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Crowd-funding emerges as source of capital for cleantech

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(Read caption) Perry Chen, chief executive officer of Kickstarter, addressed delegates during the annual meeting of the World Economic Forum in Davos, Switzerland, in January.

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With early stage capital for cleantech innovation becoming increasingly scarce, crowdfunding sites like KickstarterIndiegogo and a new crop of clean/green ones are beginning to emerge as significant sources of funding for selected next-gen clean technologies.

Hurdles remain, particularly for investors seeking returns, but I’m more optimistic about these sites’ usefulness to cleantech entrepreneurs than I used to be.

Asked a year ago by a publication about how significant crowdfunding was likely to become in fostering disruptive cleantech innovation, I wasn’t exactly effusive. As GE’s Ecomagination Magazine wrote, “’When it comes to the tens and hundreds of millions of dollars needed for new breakthrough science, that still best comes from institutional investors,’ says Kachan. Kachan says big investors like to get seats on a company’s board and hope to get a sizable chunk of profits. Clearly, someone who plunks down a small pledge on Kickstarter has different motivations.”

Today, a year later, a lot has changed. Cleantech venture investment worldwide in 2012 was two thirds of what it was the year previous, with early stage funding particularly hard hit. And now with good, relevant success stories like Adapteva and BioLite, at least some startups are starting to find today’s crowdfunding options emerging as a source for the equivalent of friends & family seed capital. While it’s unlikely to ever produce the millions that institutional or corporate deep pockets will continue to provide, it may—just may—serve entrepreneurs seeking early stage money in a time when early stage money has become harder to come by than ever.

And then there’s new, fledgling policy support. In America, today is coincidentally the one-year anniversary of House passage of a bill known as the JOBS Act, which is intended to make it easier for companies to raise money through crowdfunding. Charities have used crowdfunding for years to raise money. The new bill is to streamline the process of companies raising up to $1 million a year in equity, not the simple donations as in today’s crowdfunding, but U.S. Securities and Exchange Commission (SEC) regulations to govern the process are still forthcoming as of this writing. Today, small businesses wanting to raise money from more than 500 investors have to go through a long and often expensive process of registering documents with the SEC.

Barriers to equity investors aside, it’s clear that crowdfunding activity has been ramping up in cleantech. A random smattering of latest developments:

Entrepreneurs and project developers of all walks are being increasingly drawn to crowdfunding sites. Especially those without a university education, who don’t have government backing, or, for whatever reason, choose not to go traditional venture or debt routes.

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And, for clean technology startups, there are now no shortage of sites to cater to them. In addition to Kickstarter, Indiegogo and their general ilk like RocketHubSeedmatch and CrowdfunderGreenfunder is a crowdfunding platform for green, sustainable and related projects. Germany-based SunnyCrowd launched late in 2012 to support (mostly) local German renewable energy projects. On its heels, Mosaic has launched its solar crowdfunding site, and within 24 hours, its first four projects sold out. More than 400 investors put up amounts ranging from $25 to $30,000 (the average was nearly $700), for a total investment of more than $313,000. Similarly, SunFunder has introduced a “crowdfunding platform to connect individual investors with quality, vetted, high impact solar businesses working on the ground in Africa, Asia, Latin America and the Caribbean.” Next week at the South by Southwest (SxSW) conference in Austin, social enterprise CarbonStory, based in Singapore, is to formally introduce its crowdfunding platform, where participants are to contribute as little as a few dollars a month to sponsor green projects that have been selected by CarbonStory.

The final remaining barrier, however, is reconciling returns on investment and crowdfunding. There’s more of a provision for, and expectation of, returns for investors in the more-established microlending mechanisms pioneered by Kiva and others than there is in crowdfunding as it’s known today.

Because crowdfunding today is essentially a metaphor for “donation,” establishing a mechanism for investor returns as is being attempted via the JOBS Act, and blurring the lines with what we currently know and think of separately as microfinance, will be critical to unlock the vast amounts of private capital waiting to be applied to innovative cleantech innovation and products by you, me, our rich uncles and other private investors seeking returns on our hard-earned money. Only then will crowdfunding really get its day in the clean/green tech sun.

 

This was originally published here and is republished by permission. Agree? Disagree? Weigh in on our original article.

A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver.

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