The 3 most common mistakes small scale renewable energy developers do when raising capital (<$50M)
Since the beginning of March-2020 (when we started eDGe Renewable Partners) we have been involved in 20+ small scale capital raises with projects spanning 13+ countries, we have summarized the 3 most common mistakes we have seen below hoping that this could be of help to developers.
According to IEA, $281 billion dollars would be invested in renewable energies in 2020, however, raising less than $50M for a renewable energy platform/IPP is becoming exceedingly difficult as investors pursue larger equity tickets to deploy in the current renewable energy boom.
There are investors interested in small scale investment (<$50M); those investors are usually:
1 - Small PE/Infra funds.
2 - Corporate investors looking for partnerships in new markets (cross-border investments).
Investors typically review 100+ opportunities high level, to pick ~10 opportunities to diligence, only to close 1 transaction; developers should thus be very well prepared to stand out from the competition.
Developers usually would move forward to speak with institutional investors while not prepared/ready, those are the 3 most common mistakes we have seen so far:
1 - Unprepared financial models:
It is quite common for developers to move forward with a project without a financial model, assuming that at the early stages of the development, most of the inputs are not confirmed, so why spend time on a financial model that won’t be accurate anyways?
Financial models are extremely important (especially for group 1 above) to show the developer’s understanding of the range of possible returns, the project risks, and the different variables/inputs of the project at the different stages of development.
Recommendation: Developers should prepare at least a simple cash flow model that is clear, organized and shows all the main inputs/outputs needed to assess the opportunity.
2 - Unclear projections & pipeline
For developers planning to build a platform/IPP, they are essentially asking investors to invest in the team and their future growth potential, thus the core of the strategy should be built around the pipeline of projects as well as the team’s experience and track record.
What we often see is a lack of information and details on the status of the pipeline of projects, investors would usually decide to pass and move on to the next opportunity, given the ambiguity of the existing opportunity, the effort needed to clarify the data, and the availability of many other opportunities.
Recommendation: Developers should have a simple sheet with all projects in the pipeline, clearly showing the high-level information on projects including a categorized section for project status, milestones, major risks, key assumptions, timelines, etc..
3 - Information mismatch:
This is the most common mistake we see; when developers provide information in the teaser or corporate presentation that mixes facts and forecasts/ambitions that can not be verified during the initial Q&A sessions with investors.
This is a red flag to investors and they usually decide to move on to the next project for the same reasons similar to #2 above.
Recommendation: Developers should be very concise and accurate when they describe the opportunity to investors, clearly separating facts from forecasts or views. The initial information should include information that could be easily verified and backed by facts/documentation only, while separately highlighting the potential for growth.
