Can Crowd Funding Kickstart Clean Energy?
Crowd funding refers to the collective contributions of many individuals to fund a larger effort by other people or organizations. Internet platforms like Kickstarter are the most common vehicles for collecting donations for projects, but recent legislation may begin a shift to a new method of actual financing, where investors can potentially see a return on investment. The JOBS Act of 2012 removed several limiting regulations from the Securities Act of 1933, which would allow average Americans to invest directly in small business. This increased access to financing would allow small businesses more freedom to grow and achieve their goals. For example, the JOBS Act included provisions that increased the number of shareholders a company may have before it must register its common stock with the Securities Exchange Commission. It also allowed the use of government-registered funding portals, or websites used to collect investments, on the condition that investments are capped at a level based on the investor’s net worth. These provisions will allow average investors to easily invest in small businesses for the first time, and will offer protections from the risks involved with investing in new companies.
The JOBS Act took a few steps towards freeing up capital for small businesses, but the provisions allowing average investors to get involved won’t be approved until 2014. In the meantime, companies such as Mosaic Inc. have used existing legislation in approved states to finance clean energy projects that have been largely successful. However, until the SEC implements crowdfunding regulations nationwide, it will be difficult for a startup company to sell shares to the general public nationally.
Some states are not waiting for the federal government to act, and have implemented intrastate (state residents funding state businesses) equity crowd funding. Using provisions in the Securities Act of 1933, specifically a federal exemption for intrastate offerings, Kansas and Georgia have both passed initiatives that would allow companies to sell equity to non-accredited investors to a limit of $1000 (KS) and $10,000 (GA) per investor. Companies would be allowed to collect up to $1 million before they would need to formally register their stock, and they would only be permitted to sell shares to investors who were residents of the same state in which the company was registered. They would also be allowed to advertise the fact that they were seeking funds from new investors. In theory, this would allow the public to invest in whatever business they see fit. This would incentivize small business owners to carry on with their ideas, knowing very well that with enough support, access to capital would not be as big of a problem as it is now. The North Carolina state legislature is on the road to pass a similar initiative in the form of its own JOBS Act. It currently sits at the state senate waiting for the next session to begin, where many are confident that it will be passed.
In the first two years of crowd funding in Kansas, only six companies took advantage of the opportunity, and only one company has taken advantage of crowd funding in Georgia. So what’s keeping ordinary people in Kansas and Georgia from crowdfunding their way to an economy envisioned by local business owners? There are a number of factors that keep this financing tool from really taking off. First, the types of small businesses that could rely heavily on crowd-sourced capital are often the least interesting to investors. The investment caps of $1 million limit the potential for initial revenues, forcing technology and other high-growth industries to seek other sources of capital. And perhaps most importantly, a very small number of people (both business owners and potential investors) actually understand the new regulations and what is allowed under their provisions. Education for small business owners and potential investors alike, as well as platforms that connect businesses with sources of capital, will be necessary to make crowdfunding work at the state and national level.
While achieving a more formal vehicle for non-accredited investors to purchase equity in startup businesses may still lie ahead, the idea of sourcing donation funds from many small contributors is steadily gaining steam. Many projects are funded by online platforms for donations, including software development, political campaigns, art, disaster relief, and small businesses selling a wide range of products.
Globally, crowdfunding has been used successfully to finance some impressive renewable energy projects. A Dutch company Windcentrale recently set a new crowdfunding record, selling €1.3 million worth of shares in the electricity from a Vestas V-80 2MW wind turbine in a matter of 13 hours. In the U.S., Solar Mosaic has created an innovative crowd funding platform that has already raised funds from 2,200 investors in solar installations nationwide. Solar Mosaic has generated extensive interest from investors nationwide who want to create a clean energy future. This serves as proof that there is a high public demand for renewable energy, and when presented the opportunity to invest in projects that would bring clean power to homes, people won’t think twice about buying shares.
It is the hope of Green America that crowdfunding at the state and federal level can become a vehicle for growth of the renewable energy sector in the United States. Clean, inexpensive, and renewable power is something a large majority of Americans support. Given the opportunity to easily and safely invest in a project that would aid in the shift from a fossil fuel – based economy to a green energy-based one, the general public could play a crucial role in the propagation of wind, solar, and other renewable energy technologies.
This blog posting was written by Sam Catherman, Green America’s Climate Program Intern.