Crowdfunding for solar: model and implications for Thailand

Crowdfunding for solar: models and

implications for Thailand

Sarinee Achavanuntakul

Sal Forest Co. Ltd.

31 July 2013

Who is Sal Forest?

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“Sustainable Business Accelerator”

Sal Forest is Thailand’s first company that aims to jumpstart and sustain a

public discourse on sustainable business in Thailand via events, workshops

and training courses, print and online media, as well as conducting

research on sustainability issues and promoting social impact assessment.

What is crowdfunding?

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• Use of online communities to raise money from individuals to fund a project, initiative, or business.

• Investors/doors are typically ordinary people with little or no financial background. They invest because they want to support causes they believe in, more than seeking highest returns on money.

• Can be donations, lending, or investment in equities, but only donations face no regulations (more on that later).

• Proving to be a reliable and scalable solution – not just very early seed financing.

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“First crop” are donations/‘rewards’

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$2.8 bn by end 2012

Source: http://seedingfactory.com/2012/09/infographics-money-from-the-crowd/

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Source: http://econsultancy.com/th/blog/10074-crowdfunding-in-numbers-stats

Crowdfunding models

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• Return on investment in the form of

• Money

• Perks

• Produced goods (e.g. DVDs)

• Investors can be

• Accredited investors (SEC definition)

• Anyone in the crowd (typically small amount)

• Biggest hurdle: regulations

• Typically, “soliciting” for “investment” (i.e. yield positive returns to investors) requires filing and must be registered broker-dealer

Mosaic: crowdfunding for solar projects

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Track record: from donations-based crowdfunding…

…to larger projects that yield returns

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The Mosaic model, in a bit more detail

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• The projects are first set up as a solar PPA, lease, or loan, and contracted with a host. Then Solar Mosaic gets the word out about funding the project.

• Once it’s fully funded by individual investors, Solar Mosaic pays a guaranteed rate of return over specified period (e.g. 4.5 percent interest for 111 months) as Solar Mosaic collects payments from the project.

• “Packaged deal” i.e. no extra monetary benefits; any tax credits are rolled into the investor’s yield. Similarly, there’s no direct operations and maintenance charges, such as sharing the costs of replacing the inverter.

• Solar Mosaic gets: 1 percent fee from investors, and loan origination feefrom the borrower.

SunFunder: solar crowdfunding for developing world

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Crowdfunding is “disintermediating” traditional VCs

• Traditional venture capital (VC) offers four “values”

� Networks (“Rolodex”)

� Expertise

� Purse strings (control of startup funding)

� “Sophistication” of valuation

• All of these are being disintermediated by the crowd…

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Rolodex disintermediated

• Social networks are bigger than Rolodex, and are “flattening” networks and bringing people closer (fewer degrees of separation)

• Can use rating algorithms

• Also, each person in the social network has his/her own Rolodex

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Expertise disintermediated

• Is VC really “expert”? Perhaps the most debatable point

• Performance is the only metric that matters. Increasing number of studies has shown that there is little correlation between experts’ self-assessment and actual performance

• Diversity raises collective IQ, while adding like-minded people create scarce new value

• With the right algorithm, could be hard for experts to outperform crowds

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Funding disintermediated

• $2.8 bn raised on crowdfunding – number speaks for itself

• Where VCs & angel investors left off, the crowd take over

• GrowVC: seed funding for startups

• WebEquity: exchange sweat equity for revenue sharing

• Innovatrs: investor briefs sent by open call

• YouBeTheVC: crowd votes on 3 startups for VC to fund

• InvestingZone: UK’s first VC-based equity platform for buying shares in unlisted company

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Valuation disintermediated

• Price discovery by “invisible hand” of the market works with crowdfunding too

• Crowd mechanics and be applied to private valuations. Some notable pioneers:

• SharesPost: exchange of private company shares

• SecondMarket: marketplace for illiquid assets

Big boost to US market: 2012 “Crowdfunding Act”

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• Caps amount issuer can raise at $1 million in any 12-month period - this is approximate cost of a 200 kW solar project, so should lead to boost in community-based solar arrays

• Caps the amount a person can invest in all crowdfundingtransactions over a 12-month period at 10% of annual income or net worth (incomes of $100,000 or more) or the greater of $2,000 or 5% of annual income or net worth (incomes of less than $100,000)

• Shares issued in crowdfunding transaction subject to one-year restricted period

2012 “Crowdfunding Act” (cont.)

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• Crowdfunding must be done through a registered “funding portal” (registered with SEC)

• Broker-dealers and funding portals may not solicit investments, offer investment advice, or compensate employees based on sales

• Traditional investment banks have not yet registered for crowdfunding, leading to speculation that crowdfunding will be facilitated by lesser-known financial institutions with little or no retail investment track record

2012 “Crowdfunding Act” (cont.)

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• Requires a disclosure document to be filed with the SEC at least 21 days prior to first sale, and requires audited financial statements for raises of over $500,000.

• Does not allow advertising, except solely to direct investors to the appropriate broker/funding portal.

• Annual reports and possibly more frequent (depending on SEC rulemaking) must be filed with the SEC by a company which completes a crowdfunding round.

• Extensive due diligence is required, including background checks on management and large stockholders.

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• “Deposit-taking” and “lending” (pays interest) are regulated by the Bank of Thailand: must be registered financial institutions

• “Soliciting” and “issuing securities” (pays interest) are regulated by Thailand’s SEC: must be registered securities firm to solicit, and public company to issue

• Thailand still has no online data protection law. Most recent draft in 2010 drew sharp criticisms (e.g. does not allow citizens to sue government for breach, “data privacy committee” is dominated by government officials, raising fears it will “control” more than “protect” personal data)

Hurdles in Thailand: legal framework, and online privacy

Future of crowdfunding: the deal landscape?

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Learning curve: lessons from Acumen Fund

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ที่มา: World Economic Forum (2008) “Blended Value Investing: Capital Opportunities for Social and Environmental Impact

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“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”

- R. Buckminster Fuller -

“คุณไม่มีวันเปลี่ยนอะไรก็ตามด้วยการต่อกรกับความจริงที่เป็นอยู่ถ้าคุณอยากเปลี่ยนอะไรก็ตาม จงไปสร้างโมเดลใหม่

ที่ทําให้โมเดลเดิมล้าสมัย”- อาร์. บัคมินสเตอร์ ฟุลเลอร์ -