Published on November 5th, 2016 | by Carolyn Fortuna0
How Does Cleantech Equity Crowdfunding Work?
November 5th, 2016 by Carolyn Fortuna
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New startups are emerging with creative, environmentally positive business models at the same time that investor sentiment is shifting towards eco-conscious and mission-driven companies. A large and inspired community is excited about the future of clean energy. However, many cleantech startups are unable to access the resources they need due to their intentional detour from traditional business pathways. Cleantech equity crowdfunding may be the solution to this dilemma.
What is equity crowdfunding?
Equity crowdfunding is a way for a large number of individuals to invest in a startup, for as little as $100 each, in exchange for a share of the company’s value. New 2016 rules about who can participate in equity crowdfunding now allow companies to raise money online by accepting investments from two kinds of investors:
- Accredited investors: These are the 2% of US citizens worth at least $1 million each and who earn more than $200,000 per year.
- Unaccredited investors: This is where you and I come in. We comprise 98% of US citizens and hold less wealth than the accredited investors but are still perhaps interested in investing for our own and the world’s future.
Why should people who are interested in cleantech care about equity crowdfunding?
Historically, pioneering clean technology and sustainability-focused companies found it more of a struggle to get investment when compared with companies in more conventional industries. Expanded rules around equity crowdfunding may usher in cleantech financial innovations as cleantech visions intersect with new mission-focused investors. As related by the Environmental Defense Fund Energy Exchange, 71% of surveyed individuals by Morgan Stanley express interest in sustainable investing. Of those, 65% expect to invest more in sustainable industries during the next 5 years.
This can have huge implications for cleantech entrepreneurs and for everyday US citizens who want to become part of the quickly evolving decentralized renewable energy sector. Clean Energy Trust states that, although intentional investors, impact investors, or those worried about the impacts of climate change may all have different financial requirements for investing in a deal, more and more people are expressing how much they care about cleantech and how much they are interested in innovation in this area.
Additionally, women and millennials — two demographics severely underrepresented on venture capital investment teams — are both twice as likely to care about sustainability when making investment decisions. The result of all this is a confluence of positive forces that could trigger investment in the beginning stages of cleantech innovation.
How does cleantech equity crowdfunding work?
Crowdfunding provides a potential solution to overcoming trends toward conventional investing by democratizing access to finance, which allows cleantech innovators to reach a wider pool of potential investors who can provide cheaper capital. Yes, the market is still in its infancy, but cleantech crowdfunding opportunities are vast, as cleantech enterprises have projects that can involve higher capital requirements, untried technologies, and longer timeframes to market, which can make conventional investors wary. Oftentimes, success in raising funds from the crowd relies on the ability to generate a positive buzz around an idea rather than a normal small business plan.
A successful crowdfunding raise can legitimize a cleantech startup, offering a type of proof for other potential investors. Let’s say a particular and influential sustainability crowd nods favorably on a cleantech innovator. The likelihood increases that others who also value sustainability will follow the investment trail and validate a business concept. The word can spread to friends, colleagues, acquaintances, and associates, converting them to customers and investors on the cleantech startup’s behalf.
An equity crowdfunding campaign can have consequences beyond accruing the necessary funds to propel a business to the next necessary stages beyond design. The funds the cleantech innovator raises can allow the company to build out their innovative new product and take it through the necessary testing to launch.
What does cleantech equity crowdfunding look like?
Cleantech companies use equity crowdfunding as a means to raise capital from regular people who are passionate about renewable energy, electric vehicles, or some other form of cleantech and who are interested in becoming investors on the ground floor. There are a variety of examples to help us understand the direction of cleantech equity crowdsourcing.
- According to the Carbon Trust, the low carbon sector in 2012 accounted for less than 6% of funding volumes globally, with about 5% related to equity funding.
- One UK equity crowdfunding platform is Crowdcube, which is a leading investment platform where you can handpick the businesses you want to back and invest anytime, anywhere.
- Another UK equity crowdfunding space is called the Syndicate Room. Some of its successful campaigns to date are generic robotics technology that brings medical training closer to real life, testing technologies and methodologies for early cancer detection, and elite performance carbon composite wheel brands.
- Affresol is a crowdfunded green technology business committed to helping protect the environment. It has a socially responsible approach and dedicates itself to an innovative range of products and structural buildings made from a high percentage of recycled materials; delivering long-term savings, outstanding quality, and a low carbon footprint.
- Aeristech is developing a novel fuel-efficient and low-cost hybrid turbocharger technology with applications in the automotive and power generation industries.
- Sustainable Power is a combined heat and power (CHP) technology that is crowdfunded. Its mission is to reduce the cost and environmental impact of electricity production using microgrids that optimally combine and control renewable energy, conventional/fossil energy, energy storage, and load management technologies. Its vision is to be a leading supplier of microgrid control components in a world that obtains the majority of its electrical energy from distributed renewable resources.
The first ever equity crowdfunding exit has been a cleantech company, E-Car Club, the UK’s first entirely electric pay-per-use car club. It was sold to Europe Car in 2015, offering more than 3 time returns. Certainly, not all crowdfunding investments have the success that E-Car Club did. As with most forms of entrepreneurship, any time we stand up for people who are powerless or who are at the periphery of society, we run the risk of rejection by hegemonic forces, outright failure, or incomplete results.
Yet socially or environmentally responsible ventures can capture the collective desires of a special group of people who want to explicitly move toward the sustainable future they want for the world. This is the ideal audience for crowdfunding. Despite the inherent risks, as with all investment, there has hardly been a better time to use crowdfunding to start or invest in a cleantech business or project.
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