The World Bank Kenya Climate Venture Facility () REPORT NO.: RES39055 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF KENYA CLIMATE VENTURE FACILITY APPROVED ON JUNE 8, 2015 TO KENYA CLIMATE INNOVATION CENTRE FINANCE, COMPETITIVENESS AND INNOVATION AFRICA Regional Vice President: Hafez M. H. Ghanem Country Director: Carlos Felipe Jaramillo Regional Director: Asad Alam Practice Manager/Manager: Niraj Verma Task Team Leader: Aun Ali Rahman The World Bank Kenya Climate Venture Facility () ABBREVIATIONS AND ACRONYMS CEO Chief Executive Officer CIO Chief Investment Officer CITF Climate Innovation Trust Fund CTP Climate Technology Program DANIDA Government of Denmark DFID UK Department for International Development GoK Government of Kenya IC KCVF Investment Committee KCIC Kenya Climate Innovation Center KCVF Kenya Climate Venture Facility TA Technical Assistance VC Venture Capital The World Bank Kenya Climate Venture Facility () Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P154586 Investment Project Financing Original EA Category Current EA Category Approval Date Current Closing Date 08-Jun-2015 31-Dec-2019 Organizations Borrower Responsible Agency Kenya Climate Innovation Centre Kenya Climate Innovation Centre Financing (in USD Million) FIN_SUMM_PUB_TBL SUMMARY Total Project Cost 0 Total Financing 0 Financing Gap 0 DETAILS -NewFin3 The World Bank Kenya Climate Venture Facility () Project Development Objective (PDO) Original PDO The development objective is to pilot an innovative investment facility that addresses the financing gap for promising start-up and early-stage climate technology companies in Kenya, and to develop investible, sustainable and scalable enterprises that contribute to Kenya’s growing climate innovation and clean tech sectors. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A0442 08-Jun-2015 09-Jun-2015 09-Jun-2015 31-Dec-2019 4.90 3.77 1.13 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING DESCRIPTION 1. The objective of the project is to pilot an investment facilitation facility – Kenya Climate Venture Facility (KCVF) that addresses the financing gap for promising start-up and early-stage climate technology companies in Kenya, and to develop investible, sustainable and scalable enterprises that contribute to Kenya’s growing climate innovation and clean tech sectors. The project involved a USD 4,900,000 small Recipient Executed Trust Fund (RETF) grant to the Kenya Climate Innovation Centre (KCIC) to establish, develop and build-out the Facility during the period of the project. Funding for the project comes from the UKAID (United Kingdom) and the DANIDA (Denmark), and is administered through the infoDev Climate Innovation Trust Fund within the FCI Global Practice. 2. The project was designed as an important new addition to Kenya’s growing venture capital and equity finance eco-system, as the first Kenya based investment company building a new investment model that specifically targets innovative climate focused Kenyan start-ups and early-stage companies considered too risky by venture capital funds and impact investors. KCV was set-up to pilot a hands-on investment model providing patient risk capital to its investee companies (in the USD 100,000 -500,000 range through equity and quasi equity instruments), coupled with high-touch management assistance that enables these companies to validate/refine their business model, accelerate sales, build capacity and get on the path to scale. KCV’s sectors The World Bank Kenya Climate Venture Facility () of focus include: clean/renewable energy, climate-smart agricultural solutions and agri-businesses, water management, and waste management. 3. In addition to the World Bank grant of USD 4.9 million, KCIC has also allocated additional funding of USD 1.5 million (through an independent grant from DANIDA to KCIC) for KCVF’s investments and operations. 4. The project team is requesting an extension to the Closing Date for the project, from December 31, 2019 to June 25, 2020 (within the current financial year). The project is expected to be satisfactorily completed within the extension period. The rationale for extension is explained below. 5. KCV is expected to continue as an investment company – operating as a subsidiary of KCIC – after the World Bank grant comes to an end, with additional funding provided by KCIC and other funders. This supports sustainability of the initiative. A. PROJECT STATUS 6. KCVF has been operating as an investment subsidiary of KCIC since 2016, with a Board of Directors (for overall governance of KCVF) and an independent Investment Committee (IC). Between 2016 and 2018, KCVF reviewed and analyzed over 180 investment opportunities in early-stage climate technology companies in Kenya, making and supporting its investment companies. By end FY2018, KCVF had made investments in 3 early-stage climate technology companies (totaling USD 1.2 million) with approvals for an additional 2 investments. 7. Although making progress in some areas, the project has also had delays in implementation. In FY19, the Board of KCIC (KCV’s parent organization), expressed concerns about KCV’s implementation progress, management/governance arrangements, overall trajectory and future sustainability. Following internal deliberations, the Board commissioned a third-party review of KCVF’s business and investment model, financial model, progress to date, management/arrangements. The third-party review was carried out by Lions Head Global Partners (LHGP), an investment advisory firm, and involved consultation and input from key stakeholders including KCVF Board, management/team and investment committee as well as the World Bank. The review identified areas where KCVF had made progress and implemented its investment activities, as well as gaps in implementation and management/governance arrangements. 8. Following the review, the KCIC deliberated on the way forward and took the following key decisions:  Refined the investment thesis to include greater focus on impact alongside the commercial filters  Greater emphasis to be placed on post-investment technical assistance to portfolio companies alongside the capital provided.  Reconstitute the KCV Board – expanded to 7 members with 3 from KCIC and 4 independent members.  Reconstitute the KCV Investment Committee. The World Bank Kenya Climate Venture Facility ()  Strengthen the management team by bringing in a new Chief Executive Officer (CEO) to focus on overall KCV organizational and business development with an existing Chief Investment Officer (CIO) focused more on the investment side of the business.  Refine the forward fundraising strategy of KCV with a greater emphasis on donor funding for the next 3-5 years to allow a longer runway before KCV is ready for raising investor capital. 9. KCIC Board established a Transition Committee (TC) - chaired by the KCIC Chair and including the DANIDA representative on KCIC’s Board, along with a couple of other Board members - to oversee the transition and restructuring of KCVF over a 6-month period. It was also decided that during this transition period that new investment activity would be suspended. 10. Since the planned restructuring of KCVF, the following actions have been undertaken:  Governance changes – KCVF’s Board was reconstituted with 3 Board members from KCIC and 3 independent members with backgrounds in investment/PE fund operations, entrepreneurship, venture capital and clean- tech investing. An independent Investment Committee (IC) was also reconstituted.  Management changes – KCVF has recruited a new CEO to lead and manage KCVF and to implement its plan for expansion and growth.  New funding raised – KCIC has also raised additional commitments of USD 8 million (beyond the World Bank USD 4.9 million grant and KCIC’s own USD 1.5 million funding to KCVF) to support KCVF’s expansion and sustainability, through funding from the European Union (EU) and DANIDA. This funding is expected to become effective at the end of 2020. Prior to this new funding being effective, KCVF is expected to rely on its existing funding streams for investment and operations  Investment management – KCVF continues to closely monitor and support its existing investments.  New Investment Activity - New investment activity has recommenced. KCVF currently is conducting due- diligence on 4 new companies for a potential of $1.6 million in new investments. KCVF is expected to make 3 new investments by June 2020. 11. KCIC has been submitted interim financial reports on a timely basis which have been cleared by Financial Management (FM). There are no audit issues. B. RATIONALE FOR RESTRUCTURING 12. The proposed restructuring involves a) extending the grant closing date by under 6 months from December 31, 2019 to June 25, 2020 (within the current financial year) to allow the project to fully utilize World Bank funding and to achieve the key results as per the results framework, and b) changing the funding allocation between the two categories of funding without changing the overall size of the grant (which will remain as USD 4.9 million). Closing Date Extension The World Bank Kenya Climate Venture Facility () 13. The rationale for the closing date extension is to enable KCVF to achieve the outcomes and results of the World Bank grant and to allow for KCV’s sustainability and continuity. As mentioned earlier, KCIC’s plan to strengthen KCVF by improving management and governance and refining the investment/business model (based on learnings from the first couple of years of implementation) has led to delays in implementation. However, KCIC’s management and Board felt that such changes were necessary to enable KCVF’s to become a sustainable entity over the medium term. 14. KCIC’s successful fundraising for KCVF (with additional funding commitments of USD 8 million)) has created a pathway for KCVF to continue strengthening its operations and investment activities while having the necessary funding needed to ensure its sustainability once the World Bank grant comes to an end. However, as these new funding commitments are not expected to commence until end of CY2020, KCIC has requested the Bank to extended grant closing date to enable a smooth transition for KCVF’s forward continuity. 15. During the short extension period, KCVF aims to make additional investments and fully disburse remaining funds, deepen its institutional strengthening, and preparing for its sustainability beyond the closing of the World Bank grant. Reallocation funding between Disbursement Categories 16. It is also proposed that the funding allocation between categories of funding be changed as follows: Existing Allocation Proposed New Allocation Category 1: Operating costs, Goods, $1,700,000 $2,200,000 Consulting and Non-Consulting Services Category 2: Sub financings (investments) $3,200,000 $2,700,000 Because of the project’s extension, additional funding is needed to fund KCVF’s operating costs as well as pre and post investment technical assistance to its investee companies (Category 1). KCIC also does not expect to utilize all the funding allocation for investing (Category 2) by the end of the revised closing date. The shortfall of USD $500,000 from the investment pool from World Bank funding will be covered by KCIC from its own funding allocation of USD1.5 million to KCVF. II. DESCRIPTION OF PROPOSED CHANGES 1. The proposed changes are: 1) extension of the project closing date from December 31, 2019 to June 25, 2020 and corresponding change to the implementation schedule; 2) change in disbursement estimates, and 3) reallocation of disbursement between funding categories, 4) revised targets in the results framework. The World Bank Kenya Climate Venture Facility () Changes in disbursement estimates Period Disbursement by Cumulative Percentage period disbursements Disbursed $ 3.8 million $ 3.8 million 78% Dec 2019 $ 0.3 million $ 4.1 million 83% Jan – Jun 2020 $ 0.8 million $ 4.9 million 100% Reallocation of disbursement between funding categories Existing Allocation Proposed New Allocation Category 1: Operating costs, Goods, $1,700,000 $2,200,000 Consulting and Non-Consulting Services Category 2: Sub financings (investments) $3,200,000 $2,700,000 Revised targets in the Results Framework 2. Two of the targets in the results framework – number of investments made and cumulative investment amounts – have been revised downward due to the delays in implementation. a. Total number of investments has been reduced from 10 to 6. b. Cumulative investment amounts have been reduced from USD 3.2 million to USD 2.7 million 3. It is expected that by December 2020 (6 months after the World Bank project ends), KCVF will have made 8 total investments and attain the original target for cumulative investments of USD $3.2. million. These investments will be made from KCIC’s own current allocation of USD 1.5 million. Additionally, because KCVF has raised funding for its continuity after the World Bank project period ends, it is expected that KCVF will considerable exceed the original targets over the next 3 years as per KCVF’s expansion/continuity plans. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementation Schedule ✔ The World Bank Kenya Climate Venture Facility () Implementing Agency ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE Number of enterprises receiving KCVF investment (cumulative) Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 3.00 6.00 Revised Date 01-Jun-2015 18-Dec-2017 25-Jun-2020 Amount invested by KCVF (cumulative) Unit of Measure: Amount(USD) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 1200000.00 2700000.00 Revised The World Bank Kenya Climate Venture Facility () Date 01-Jun-2015 18-Dec-2017 25-Jun-2020 Total additional funding leveraged through Project (cumulative) Unit of Measure: Amount(USD) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 3500000.00 2500000.00 No Change Date 01-Jun-2015 18-Dec-2017 31-Dec-2019 Number of KCVF portfolio companies raising external funding Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 2.00 4.00 Revised Date 01-Jun-2015 18-Dec-2017 25-Jun-2020 Intermediate Indicators IO_IND_TABLE Number of deals reviewed Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 90.00 70.00 No Change Date 01-Jun-2015 18-Dec-2017 30-Jun-2018 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline TF Status Closing Closing(s) Closing for Withdrawal Applications TF-A0442 Effective 30-Jun-2018 31-Dec-2019 25-Jun-2020 25-Oct-2020 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) The World Bank Kenya Climate Venture Facility () Current Proposed TF-A0442-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: Gds,Wks,Ncs,Cs,Trn, Wkshp and Opc 1,700,000.00 1,665,264.00 2,200,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Sub-Financing Ben Enterprises Prt B 3,200,000.00 1,000,000.00 2,700,000.00 100.00 100.00 Total 4,900,000.00 2,665,264.00 4,900,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2015 500,000.00 500,000.00 2016 200,000.00 200,000.00 2017 700,000.00 700,000.00 2018 1,400,000.00 1,400,000.00 2019 1,900,000.00 500,000.00 2020 300,000.00 1,600,000.00 2021 0.00 0.00 Note to Task Teams: End of system generated content, document is editable from here.