TL;DR: Crowdfunding is a term that is often associated with charitable donation and community co-ownership, rather than investments made for a return. But did you know it can be any of these, and even all three at once? Companies often don’t realize that Investment Crowdfunding (or Crowdinvesting as we like to call it) can be a powerful complement to other types of capital they raise, and it doesn’t come with the strings attached that many imagine. Raise Green is the climate action investment platform that makes your fundraising straightforward, and we’re ready to help.
Myth #1: It’s complicated and won’t fit my business model
There’s a perception that setting up a crowdfunding raise is legally complex, requires deep financial expertise, and is only for certain kinds of businesses. The term “Security” tends to feel loaded and intimidating. In fact, issuing crowdfunded securities is quite simple, so long as you understand your own business - that is, how you use money and how you make money. Let’s take a look at why.
The “S” word
Crowdfunded Securities - in the form of debt or equity - are fundamentally the same as any other kinds of loans, shares, or units of securities. By issuing securities, you’re entering an agreement to accept funds now, and to pay your investors back on certain terms over time. The main difference is that there’s a group of investors, instead of a bank, lending you the money with a debt agreement or buying a share of your company through an equity agreement with your company. Need debt to lever up a solar project? Take out debt from the crowd instead of the bank. Need investors aligned with your mission but don’t want to give up control? Issue preferred shares to accredited and non-accredited investors alike. You know your business best, and you can choose the crowdfunding model that works for you.
Corporate Structures
Similarly, you have the choice of what legal entity will “issue” (sell) your crowdfunded debt or equity. You could:
- Form a project company to hold specific assets or projects,
- Issue directly from a parent operating company, or
- Create an intermediary holding company, to own other subsidiaries or multiple projects.
Any of these entities can be the issuer, so long as they are not disqualified for other legal reasons. The simplest legal form for crowdfunding is an LLC, but a C Corp or even a Cooperative can also be an issuer of these innovative, inclusive securities! You can also look at some specific examples we’ve seen before, here.
So what’s right for me? Sorting out how to use crowdfunding in your business isn’t too complicated if you know 3 things - how much capital you need, what you’ll do with it, and how you will repay investors. These things are the core elements of your business plan; your choice of security type and corporate structure are just tools to help you to execute that plan.
Myth #2: It’s only for businesses that can’t raise capital elsewhere.
The democratized, accessible nature of Regulation Crowdfunding earns it a reputation as a last-resort. There’s also a perception that it’s simply a route to “easy money.” In fact, it’s neither.
Successful businesses increasingly add Regulation Crowdfunding to their diversified capital mix, for its simplicity, attractive rates, customizable terms & conditions, and easy repeatability & scalability.
- Simplicity - no need for complex contract terms, voting rights, giving up control, or restrictive milestone clauses. Especially with Raise Green, you start from a simple ready-made debt or equity template and make a few key decisions to set the terms that work for you. Then you’re done!
- Custom terms - Crowdfunding investors are excited about your work, and want to see your project get done and your business thrive. They’re typically not interested in overly restrictive terms that hamstring your business or dampen your ability to get the most value out of the capital. They might even become your raving fans and customers because they heard about your work through your crowdfunding raise!
- Attractive rates - Rates are difficult to benchmark since crowdfunding securities are a relatively nascent and innovative financial product, especially for project finance and climate applications. But, chances are, if you have a viable business model you can offer a fair return that investors will find attractive, while still beating the rates you’d get from more rigid traditional institutions.
- Repeatability and scalability - Preparing a crowdfunding offering typically takes 2-3 months, between choosing your security type and populating our standard templates with your preferred terms and business plan description. That drops by an order of magnitude for your second offering. Once you complete your first offering, your second one can be ready to launch in as little as 2 weeks!
Myth #3: It’s only for seed-stage startups and flashy, high-risk investments
True, many of the companies that have used Crowdinvesting to date are pre-revenue startups, selling equity with visions of 10x, 20x returns on investment - and quite high risk of loss. Others are real-estate flip proposals.
But Raise Green has envisioned a bright, dynamic future for crowdfunding in which it’s also used for high quality, climate- and social-impact investments, with healthy returns from proven business models.
These investments can have returns well above ultra-established investment products like CDs and savings accounts, while still representing a fairly reliable component of a well-diversified personal portfolio. For example, typical solar debt may have annual interest rates from 4% to 8% over about 5 to 15 years. You could, for example, earn $1,200 on a $1000 investment in a 8% solar debt note with a 15-year term.
Take a look at Raise Green’s past offerings from leading companies, like Solaris, NEIF, BlocPower, and the Connecticut Green Bank, and you can get a sense of the exciting range of innovative investments that Crowdfunding has enabled. These have been offerings with solid returns and extremely transparent use of funds for impact projects, and they’re led by market-making experts in climate and social innovation.
There is no limit to the climate impact we can all have together through investment crowdfunding.
This Blog is for discussion purposes only, expresses the views of Raise Green, and is not investment research. This is not investment or tax advice, and does not constitute a solicitation to sell or an offer to buy any securities. Certain information is from or links are to third party sources. Although they are believed to be reliable, we do not guarantee their accuracy, completeness or fairness. Raise Green is a registered Funding Portal with the SEC and FINRA, and is not a Municipal Advisor. Prior to being approved to list a company on the Raise Green portal, a diligence review is completed. Prior to investing. investors must sign up for an account on the portal. Raise Green does not provide tax, accounting or legal advice. Investing in crowdfunded offerings involves risk and you should review the risks of a particular investment prior to investing. You are strongly encouraged to consult your professional advisors before investing. Go to www.raisegreen.com for additional information on services, the funding portal, regulation, and investment risks. Or, direct inquiries to info@raisegreen.com. Copyright © 2021
