CASE Business Model Profile ECO 2011

8/4/2019 CASE Business Model Profile ECO 2011

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Professor Cathy Clark and Research Assistant Lillian Gu prepared this profile for educational purposes only. Copyright © 2011 CASE at DukeUniversity. To order copies or request permission to reproduce materials, go to www.caseatduke.org.

Business Model Profiles

E+Co:

A Clean Energy Investor Outgrowing its Nonprofit Launch

E+Co is a clean energy investment nonprofit with a philosophy that “there is a demand for cleanand affordable energy in developing countries, and this demand can be satisfied bylocal entrepreneurs.” Based on this belief, E+Co functions as a nonprofit financial intermediary.

Its main sources of funding are grants, debt capital and return on investment. Debt funds andreturns above the cost of its debt support its capital investments in clean energy enterprises indeveloping countries, while grant dollars fund its business development, monitoring andevaluation, and capacity building activities. This profile explores why E+Co believes it hasreached the limit of what it can do as a nonprofit and why it is transitioning to include new for-profit arms to create what it considers a stronger, more robust hybrid form to allow for futuregrowth and impact while achieving organizational financial stability.

The Model: Bookending Investment Capital with Support Services

E+Co’s model is services plus capital through its local investment staff. E+Co does not providegrants, but rather invests seed and growth capital to launch and expand sustainable clean energybusinesses in Africa, Asia and Latin America. Larger than micro-enterprises, “small andgrowing businesses” typically employ between 10-150 staff and are capable of absorbinginvestments generally between US$25,000 and US$1 million. The E+Co investment processappears rigorous. Significant parts of E+Co’s operating model are the early stage services itoffers in addition to investment dollars. Prior to investment, the organization offers capacitybuilding services and business planning to energy entrepreneurs. The purpose of these services

Interview with: Christine Eibs Singer, CEO and Co-Founder

Date of Interview: November 29, 2010 and February 4, 2011

Location: Bloomfield, NJ, USA

Website: https://eandco.net

Business Model Type: Financial Intermediary/Investor

Stage: Mature (over 10 years old)

Tags:Legal structures, financial compensation, debt vs. equity, role

of intermediaries

https://eandco.net/

https://eandco.net/

https://eandco.net/



August, 2011, page 2

is to prepare clean energy businesses for investment through hands-on support through its sixregional offices. Services include market assessment and segmentation, business plandevelopment, risk identification and mitigation, financial modeling, accounting andorganizational/ownership structuring, and growth capital sourcing.

After the investment is made, the organization engages investees in its monitoring and evaluationprogram. This is based on a detailed methodology E+Co developed to determine and evidence itsfinancial, social and environmental impacts. The organization measures its enterprises across amenu of 34 indicators in order to present a multi-level view of the impacts of alternative energyenterprises. E+Co is a proponent of developing and supporting the institutions and fields thatsupport the capacity building of and investment in small and medium sized enterprises.. E+Co isa founding member of the Aspen Network of Development Entrepreneurs (ANDE), and apioneer Global Impact Investment Ratings (GIIRS) Fund. Great Track Record, with Challenges

Since its start in 1994, E+Co has been successful in proving the services plus capital model of energy enterprise development. Through investments of $25,000 to $1 million, E+Co hasinvested over $45 million through December 2010 in 194 enterprises that are providing cleanerenergy to 7.8 million people since 1998. This investment has mobilized more than $145 millionof third party financing. The E+Co portfolio includes organizations such as SELCO India,Toyola Energy in Ghana, and Tecnosol in Nicaragua. In 2010, E+Co had revenues of about $7.5million and about $1.8 million represented income from its investment portfolio, while theremainder was mainly from grants and contracts. It has written off 8.8% of its loans and equityinvestments and has a weighted average IRR on repaid loans of 9.5%. 1

One of the main challenges that E+Co has faced is the lack of funding outside of debt. While therole of its enterprise development services is recognized as directly linked to its investmentsuccess, E+Co has struggled to raise sufficient grant funds to deepen its knowledge management,advocacy and capacity building activities, which are chronically underfunded. “Our ability to

raise grant funding has been inversely proportional to our ability to raise debt,” points out CEOand Co-Founder Christine Eibs Singer. The integration of its enterprise development servicesalongside its investment presents a challenge for some foundations and development funderswho question whether grant funding isn’t just improving someone else’s investment return.

A second challenge that E+Co has faced is the fact that its investment capital is debt funded. Inorder to meet its debt service requirements, about 85% of the capital E+Co provides to itsenterprises is in the form of debt, thus restricting its ability to provide significant equityinvestments to its growing enterprises. “As a non-profit, we cannot raise equity as we have noshareholders, other than our mission” explains Eibs Singer. “E+Co has a mismatch in its capitalstreams.”

1 All data in this paragraph comes from the E&Co website: see http://eandco.net/investments/portfolio-summary/ and the organization’s 2010 annual audit report.

http://eandco.net/investments/portfolio-summary/







A New Fund Management Company: Separating out the Investments

To address cash flow issues and the need for equity, E+Co is transitioning its investmentactivities to a new, for-profit management company. The goal is to create a private entity(ies)that would house individual, geographically-focused investment vehicles that will allow E+Co to

aggregate larger amounts of capital that can be deployed in the form of both debt and equity. .The for-profit management company would be 100% or majority-owned by the nonprofit E+Co,and E+Co will gradually shift all of its investment activity over to these facilities. E+Co hopesto have a private equity fund for clean energy SMEs in Asia started by the end of 2011 and anAfrica facilityearly in 2012.

The idea is that by separating out its investments, E+Co will be able to significantly increase itsimpact through both the investment AND enterprise development services, realigning itsfunding sources more cleanly with its different activities. A major goal is to shine a light on itsnonprofit work, Eibs Singer states, “As we shift the pure investment from the nonprofitorganization, we achieve at least two goals – giving evidence of the fact that clean energy

enterprise investing can attract private capital, and we give clarity to the unapologeticallyphilanthropic mission of our enterprise development services and knowledge managementactivities – these should now leap out from the pages.” However, the continuous challenge isobtaining funding for this important and vital work. “[Investors and newbies to the market] wantto pick your brain and then they want to invest next to you,” explains an exasperated Eibs Singer.“They don’t want to pay for your 17 years of knowledge or on-the-ground due diligence.” Ahuge hypothesis Eibs Singer is betting on is that nonprofit funders will recognize the importanceof the technical and other assistance they provide and will be more willing to fund this work requiring subsidy as it is a cost the investment market will not bear. She is not entirely alone inthis model – there are several examples of other investment funds that have sister nonprofits whoperform various forms of technical assistance: some examples include Pacific Community

Ventures, SJF Ventures in the US and Agora Partnerships in the US and Nicaragua.

E+Co Subsidiaries

Currently, E+Co has two for-profit subsidiaries, E+Co Capital Latin America and E+Carbon.E+Co Capital Latin America is the fund manager for a small, $17 million mezzanine debt fund,focused exclusively on renewable energy and clean production technologies in Central America.E+Carbon works on carbon monetization for energy entrepreneurs. E+Carbon holds a tradeagreement with Goldman Sachs until 2012 in which Goldman Sachs is obligated to purchase allof the carbon that E+Carbon monetizes. E+Carbon spends two-thirds of its operating budget on

third party validators and verifiers.

Challenges Ahead: Protecting the Mission

As E+Co creates its for profit management company, the main challenge is to protect its mission.“How do you ensure that your social and environmental focus is not just completely waylaid byfinancial returns?” asks Eibs Singer.




Investment Criteria. One challenge will be to ensure that investments are aligned with E+Co’s

mission and not purely driven by financial incentives. Fortunately, its funds will be limited toclean energy, so at least all of the investments will be in the clean energy space. However,protecting its mission is still a concern as the funds grow and must engage more directly in the

for-profit investment marketplace.

Compensation Packages. Executive pay is often linked to financial returns, but E+Co hopes todesign a financial compensation package for its new company that is also based on social andenvironmental returns. Determining the acceptable social and environmental milestones for thisstructure will be key to E+Co’s future success and impact.

Discussion Questions:

1.Do you think separating its subsidized activities from investment activities will enableE+Co to grow its investment dollars without jeopardizing its nonprofit grant dollars? Why

or why not?

2.Are there any other ways that you think E+Co could go about structuring its work? Are

fully-owned subsidiaries the right approach?

3.What other concerns might you have if you were in Christine’s shoes about this new

business model change?

CASE Business Model Profile ECO 2011

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