Pawame Co-Founder On Why They Chose Debt Financing Over An Equity Round
Off-grid solar energy startup Pawame announced today that it has successfully gained access to USD 543,000 in debt finance through Sweden-based impact-fintech company Trine. Using crowd investing, Trine helps people to support solar energy projects while also delivering a return on investment.
MAGNiTT interviewed Alexandre Allegue, Pawame Chairman and CEO, who shared his thoughts on the fundraise:
Q: What was the logic with regards to going out for Debt financing over an equity round so soon after your previous fundraise in March?
A: We are in a business where new capital is always required to fuel our growth and finance our inventory, since we lease kits over a period exceeding one year that we purchase upfront.
Pawame initially mainly raised capital through equity since we didn't have the required track records for lenders (usually three years of financial statements etc.), but thankfully our credibility on the market is robust, we have delivered on our targets, and we are progressively shifting more and more toward debt inventory financing to avoid further dilution.
Q: Why did you go to international platforms for debt financing as opposed to regional equivalents?
A: Several reasons led us to take that direction:
- The first one being the fact that there was no local debt crowd funding platform that would accept to finance a business in Africa.
- The second one is the terms (interest rate, etc.) that we are obtaining in Northern Europe, that are more attractive than regional equivalents.
- And last but not least, the last one being the fact that local debt providers (banks etc.) are asking for guarantee that we could not offer at this stage.
Nonetheless we are pursuing our efforts in parallel to structure regional debt facility to diversify sources of funding.
Q: How was the experience of debt raising different to equity raising and what should entrepreneurs consider when deciding between the two?
A: Both experiences are challenging: raising debt in the region is not "entrepreneur friendly" as lenders are very risk averse as they are for important personal collateral and track records for asset free businesses. The debt raising process is more binary and depends on their check list. However, the equity raising process will depend on the ability of the founders to convince investors with a solid story and viable business model. Although, we succeeded in raising the required equity for our seed round, we have seen that it is much easier to raise early capital (Seed, Series A, B, C) for startups in the US, UK. Indeed, we found it more challenging in the region as investors don't have the same risk appetite. The choice of raising equity or debt is very strategic and depends on the timing maturity of the company.
Debt raising will prevent equity dilution, but it will increase the company's liabilities which might affect its ability to grow. A revolver facility for recurrent expenses with a predictable receivable (like in our model) would favor early debt raising. Equity raising will give a boost to the startup but will also dilute the shareholders. And lastly, depending on the industry, an equity capitalization following a debt/equity ratio will be required to raise further debt.
For the full press release, click HERE