ABOUT SCAF - Introduction
The Seed Capital Assistance Facility (SCAF) is aimed at helping energy investment funds in Asia and Africa to provide seed financing to early stage clean energy enterprises and projects. The Facility is implemented through the United Nations Environment Programme, the Asian Development Bank and the African Development Bank.
Entrepreneurs can transform markets, but the environment for entrepreneurship is poor in many developing countries, particularly in the energy sector. For new business ventures there is a lack of available enterprise development support services and seed financing is hard to secure, with most investors reluctant to engage too early. This means that even high potential renewable energy and efficiency sectors develop quite slowly.
The two largest challenges that investors have in providing seed capital financing to early stage projects and companies are the higher transaction costs and insufficient returns offered by these small, less mature and more risky ventures. The SCAF facility is designed to address these two hurdles, offering investment fund managers two types of cost-sharing support for those willing to include a seed investment window within their overall investment strategy.
SCAF Support Line 1 - Enterprise Development Support
The first SCAF support line can be used to cost-share some of the elevated costs associated with deal sourcing, providing enterprise development services to and transacting seed scale investments. As part of this arrangement, the cooperating fund manager commits to providing enterprise development services to qualified local entrepreneurs as a means of identifying and developing a pipeline of early stage clean energy investment opportunities. Each cooperating fund manager decides the services they will offer, based on the local context, however the common elements of these services generally involve:
The Enterprise Development Support comes in the form of annual fees, time limited to between two and three years, the time it normally takes to graduate seed financed developments into full-scale investments. This support is provided as a contingent grant, requiring that the cost-shared activities lead to corresponding investments being taken by the fund’s seed window.
SCAF Support Line 2 - Seed Capital Support
The second SCAF support line is designed to help offset the hurdle of higher perceived risks and lower expected returns when dealing with early stage clean energy project and enterprise developments. The level of support provided is negotiated with each cooperating fund manager and then paid on a standard basis with each project. Typically the support is in the range of 10% to 20% of each seed capital investment, paid at the time of investment disbursement.
This support is used for covering some of the elevated project development costs that normally are charged to or financed by the developer, for example technical assessments; contract negotiations for fuel-supply or off-take agreements; environmental impact analysis; and other aspects of the permitting process.
By sharing transaction costs and bridging the gap between returns offered by local sustainable energy entrepreneurs and those required by the investment community, SCAF helps to: