Recently, the Dow Jones Industrial Average in the United States fell more than 610 points shortly after Brexit vote in the UK hit the news. This caused experts to speculate that investing in U.S. businesses could decline due to perceived marketplace volatility. However, while the stock markets may be shaken, it appears that crowdfunding shares may actually be strong despite Brexit. This is especially true of crowdfunding (CF) investments in Green Tech and Clean Tech.
In the last quarter of 2015, venture capitalists (VCs) invested just a fraction in clean tech as compared to what they gave other early-stage deals. Fortunately, the SEC recently approved new finance rules (Title III) allowing more investors to engage in clean tech deals. This rule change will allow this sector to raise more capital without traditional VC and bank funding. The question is, can the new rules come to rescue despite the current economic climate?
Ron Miller is the CEO of StartEngine, a company whose platform provides access to capital for small businesses and startups looking for alternative sources. The following is an excerpt of my interview with him for Inc.com:
Kate Harrison: Why is crowdfund investing an important alternative for green tech startups over traditional finance?
Ron Miller: Crowdfunding is a perfect match for green tech as these investors are motivated to invest in bringing new technologies and innovations into the market. They understand that green tech in all of its various forms addresses major threats to the planet. Accordingly, people investing via equity crowdfunding achieve their personal as well as their financial goals by helping to create a more sustainable world.
Harrison: Can you give us an example of a clean tech company that raised capital through CF and why you feel they were successful?
Miller: One clear example is Elio Motors, a clean tech car company that raised nearly $17 million from mostly non-accredited investors through the StartEngine platform. The vision of Paul Elio, the founder, was to significantly reduce carbon emissions by producing a vehicle that gets 84 miles to a gallon of gas. The real impact of this product is that at a projected retail price of $6,800 per vehicle, a large number of aging high emission vehicles could easily and economically be replaced. This is in contrast to Tesla, which may reduce carbon emissions, but at its current price point, will never sell enough vehicles to make a meaningfully impact the environment. Elio Motors however, is likely to achieve the goal of meaningful reduction of carbon emissions on a broad scale. By 2025, Elio Motors will help consumers save 8 billion gallons of gas and reduce CO2 emissions by 160 billion pounds.
Harrison: What are the benefits of the new crowfunding rules that green tech startups need to be aware of?
Miller: Green tech companies are particularly well positioned to take advantage of the new equity crowdfunding rules. One main advantage is that the founders of these companies have the freedom to set their own terms, such as the value of the company, how much they want to raise, and the minimum investment per investor. What is even more important to a green tech company is that raising capital via CF results in the creation of a virtual army of brand ambassadors. These investors can help a startup green tech company promote their products and services widely in the marketplace.
Harrison: In your opinion, will Brexit impact US investing in startups and potentially impact green tech investing as well?
Miller: As a general proposition, investing via equity crowdfunding and in startups is loosely correlated to stock market and traditional equities market investing. Meaning, whatever broader equity markets are doing is going to have some impact on investment in startups. However, many people investing under the new crowdfunding rules are motivated because they believe in a company and its value in making the world a better place. They also believe in the founder's ability to execute. So in contrast to traditional investors who are driven solely by hoped-for financial returns, investing in startups -- and green tech in particular -- is likely to be minimally impacted, if at all, by Brexit.
Harrison: Why do you think VCs still struggle with investing in green tech companies at the same level they invest in other ventures?
Miller: Green tech has yet to create the kind of returns that are required by traditional and VC investment paradigms. It's common knowledge that VCs lose far more often than they win. Accordingly, in order for VCs to be sustainable, they require significantly outsized returns in relatively short periods of time. And while some green techs may be able to achieve that result, there are probably more that do not. Green tech is more of a long term investment opportunity than a "quick-buck" investment arena.
Harrison: Any other comments or advice you would like to share?
Miller: Early indications show that the volatility of shares of stock purchased under the new equity CF rules is substantially lower than in the broader markets. As an example, Elio Motors shares, which were originally purchased for $12, were trading in the $18-21 range prior to the Brexit vote. Shortly after, even though broader indices dropped significantly, shares of Elio continued to trade on the OTC market in the same $18-21 range they have been trading in for months. Looks like now's a good time to go green!