Niko: scaling solar panels in Mexico
Shifting geopolitical currents play in solar's favor in Mexico.
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Biography:
Raffaele Sertorio is the co-founder of Niko, a Mexican startup helping homeowners and businesses install and finance solar panels. Niko has raised over $26M to date, of which $11M in equity and $15M in debt.
Prior to Niko, Raffaele co-founded Cocinas Ocultas, a dark kitchen company he sold to Travis Kalanick’s CloudKitchens.
What problem are you solving?
Mexico has increasing energy needs but lags in solar energy adoption. Your average Mexican household doesn’t have enough reliable companies helping them switch their house to solar. The previous Mexican president ran a fossil-fuel friendly administration. This slowed down solar and the governmental incentives needed to boost its adoption.
We’re inspired by what Enpal is building in Germany. We wanted to replicate the model in Mexico knowing that solar here is picking up pace (despite the initial lag). Mexico is one of LATAM’s fastest growing countries in terms of solar energy market size.
We raised from the same VC that funded Enpal’s seed round (Picus Capital). They understood the wave we were preparing to surf and decided to bet on it.
Source: IRENA
How did Cocinas Ocultas start and end?
I’m Italian and spent 7 years working at Credit Suisse in Switzerland. I got bored and felt the entrepreneurial bug biting away.
In 2018, my friend Edoardo Dellepiane and I decided to move to Colombia, which was brimming with opportunity following a peace deal between the government and the FARC (a guerilla group).
We started Cocinas Ocultas, pioneering the dark kitchen concept in South America. A couple of years in, we got acquired by CloudKitchens, founded by Uber’s founder Travis Kalanick. We spent some time being Travis’ right hand, launching markets across LATAM, reorganizing operations in Korea and India… We lived nomadically, jumping from market to market depending on where the company needed us.
After riding out our earnout period, my co-founder and I took a sabbatical. Soon enough, the entrepreneurial bug reappeared and we were back to the races, co-founding Niko.
Summarize the Niko product for us.
We help Mexican homeowners and businesses install and finance solar panels for their homes or their offices.
Our pitch is that solar power is cheaper than relying on the “traditional” grid. Niko customers eventually own the solar panels and gain the possibility to “sell back” the energy produced to the grid, further reducing their energy costs.
Let’s start with the B2C (homeowners) vertical. What are the different payment plans?
The first option is to buy the solar panels at once, upfront. The price tag is between $7-10K (USD).
The second option is to pay in twelve installments, without interest, a popular way of paying for high-value items in Mexico.
The third option is “rent-to-own”, where the customer pays back the panel over 7 years but owns the panels at the end of those 7 years. Our pitch is that the monthly payments they make for the panels are less than their current monthly electricity bill. We estimate the panels to have a life span of minimum 25 years.
Today, I would say 50% of customers opt for the third option, 30% for the second option and the rest for the first option.
In option 2 and 3, Niko buys and installs the solar panels before the customer pays in full. How do you finance that?
On top of our equity money, we’ve raised a $10M debt facility from a local greentech investor and additional $5M from another local debt investor. Thankfully, we raised debt in local currency, so the Mexican peso’s fluctuation isn’t a problem.
RO insights: startups raising debt in emerging markets
For a startup earning money in a volatile currency, raising debt can be tricky. If they raise debt in $USD but make money in local currency, a sudden local currency depreciation could be catastrophic. Their revenue would instantly fall in $USD terms, making it harder to reimburse the debt.
Raising debt in local currency seems like a good alternative. Here’s how Mahmoud El Zohairy from Egypt’s Camel Ventures explains it:
“If the companies we finance make money in Egyptian pounds, we’re going to lend in Egyptian pounds. Lending in USD to companies making money in a depreciating Egyptian pound increases their debt burden as well as their default risk. A depreciating pound means that their revenue continuously loses USD value. The vast majority of our LPs are Egyptian banks, so this strategy makes sense for us.”
Excerpt from “On venture debt in Africa”, originally published in The Realistic Optimist
Isn’t there a risk of over-leverage, since the faster you grow the larger your debt gets?