Solar start-up in initial coin offering
The Sun Exchange, a Cape Town-based blockchain start-up that lets individuals buy into solar projects, plans to raise additional growth capital via an initial coin offering (ICO) in April.
The company raised $1.6m in 2017 from local section 12J investment firm Kalon Venture Partners and US investors, and plans to raise between $5.4m and $100m through its ICO.
The alternative funding model, whereby blockchain-based companies raise money by selling digital tokens, has gained traction in recent months, according to a report by PwC.
In 2017 $4.6bn was raised through ICOs globally, from just $200m in 2016, the financial services firm says.
The Sun Exchange platform lets individuals buy solar panels or individual cells and then lease them to end users, who do not pay any upfront costs but rather pay monthly rentals. Investors can receive their rental income in rands or bitcoin, and electricity costs on the system escalate in line with inflation each year.
The Sun Exchange has installed solar plants at Knysna Elephant Park, a wildlife rehabilitation centre in Durban and a school in Stellenbosch, among other projects.
"It’s typically ad hoc projects that would never be able to get funding through conventional channels for their own solar projects," said Abraham Cambridge, founder and CEO at The Sun Exchange.
"Solar projects are capital intensive and project financiers tend to want big portfolios to make it worth their while, whereas with our platform we can deal with projects on a case-by-case basis."
Cambridge said international investors tended to prefer rental payments in cryptocurrencies, as did most local investors.
"About 75% of our customers who pay in rands for their solar cell opt to receive their rental income in bitcoin," he said.
Cambridge said the planned ICO "is a massive project".
Since regulators in SA have not yet stated their position on ICOs — though the Reserve Bank is considering the implications of this funding model — Cambridge said the company would likely host its ICO in Malta, Singapore, the Cayman Islands or Mauritius, as there was regulatory certainty in those markets.
"Our first target for the ICO is $5.4m — that’s for business development," he said. That would partly go towards funding The Sun Exchange’s expansion beyond SA.
"We’ve got project partners lined up in east and west Africa, where there’s huge demand for energy. Anywhere there’s a cryptocurrency exchange we can operate. So part of the use of proceeds for business development is to make sure that we can develop and grow our capacity in those locations."
Additional funds raised would be allocated to a project prefinance fund, a research and development fund and an insurance fund that would protect investors if end users defaulted on rental payments.
The Sun Exchange had set a "hard cap" of $100m for its ICO, though "it’s unlikely in this climate that will be the case, but we have to have an allowance for it and that’s the theoretical maximum. The ratio of tokens purchased to tokens held in our treasury, for issuing to people through our rewards programme, has to be constant, so any we don’t sell will be burned so that ratio [is maintained]."
The ICO will involve the creation of 266-million Sunex rewards tokens, of which 166-million will be made available for purchasing at a discount under the ICO.
The Sun Exchange would pay taxes on funds repatriated to SA, Cambridge said.
Paul Mitchell, fintech and blockchain lead at PwC SA, said "the ICO is the second big disruptive model to come from the blockchain after bitcoin, enabling decentralised fund raising, but there are not yet many clear regulations in this area".
"The best businesses are structuring their ICOs carefully to avoid regulatory and other pitfalls," Mitchell said.