam: Are you trying to be a financing platform for solar panels, and then you’re making it so that those investors in the solar panel get paid?
Abe: Yes.
Adam: Based off kilowatt generated.
Abe: Wherever they are in the world.
Adam: So you’re Solar City but with the blockchain?
Abe: Yes.
Adam: Ok, how do I get paid?
Abe: You get paid through – the smart meter is prepaid. That’s how the energy sector is moving in Africa particularly – prepaid meters. The purpose of the smart meter because they are autonomous. They are distributing the payments now to the investor, we are not part of that transaction. We can disappear and you know that your smart meter is going to continue to distribute revenue for 20 years.
Adam: That’s cool. My understanding of your business, how Solar City works is yes they sell to the customer saying, like hey your house should have some solar panels on it. But what they do is they finance those solar panels by going to Morgan Stanley and all these other people who finance the creation of those. And so essentially Morgan Stanley all those people own those solar panels for about 10 years. The money that they are making is off of the money being saved by the customer, customers saving 40% or something on their energy bill every month. 20% of it goes back to Morgan Stanley or whatever. Then what happens is after 10 years is Solar City owns it. Solar City gets to take all the money and so really Solar City is just a financing company so they’re moving money and you get to invest in these funds. That’s what you’re doing, right?
Abe: Yes correct.
Adam: Expect you are not going to Morgan Stanley you go into the world, and say hey lets crowd fund them.
Abe: The reason why we we’ve selected to use digital currency, I’m going to avoid using the word Bitcoin because it’s misunderstood. Having been based in South Africa I’ve seen that digital currency is where Africa is going. But they’ve being using mobile money before they have bank accounts. It’s an important technology for the development of Africa. So we are using digital currency as an international rating system. It’s one universal currency which anybody in the world can participate in to finance solar energy. Yes we are financing agent and almost like a marketplace but we would never own the asset, the asset belongs to the owner of the solar modules. And at the end of the 20 year lease agreement the solar modules are then donated to whoever the off taker is. We own our revenue from charging a success fee on raising each project as it’s financed, and we also charge a servicing fee.
Adam: Why don’t you do it the other way?
Abe: The other way is we could do but the other reason why these projects…
Adam: It’s good business.
Abe: It is good very business but the reason why we are financing the projects that we are funding is because they’re unfinanced. I won’t say unfundable but they are too piecemeal they’re too spread out and it required each one to be unpacked and looked at a certain degree before it’s a validated bankable project. If you are Morgan Stanley your level of due diligence required in order to determine whether this project is bankable or not would kill all that project.
Sheel: What size are to these projects?
Abe: They are typically under 1mw, under a $1 million of projects. I would say the average size system is 200 kW so we can have $200,000.
Sheel: How are they getting funded without you?
Abe: They are not.
Sheel: These are all projects that wouldn’t get funded without you?
Abe: Debt is extremely expensive in Africa, and seeing it’s a very new industry the regulations aren’t quite in place yet for solar power. So it’s a fairly gray area as far as banks are concerned. They are just not touching them.
Sheel: These are larger projects. They’re not like residential.
Abe: Yeah, we are talking about major international tire manufacturers, car manufactures, large scale farms and dairy farms. These are businesses that have been around and in South Africa for decades and they just need to lower their energy costs.
Sheel: What types of returns do investors get on your platform?
Abe: Typically there between 10 and 15% and that’s what we aim for. Some are actually higher than that and some are lower than that. One of the project’s we are looking at yesterday was for a panther sanctuary. Because they got a very small energy usage. We can only offer say an 8% return on that but to appeal to people who wants support wildcats in Africa that’s a good project to crowd fund.
Adam: That sounds awesome. A panther sanctuary?
Abe: Yeah.
Adam: Can you finance one of those out here?
Abe: Yeah maybe, I’m sure there’s a zoo nearby.
Adam: What is your traction?
Abe: We’ve delivered our pilot project which is to demonstrate and validate our model to show that yes it’s possible to crowd fund a solar plant from an international audience using digital currency. That was for a school near Cape Town which is only a $30,000 project.
Adam: And you installed solar panels?
Abe: Yeah, the school is now… we’ve reduced their running costs by say 15%. The investors are getting 10.2% internal rate of return for 20 years and that was raised almost entirely in Bitcoin.
Steel: Are there other crowdfunding solar platforms out there?
Abe: There are other solar crowdfunding platforms, there’s probably one in each major developed country they typically just cater towards their own territory. In this country you have Mosaic of course and in in the United Kingdom you’ve got Abundance, and you got Lumo in France. These are wonderful platforms but they are specifically catered for their own projects, and they accept only their own currency. We’re saying right lets go to a global audience, because you may not have a roof to put it on. You may live in apartment in New York City. You probably wouldn’t want a solar panel in New York City because the solar radiation is not great. You can now choose where to put your solar panels and we can show you projects where you can put them up. You could actually choose solar panels in each corner of the world so you’ve always got a solar panel that’s in the summer sun.
Adam: So why are you doing this?
Abe: Why am I doing this? Well I have got a deep interest in solar energy. I’ve being in the solar industry for 10 years. I’ve moved to Africa and I’ve seen that the commercial sector is almost nonexistent. I mean there is one but its tiny compared to what it should be. If you look at Germany I’d say 80% of their solar modules in commercial scale solar plants. Germany has got more solar panels installed than any other country in the world. There’s a huge gap in the market there and if we can unlock that gap for solar developers and solar installers in Southern Africa. Then that market’s going to grow and we can finance all those projects.
Adam: Can I use U.S. dollars?
Abe: You would need to go through your exchange. Our reach of market will be to…
Adam: What I’ve learned in sort of the blockchain Bitcoin space is that Bitcoin is really really good for getting money from here to here. But on the liquidity side it’s better to have currency.
Abe: That’s what we’ve seen. I’d say half of our Bitcoin investors bought and purchased Bitcoin for the first time just be able to invest in small projects. I’d say our offering is so interesting that we are actually growing the ecosystem.
Adam: Think of how many people would join if it was just their own local currency.
Abe: It would be huge but then we are losing out if we just focus on digital currency, say it’s a niche. We can talk to our customers, and there’s enough wealth in that just out one customer segment for us to satisfy our pipeline. Not saying in the future we are not going to broaden horizons, but for now…
Adam: I think there’s a way to do this. I think there’s an easy way you don’t need to build it like whether using coin base which is one of the other exchanges.
Sheel: Exactly, the Bitcoin is just an underlying thing.
Abe: They don’t even need to know it exists, yeah exactly.
Adam: I’d rather they don’t.
Sheel: Yeah exactly.
Adam: That’s the thing, I don’t want them to think Bitcoin because of the stigma of Bitcoin. Cool – it’s awesome.
Abe: Thank you.
Adam: I think you are going to want to own the maintenance, like eventually you are going to want to own whole pipeline, the process, the financing the…
Abe: As they’re in multiple markets in Africa that’s a lot to manage.
Adam: Yeah but you will make more money, and then you will own the project after 15 years. I’m going to invest in these early ones because I can get paid infinite amounts of money over the course of time like based off of how much energy they are saving, right?
Abe: Yeah exactly.
Adam: Until these guys figure out they want to own it after 15 years. [laughter]
Abe: I’d say the growth for us may not be in the solar sector but in other asset financing, because essentially the technology we’ve got is for distribution of monetized asset finance. If we were to move into just say car finance for example. You have an uber driver that needs to get car finance you could then crowd fund his uber car as he drives around. The investors get paid out by the mile, there’s no reliance on the driver to make his monthly payment its done automatically. I’d think that be where our technology can be applied in the future.
Abe is just leaving the room, now it’s just Adam and Sheel.
Sheel: What do you think man?
Adam: It’s cool. I think the reasons he was pointing at for using Bitcoin were the wrong reasons. The real reason is just global.
Sheel: I completely agree.
Adam: He can’t have access to online financing in Africa. This is the only way they can.
Sheel: It is a global nature – his like tying Bitcoin to solar I didn’t buy that.
Adam: There is sort of like people who say that Bitcoin could be the currency of energy which is sort of an interesting concept but it’s not completely understood the thing yet. But the core business the financing the on demand it’s sort of like on demand crowd financing for solar panels. He wants to bring it outside of solar panel he is thinking too many things in that regard. So Love him! Great!
Sheel: Would you bring him into boost?
Adam: Yeah.
Sheel: This is cool. Just so people listening know, you want to talk about boost briefly?
Adam: We are the longest running Bitcoin focused accelerator. But we’ve also have added virtual reality into that mix so we’ve been investing for four years in the Bitcoin blockchain space. We’ve watched the evolution of that happen, this evolution is really interesting because it sort of like went from Bitcoin the hype, the excitement speculation to blockchain excitement but like thinking that it’s a magical root that you sprinkle on something and it solves all your problems. Now it’s evolving to like really good use cases. So if you think about what he’s pitching. He couldn’t do that without Bitcoin or the blockchain. That’s exciting – that’s really exciting thing.
Sheel: But it’s not a Bitcoin company.
Adam: It’s not a Bitcoin company. It’s a solar financing company.
Sheel: For me I think I like vision and it sort of fits in with my background at Kiva.
Adam: I thought of Kiva four times while he was talking.
Sheel: Yeah exactly, that’s like my background so I love it from that perspective. For me it’s still a bit early that he’s financed just one project. That plus the Africa bit makes me hesitate.
Adam: My hesitation is mostly around like all the money he is trying to raise is going towards an engineering team that is not in house. We’ve not had good experiences, never, never. Maybe one time it worked out where they ended up being in the house eventually or something like that. But like never has really worked out for us.
Sheel: He told me he is bringing them in house.
Adam: And if he is in Africa I feel like there’s a way in which you can get a high quality team for like reasonable – not Silicon Valley prices is essentially what I’m thinking. You raise a little bit of money and I think you can do pretty well out there. The Africa thing I’m very… I don’t know it might be the contrarian in me. But it’s sort of like when everyone is running away it’s sort of a good time to throw money at it. And so I feel like Africa – everyone doesn’t understand it well enough yet, but there are a lot of people and people in general I believe are good people and they’re going to be building things over the next 20 years… it is the continent that is like the last 10 years was all about Asia. I feel like Africa is a continent that’s probably going to be rising especially if you provided the internet.
Sheel: No question. I have another company in my current batch out of 11 that is in Nigeria. I’m a big believer in Africa but it tends to be the case for me that if I’m investing in Africa, the company has to be a little bit further along. Which for you, you’re in a different state.
Adam: Why don’t we just go for it?
Sheel: Would you make me an offer?
Adam: Yeah I will make an offer. I’m thinking about what I’m going to offer him. I liked him and that for me is the most important thing.
Sheel: People, it’s all about people.
Adam: British aside like he was a good guy. He has experience in the space, his why – I always try to figure out like why they’re doing what they’re doing. His reasoning is pretty business oriented I normally want a more emotional connection to it. But he has 10 years of experience in the space of identifying and financing solar panel operations I think that’s awesome. I think with a little guidance a little more capital he could be running energy in Africa. Eventually raise from you guys too. [laughter] Yes I will make him an offer, I’m not sure what I’m going to offer him yet. Right after this I’m going to be making him an offer.
Sheel: Awesome this is the first time this has happened on this podcast.
Adam: It’s still early. But he did one. He has done one.
Sheel: That’s why I’m saying it’s perfect for you; to0 early for me.
Adam: Yeah he did one – its perfect. You can keep tabs while he grows. I think he did want it, it’s sort of in my wheel house of weird and yeah, I like it.
Sheel: I like that weird is your wheel house.
Adam: I’ve been trying to figure out how to describe my wheel house better and its either science fiction or weird. [laughter] That’s what we’re going for right now. But it’s in the wheel house of both, and Africa is a tough market. But I think if he has a good understanding of it, it will be good.