Solfácil, the first solar power fintech in Brazil, raised BRL 21 million ($3,97 million) in a Series A investment round led by Valor Capital Group, a firm dedicated to early-stage tech investments that has already invested in Latin America unicorns such as Stone, Gympass and Loft. Other investors in a previous BRL 4 million ($760,000) angel round, back in 2018, also participated in this new investment.
Resources will be used in technology, commercial expansion, and the launch of new credit products, according to what the startup’s CEO, Fabio Carrara, told LABS. Carrara, who founded the company in 2018, combined the know-how in photovoltaic energy to bet on an unprecedented business model in Brazil: providing financing lines for solar energy.
After all, what does a solar fintech do?
Unlike other fintech sectors – a segment popular in Brazil – that operate with payroll lending and working capital, Solfácil’s business model is based on granting credit specifically for solar power projects.
“A solar fintech is a traditional credit operation, it is a triangle involving the customer, who is buying the system and the company, which is providing the service to the customer, in addition to the financing agent, which is us”, explains Carrara. Solfácil reaches the customer through a partnership with the installer and finances the customer to buy the system from that company. In this financing process, the fintech not only evaluates the credit but also the project proposed by the company for the client.
Carrara started operating in the sector with an integration company, Solstar, which still operates and has already installed more than 1,000 solar energy systems in Brazil. The company, however, is no longer related to him. The CEO says he realized two years ago that the biggest bottleneck to leverage solar energy in the country was access to equipment, and so Solfácil was born.
“I have been in the sector for five years now, I started with an engineering operation, I have already installed hundreds of photovoltaic systems myself”, he says. Therefore, he believes that the company’s differential is knowledge in the technical part of the sector, in addition to the financial.
“We believe that the risk of a solar operation is more in the technical part than in traditional credit. It is important that you lend money to those who have a good credit history, but even more important in solar energy is to finance a good project, because, in the end, it is the savings generated by the project that will repay the financing “, he says.
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“Repay the financing” because, according to the CEO, in general, a solar energy system gives a return on invested capital over 10 times the current savings accounts in Brazil, with interest rate of 2.25% per month. Installations for the startup financing can be paid in up to 120 months, with monthly interest rates starting at 0.79% per month.
The company has already promoted BRL 100 million in loans. The expectation is to triple this amount in the next 12 months and reach a total of BRL 10 billion in five years. “Now we have even started to benefit from the situation [of the coronavirus] because having the digital solution and having access to the capital market at a time when other players are having difficulties, in addition to the contribution from the Valor Capital Group, all this means that Solfácil emerged strengthened from the crisis. We were prepared for a stress scenario and we even believed that it would be a reference for the future, saying ‘that was the worst it can get'”, he says.
A study by consultancy Greener in relation to the photovoltaic market in Brazil in the first half of the year shows that the generation of solar energy maintained a growth trend, although it presented cost pressure due to the pandemic. More than 90% of the solar energy equipment comes from outside Brazil, and, according to the consultancy, despite the drop in the volume of imported solar modules for the second consecutive quarter, there was an increase of 93% in the first half of this year compared to the same period last year.
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“Financing has become bold to the solar energy market because the market is coming back, but some people had to use the little savings they had to maintain themselves. So now, migrating to solar energy, the financing will be even more relevant than it was two, three months ago “, he says.
The transformation of Solfácil into the world of finances
“In technology, we will continue to invest in automation of the platform to improve the experience of the partner, from the installation company to the final customer”, Carrara says, noting that in addition to better platform interfaces, he wants to invest in security, as the fintech is moving forward to become a financial institution, which has heavier compliance demands compared to the current service model of Solfácil, a banking correspondent for Socinal, a banking partner financial institution.
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Solfácil is working to become a Direct Credit Society (SCD) in the next 12 months. Currently, the startup operates through partnerships with companies in the photovoltaic energy integration chain that sell the projects to their customers and has 1,500 partner companies that use their financing line across Brazil.
The goal, however, is to reach the 14,000 companies that operate in the country, according to the CEO. “To get there quickly [in this number], we want to reach up to 5,000 partners by the end of the year,” he says, adding that the fintech business model creates recurrence for partner companies. Solfácil’s partner base grows between 20% and 30% per month, according to data provided by the company.
“We want to invest heavily in this [in the commercial expansion] to consolidate the channels and not give a lot of space to companies that are seeing what we are doing differently and want to copy our model”.
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The latest round of investment
The Valor Capital Group round is an equity round, in which the firm became a minority partner. “It is an important capital for growth, but another capital that is important is the funding to make the loans”, says Carrara. This was the main challenge for Solfácil’s operation during the coronavirus pandemic, access to credit funding.
Solfácil accesses this money in the capital market by selling debentures that the company issues in the market. In the first moment of the pandemic, this credit market closed when the big credit funds were under stress, with many withdrawals and international investors losing money on the stock exchange. “They were afraid and started to withdraw the money. For a month, we suffered a lot to continue accessing this capital, but we managed to overcome it. We brought several new funds to buy our bonds. It was a delicate moment but today we are breaking volume records “, he says.
To grant its financing, Solfácil promoted this year a bond issue of BRL 120 million and intends to finance more than BRL 300 million in the next 12 months, in green bonds. According to the company, some of the main credit funds in Brazil, with assets under management of more than BRL 20 billion, have purchased their debentures. This is because even with the crisis, the fintech’s credit portfolio did not suffer from losses, according to the CEO’s statement. “The portfolio is performing well, with low arrears. We never lost money, we never had a customer who defaulted.”
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In June, the company broke a historical record for loan volume and in July it grew at least 60% in relation to the record. Now, Solfácil still wants to launch a credit line in installments with no short-term interest and provide financing for company projects. Today, the fintech only operates with projects for individuals. “All of these products require a certain amount of capital from us to fund the loans, so every time we create a credit product, we bring investors in the capital market, but they require us to put some of our own capital to align interest “, he adds.