PAYGO vs Funding Delays and a Cyclone

So you think you have enough money to launch?

This is my most expensive post. So far it has cost me $150,000 and 18 months. I’m writing of my PAYGO business which I started with my partners in Mozambique 18 months ago

Back in 2017 they funded and I designed, part funded and operated a stripped down PAYGO solar 2.0. We went into this project with a lot of optimism. We agreed that we had both a wide open country opportunity to be the first to sell into the rural Mozambiqcan market.  We felt the PAYGO model was ripe for innovation. Pull away the hardware design, the software development development, the whole run before you can walk approach, and deliver the lowest cost, simplest version possible.

We launched with $300,000 including $100,000 of grant funding from DFID to support the first expansion of digital finance into rural Mozambique. We had enough money to build a portfolio of 3000 clients, and full proof of concept, which we felt was essential to underpin the first round of serious fund raising. Towards the end of the first year we received a concessional loan of $300,000 form KfW at an interest rate of ……20%. Such is local funding in Mozambique

We thought we had enough money, momentum and forward planning … but then the funding gap kicks in. There are aspects of the funding gap that don’t get discussed much. Clearly there’s a time issue. Funding is complex and needs time.  Knowing this and in spite of my my experience, I was still caught out be the incredible slowness of fund raising, particularly from development sources. And then there is the clear view that potential beneficiaries are not clients, and should put up with anything that is thrown at them.  Without exception, timetables presented and met by me and other applicants were completely ignored by the agencies who made the timetables in the first place.  Incredible delays without any explanation.  Not only does this require levels of working capital to survive the delays.  It also fatally undermines business plans that are time sensitive.  A business that is doubling every 3 months is a different business with a funding gap of 6 months.  So of course our $300,000 of mid year funding had to be made to last 1 year. All growth was put on hold. Every $ was for operations and nothing for expansion and deepening the team. 

The second surprise was the ‘what if’ – the black swan. OK, no one can necessarily plan to accommodate a cyclone such as hit us.  But we should have built in the pessimistic,’ not our fault but …’ scenario of something less than a triumphant march to success.  Its not easy to justify funds for time delays, and catastrophes.  I started my planning with a 25% buffer and by the time we signed every buffer had been stripped out and we ended up with nothing.  So, when Cyclone Idai hit us last month we were looking for a cushion that we did not have.  The consequence will be a set back in portfolio quality and sales that no private investor or bank will tolerate.  Its a tough situation.

My mistake, my lesson learned? Raise more money that you think you could possible use. Imagine success. Imagine funding delays. Raise double or triple what you need and get it tranched. The funders don’t need to release it unless you hit the milestones. But have it available

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