Can crowdfunding provide the next-generation of investment for clean technology (cleantech)? Many would argue that with US energy policy stuck in limbo, large-scale investment in the cleantech sector has been hampered. Combined with a lack of confidence in today’s financial markets, perhaps there is a significant window of opportunity with crowdfunding.
Retail investors continue to face a frustrating choice between investing in financial markets that are opaque and volatile, accepting paltry returns on safe investments such as CDs or bonds in today’s low interest rate environment. Many investors want to see an impact on their investment decisions. They want to be connected to the power of their capital and see its force in the changing world where information is exchanged through social networks. While new to most investors, crowdfunding has proven effective in bringing liquidity to financial markets while creating new investment opportunities for retail investors. In areas of investment that were once restricted to large banks, venture capitalists, and accredited investors, crowdfunding offers a new opportunity.
The banking industry is undergoing changes as well. After the financial crisis of 2008, many investors are questioning the role and influence that the ‘too big to fail’ institutions should have moving forward. In their traditional roles, banks will happily finance a billion dollar power plant, but due to the high overhead, it is uneconomical for them to do their standard due diligence for a small $20,000 solar power plant on a roof. Yet, so much of the energy revolution will come from local, small and distributed generation and improvements in technology. The appetite for new, large power plants just isn’t there anymore.
In the age of online networks, we have an outdated regulatory framework where start-ups have not been allowed to raise money through social networks or even publicly discussing the fact that they are raising money. The JOBS Act, which was signed April 5th 2012, is a potential answer to this issue. The JOBS Act is expected to ease these regulations and allow start-ups to raise seed capital from a large number of individual investors up to a limit of $1 million. Rather than inviting fraud, crowd fund investing will bring more transparency to the market through regulations that require companies to share information and by literally inviting the crowd to scrutinize the merits of the investment.
Several crowdfunding platforms have developed that are at least partially dedicated to the cleantech sector. As equity-based investment are expected to see enormous growth in the near future (See Welcome to Cleantech Finance). These platforms include:
There have already been many successful crowdfunded projects that would be considered donation-based which focus on cause-based campaigns that appeal to the investor’s personal beliefs. For example, Green Unite and The Green Crowd.
There are several issues that face the development of crowdfunding the capital-intensive cleantech sector. Check back for further analysis on some of the issues that will have to be addressed and overcome in order for crowdfunding and cleantech to reach its potential growth.