News from the front desk 451: Angel investors, impact investors, ESD-focused venture capitalists, start-ups, crowd-funded equities, crowd-sourced funding … the ways money can be channelled to save the planet and deliver social and environmental good are multiplying at a rate of knots.
Some ventures are soaring but others, such as Grand Designs TV host Kevin McCloud’s Happiness Architecture Beauty (HAB), are experiencing something of an Icarus moment.
We’ve already seen categories such as insulation, lithium-ion batteries and high-rise apartments suffer massive reputational damage due to high-profile examples of product or process failure.
So, it is important to promote the success stories because, while crowd-funding can be a major source of fuel for bold and innovative sustainability ideas, the sector still lags behind the arts, culture and technology.
European research published in April this year analysed social media posts about crowdfunding to asses how highly sustainability rates. They found it plays a minor role in the public discourse on crowdfunding, and that crowdfunding campaigns focusing on sustainability receive little coverage.
The discourse on sustainability-oriented crowd-funding is dominated by “professional actors,” the researchers said.
And, we notice there is a growing number of financial sector enterprises moving into the space.
So its important that the troubles that beset Kevin McCloud aren’t allowed to damage the entire crowd-funded equity space, especially in those projects combining eco and innovative in the one concept.
Earlier this year, it became clear HAB was unable to deliver the returns it had promised investors in its 2017 crowd-funded mini-bonds issue.
Investors have now been told they could lose anywhere between 74 and 97 per cent on their investments, according to The Guardian.
Investors in an earlier fundraising done by HAB Land in 2013 that raised £1.9 million, may also lose most of their money.
McCloud blames delays, large debts and “systemic faults” for HAB troubles. He says he is trying to find a resolution with the company and its investors. One option could be to restructure the bonds to delay returns to 2024 at the earliest.
But for every disappointment there are plenty of great success stories, many of them profiled by The Fifth Estate in recent years, such as Flow Hives, the Good Beer Co and community-owned energy retailer, Enova. Many of them have used crowd-funding platforms such as Pozible, KickStarter, StartSomeGood and GoFundMe; others have turned to the likes of Birchal and Equitise.
Last month, we profiled demand response start-up Red Grid, who is supported by Birchal.
Another innovator working with that platform is housing innovator, Hutt, launched by architects Felicity Bernstein and Marc Bernstein. The company wants to bring Passive House to the masses, and its first demonstration home project in Coburg has broken ground, with the site cleared and construction materials currently “on the ship”, Felicity Bernstein tells us.
The crowd-funded equity approach it is taking is staged and measured, she explains.
Last year, the team ran an expressions of interest campaign through Birchal, to gather interest from small- to medium-sized retail investors. The capital raise will take place near the end of this year.
Bernstein says the advantage of crowd-sourcing equity is that it enables an enterprise to engage with like-minded people.
Investors are not only gaining a stake in the business by investing their cash, they are investing with their hearts, with passion and with love.
That’s something that Bernstein says needs to be respected. Open, two-way communication is important to make the relationship work.
Another upside of working with a licensed financial operator is that there is support to navigate the regulatory environment.
The federal government recently clamped down on crowd-sourced equity arrangements, with ASIC introducing new reporting, auditing and governance requirements for companies seeking and using crowd-sourced equity.
In place since November last year, these rules mean many companies will deliver their first reports to ASIC from July 1, this year.
Jonny Wilkinson, co-founder of crowd-sourced equity and investment platform Equitise, tells The Fifth Estate there are pros and cons to the regulations.
Equitise has worked with a number of sustainability-oriented enterprises including Urbotanica, The Clean Collective and Car Next Door.
He says equity crowdfunding has created an avenue for people who haven’t been able to invest in high growth start-ups through a licensed and regulated framework.
“The opportunities and investor appetite have and will continue to grow very quickly over the next few years and we’re excited to be a part of that,” he says.
The company has processes in place to analyse opportunities, and Wilkinson says they turn away most of the companies that approach them, because of factors such as their sector, stage of evolution and prospects for returns on investment.
“The transparent nature of the platform and our analysis goes a long way to mitigate the risk but, as with all early stage investment, there are inherent risks and one or many factors could cause an opportunity to fail,” he says.
The new ASIC rules make it easier for innovators and investors, he says, by providing a structured and regulated process for interaction, and allowing investment. It does require more work than shopping it around to small related investors, but it expands the reach and opportunity to raise funds while also forcing fund raisers to adopt better levels of governance.
“For Equitise, it requires a lot of work and compliance but it has been a great opportunity to allow people who are passionate about supporting business to become a shareholder and get involved with their future.”
He says they are still trying to understand what investors are most interested in.
“Well thought out and prepared offers, which is often a function of the state of the business and those involved, will most likely attract investment and be successful.
“Many of the things that may attract investment might not necessarily have the greatest likelihood of delivering on the returns. The Kevin McCloud example could highlight that the motivation and marketability of the investment may have detracted from the fundamentals of the company.”
He says the drivers for investors, whether primarily financial or about achieving a greater good, depend on each project and what it is trying to achieve.
“Great businesses who are doing positive things in their local and global community often get passionate supporters who are willing to forgo some potential returns for the positive impact of what they are investing in. This could be sustainability or social purpose initiatives,” Wilkinson says.
“Most larger and sophisticated investors would likely be driven more by financial returns but [they] like the positive impact of the companies they invest in. Many renewable energy infrastructure projects present a good opportunity and attract a lot of interest from larger investors, as the returns are more predictable.”
He says that somewhere in the realm of $25,000 to $50,000 is where he would expect to see a difference in philosophy and motivations.
While we wait for all of the largest capital funds globally to collectively step up and genuinely transition out of businesses that harm the planet, it’s positive to see fledgling enterprises fostered by anyone and everyone wanting to put their personal dollars towards a better future.
It’s a bit like Australia’s renewable energy market – it was individual homeowners investing in solar panels who initially pumped significant volumes of watts into our grid, while government policy settings and institutional investment for so many years lagged behind.
People voting directly with their investment dollars is definitely a trend to take notice of.