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SPECIAL REPORT CROWD FUNDING As traditional sources of investment finance continue to remain scarce, will the movement towards crowd-funding prove to be the perfect solution for clean technology projects?
2050magazine.com - crowd funding
POWER FROM THE PEOPLE
As traditional sources of investment finance continue to remain scarce, will the movement towards crowd-funding prove to be the perfect solution for clean technology projects?
As the name implies, crowdfunding is a term used to describe any situation in which a large number of people get together, usually via the internet, to collectively fund the activities of other people or organisations. The individual investments can be
as little as 20 euros per person with the most likely beneficiaries being early stage businesses. It’s not new as a concept, being pre-dated by charity-led ‘donation’ and ‘pledge’ systems, and by ‘micro-patronage’ networks often used for funding artistic and
creative ventures. Crowd-funding is a mechanism however, which has become increasingly popular over the last few years (some sources cite the first recorded use of the term ‘crowd-funding’ as recently as 2006), a popularity which is mainly
due to:
relationship that is likely to arise between customer and client.
(1) the growth of strong social networks that incorporate secure online payment systems;
CASE STUDY:
Such a relationship provides third-party validation of the business idea (or not, in the case (2) the general scarcity, as a result of initiatives which don’t attract of the current economic climate, funding), word-of-mouth marketing of funding from traditional sources emanating from and beyond such as banks, investment funds, the investors’ network, and the angel investors, and the like; opportunity to market test the idea When computer game developers or product through feedback from Tim Schafer and Ron Gilbert were urged by fans to produce more (3) the current lack, again as a investors and their networks. ‘point and click’ games like the result of the current economic ones already in their repertoire climate, of attractive interest rates Crowd-funding as an alternative for small savers. means by which to finance small (The Secret of Monkey Island, Day businesses is still relatively new of the Tentacle, Full Throttle and Crowd-funding is proving to be however, in comparison to its Grim Fandango) they struggled to a particularly useful funding continued use in creative and find any mainstream publishers mechanism for small business charitable initiatives. Of the 344 willing to show a reciprocal level ventures, because it is able to take crowd-funding platforms listed on of financial enthusiasm. advantage of the natural synergy the ‘crowdsourcing.org’ website, that exists between potential only 16% are denoted as being So they turned instead to the ‘crowd’ investors and start-up ‘business’ orientated (49% creative crowd-funding website kickstarter businesses that share their general and 35% charities). But the overall and 24 hours later they had raised goals and aspirations in a ‘life, the numbers are certainly growing very $1 million, and reached their universe and everything’ sort of quickly, and different platforms are target of $1.7 million in just a few way. cropping up everywhere. days. From their fans. Move over Marillion. Indeed, advocates of crowd3 countries in particular, or, more funding often refer to the case of accurately perhaps, the occupants Their creative vehicle, Double the UK rock band Marillion, whose of those countries, have been Fine, suddenly found itself fully1997 tour of the United States embracing the concept more funded and with a ready-made was not only conceived by their readily than others. America, still network of supporters / testers / fans, but also successfully financed the world leader in internet-based customers urging them to do their by them to the tune of USD 60k. It commerce, currently has the most thing. provided funding where none would official crowd-funding platforms have otherwise existed and also with 138; the UK, because of its served to highlight the other great history as a financial services hub, “Double Fine’s fundraising success advantage of being funded by fans has 32; and the Netherlands, with is really going to make game publishers think about what / like-minded individuals: the close a long history of involvement in the impact could be of going charity initiatives, has 24. directly to their audiences,” said Advocates of crowdKickstarter co-founder Yancey It is noticeable that these funding often refer to Strickler. three countries also have high the case of the UK rock percentages of their populations actively using social networking band Marillion, whose such as Facebook and Twitter 1997 tour of the United sites (close to half of the populations States was not only of these countries use them, a conceived by their fans, proportion which is likely to rise to 75% within the next six months or but also successfully so).
financed by them to the tune of USD 60k.
In terms of the total amounts of
Within the context of climate change related ventures or projects, there are certainly some businesses already benefitting from this important new source of finance.
money actually passing hands, the US is streets ahead of the pack with over a billion dollars generated in 2009, while in Europe the total value of crowd-funded finance in 2010 was in the region of 100 - 200 million euros. Within the context of climate change-related ventures or projects, there are certainly some businesses already benefitting from this important new source of
finance. These tend to be ventures that are in need of seed capital to take their various innovations to market, or specific (communityinitiated) projects. Indeed one such platform, US-based ongreen.com, deals almost exclusively with ‘green’ projects and claims to have so far distributed more than 164 million dollars to emerging companies, in sums ranging from tens of thousands to tens of millions. It is still too early in the growth of crowd-funding to accurately define the profile of the sort of people likely to become investors, but initial analysis seems to suggest that a project is more likely to attract capital if it appeals to people on at least one more level than simply the opportunity to make a financial return. This observation bodes well for the renewable energy sector as there is an increasingly discernible trend towards a ‘if we all pull together we might just save this planet yet’ mentality.
Indeed, research carried out by ‘mymicroinvest.com’ in America describes the likely investor as being relatively highly-educated (and therefore aware of current global issues such as climate change) with an above average level of income, and aged between 25 and 34. The size of an individual investment is highly dependent on the exact nature of the initiative, but it would not be unusual for a successful cash-drive of EUR 100,000 to attract an average investment of around EUR 100 per person. As with most good ideas however, there are challenges which need to be overcome before it can really take off on a global scale. One of the most obvious disadvantages of seeking crowd-funding, rather than say, having a chat with your local bank manager, is that in doing so it is very difficult not to give away your idea to potential competitors. The whole issue of intellectual property rights is one which
The whole issue of intellectual property rights is one which needs to be addressed at an international level and in the meantime applicant businesses are encouraged to engage in early patent filing, along with normal copyrighting and trademarking procedures.
needs to be addressed at an international level and in the meantime applicant businesses are encouraged to engage in early patent filing, along with normal copyrighting and trademarking procedures.
funding platforms will be to differentiate themselves from these.
It has recently been reported that the World Intellectual Property Organisation is developing a completely new form of IP protection known as a ‘creative barcode’ that will hopefully provide at least a modicum of protection to inexperienced businesses or those which have no choice but to publicise their business plans.
Another obstacle, and one which is already being addressed by the more established crowd-sourcing platforms, is that of financial regulation. Crowd-funding initiatives which are deemed to be soliciting investments from the general public, are illegal in most regions of the world if they aren’t first approved by the relevant securities regulatory authorities. The precise definition of what constitutes ‘investment’ and ‘soliciting to the general public’, will likely be the key to this issue.
The next most significant barrier to growth is trust. There are after all a million and one ‘investment’ opportunities available on the internet (even more if you include those involving Nigerian princes!) which means that one of the main challenges for crowd-
The more pro-active platforms seem to be taking the view that regulation of some kind is essential if the fledgling sector is to avoid the negative impact of ‘rogue’ schemes, but at the same time hoping that a streamlined framework can be agreed that
will avoid excessive bureaucracy. To this end the ‘Entrepreneur Access to Capital Act’, which seeks to reduce current restrictions on small-scale crowd-funding of for-profit businesses seeking early-stage equity-based financing, was passed by the US House of Representatives in a vote of 407-
17 last year and 3 more Acts are currently in various stages of the approval process. In the Netherlands a proposal for a guarantee facility and a pilot programme for crowd-funding is undergoing parliamentary discussion.
Assuming these definitions and regulatory frameworks can be put into place quickly, there is every reason to believe that the next few years will see exponential growth in the use of crowd-funding platforms, particularly by start-up businesses in the clean technology sector.
Three Wheels United - an Enviufacilitated project which enables rickshaw drivers in India to significantly reduce the carbon emissions of their vehicles.
your
CASE STUDY:
Enviu, a Dutch company with offices in the Netherlands and Barcelona, not only specialises in raising crowd-finance for innovative new projects, but was also crowd-funded itself. “At Enviu we believe in the economy of the crowd; an economy where starting innovative new businesses creates value for people and planet. An economy that is open for everyone,” says communications manager Vibeke Helder. “Of course we cannot do that alone. We need the help of the crowd. What is a better way than crowd-investing in impact-driven companies? Now everyone can contribute to making our start-ups a success! The sustainable dancefloor, a simple but brilliant design which geneWe started our crowd-funding campaign in September 2011. Our rates power from the movement of dancing aim was to collect 100,000 euros before the end of 2011, and we to be frontrunners in this method Dance Club. Its flagship product succeeded! 372 investors from all of investing. That is why it is very is a floor which generates energy over the world invested in when people dance on Enviu. We not only raised We started our crowdfunding campaign in it. our target of 100,000 September 2011. Our aim was to collect euros, but also broke a Three Wheels United, national record in the 100,000 euros before the end of 2011, and is our second start-up. process! project improves we succeeded! 372 investors from all over This the lives of autoAt Enviu we use the the world invested in Enviu. Not only were rickshaw drivers in India power of the crowd in our we able to raise our target, but we also while reducing CO2 everyday activities. We emissions. broke a national record in the process! have a large community of participants from all Yummm! Concepts BV is over the world. These the third Enviu start-up. participants contribute their important to involve a community It develops healthy snacks for kids. expertise and time to make our in the whole process of crowdstart-ups a success. funding. Enviu is very transparent Soon the Open Source House will about what its community also be included as a start-up. It Crowd-investment was new to members are investing in. provides sustainable, affordable our community. That is why we housing in low-income countries. mobilized everyone working at We put all our documents on our Enviu to use their networks. We crowdfunding platform so people Due to this overwhelming success, used social media to keep people can easily find the answers to their we know that collaborative updated and to thank them for questions. investing is the way to go. their investment. We worked day Therefore we plan to offer the and night to keep the information By investing in Enviu, people opportunity to directly invest in on our website and social media invested in our current three start- our projects and other sustainable platforms up-to-date. ups and our future start-ups. start-ups. We hope to make that possible by spring 2012.” We wanted to encourage people Our first start-up is the Sustainable
www.enviu.org
CASE STUDY:
Crowd-funding the electrification of the Citroen DS: a group of Dutch car enthusiasts get together to realise everyone’s dream to modernise a vintage car. Okay, mainly theirs.
Co-founder of Planet B Ventures, Freerk Bisschop openly admits to his long-standing love affair with perhaps the most iconic of vintage cars (certainly the most curvaceous) the Citroen DS. An ‘old-timer’ with an enthusiastic following, especially in the Netherlands (the car that is, not Bisschop.) “We DS owners are extremely proud of the cars we are driving,” says Bisschop. “To the extent that
any of the negatives (reliability, noise, etc) are happily brushed aside in discussions you have with us. And you have to admit, it is a great car to look at.”
and futuristic (technology) characteristics of their car(s). Therefore, electrifying their car is logical: to be ahead of the crowd again!”.
But, as a long-time advocate of clean-tech energy, both professionally and personally, Bisschop knew that there was one way the DS could be improved, and that was by electrification.
But converting an existing petrol car into a state of the art, modern electric vehicle can be a costly business even if you are lucky enough to find a company with the expertise to do the job.
“DS owners love design
“We knew of a company called
Rebbl, which specialises in converting old-timers into electric vehicles. They quoted me 32,500 euros for the standard conversion, but, because this is an electrification project, explained that they would first need to develop a prototype which would add 22,550 euros to the costs.” A significant amount of money, even for a true DS fanatic. Especially when you consider that for 60,000 euros you can order an electric Delorean. Or, for just a little bit more, a Tesla Roadster, perhaps the most exciting electric car on the road today.
“My business model was simple: together with 5 other DS fanatics, a prototype is built, and the first 6 cars are converted into an electric car. The costs (which can be reduced significantly by using subsidies and a bit of financial/ fiscal engineering) are split between the initial group of 6.
given the fact that the DS is probably one of the most abundant old-timers around. “Basically, what we are looking at here is an offline crowd-funding model where people invest in a prototype and then license out the developed Intellectual Property. As beautiful in its simplicity, as the DS is in its curvaceousness.”
If enough conversions can be done, the initial group of 6 will not only get their money for the prototype back, but may actually earn some additional money in the process.
But of course true DS fanatics, aren’t interested in any of these fancy new cars, and Bisschop decided to see if there were any more owners out there who might be interested in electrifying their mistresses too, and sharing the extra cost of the prototype.
“But then, every additional DS owner (over and above the original 6) who wants to have their car converted in a similar way, can use our protoype for a flat fee of 1,000 euros or so, allowing us to gradually repay the initial investment.
In the end he didn’t have to utilise any internet-based social networks, as most DS fans tend to know each other directly anyway.
“If enough conversions can be done, we will not only get our money for the prototype back, but may actually earn some additional money in the process. Not unlikely,
And just in case they need to tempt any wavering owners, it might be worth pointing out that the converted DS will have a top speed of at least 160km/h (compared with 130 km/h at the moment), with a maximum reach of 200 km on one battery charge (just 9-10 hours). Specs that are not dissimilar to other top of the range electric vehicles that are currently being developed or marketed. Other benefits include the fact that the electrified version will be so silent you will be able to make phone calls in the car (using a car kit of course) which is almost impossible at the moment. Plus, filling up the tank (if that’s the right term in electric car world?) won’t cost you a cent if you happen to live in Amsterdam, as the City is committed to providing all electric vehicle owners with a loading station and a reserved parking space in front of their houses, completely free! And, last but not least, as with any electric car, the amazing acceleration capability of the electric version will no doubt leave petrol-powered DS owners wondering what on Earth that was that just whizzed silently past them with a knowing wink and a friendly toot of the horn.