Crowdfunding for solar is not a common financing model, but it’s not an entirely novel one either.
The idea was first tried out by Mosaic, which was founded in 2010 as a “crowdsourcing” residential solar company and has since graduated successfully to institutional lines of credit. Similarly, solar energy provider Wunder Capital raised a first fund from multiple minor investors, before closing a $650 million deal with Blackstone Credit portfolio company ClearGen.
Not all efforts made the leap from retail to institutional capital, though.
Lassor Feasley, currently the founder and CEO of Renewables.org, a non-profit that uses crowdfunding to fund solar projects in India and across Africa, previously launched Legend Solar to allow small investors to invest in operating panels on commercial solar farms. The effort didn’t work, he said, because “institutional money just flooded it into that space in a way that it had not before.”
But those market conditions are changing. High interest rates, among other factors, are giving a boost to crowdfunding’s potential.
“In the 0% interest rate world, [retail investors] had almost no practical application in the financial sense,” Feasley said. “Higher interest rates are definitely good for retail investing, because retail investors might be more competitive with institutional sources of capital.”
That’s the backdrop against which the investing platform Climatize raised pre-seed capital. The startup targets small and medium-size commercial industrial solar projects across the U.S., and shared exclusively with Latitude Media that it has closed a $1.75 million pre-seed funding round, led by Myriad Venture Partners, with participation from Climate Capital, Techstars, Responsibly Ventures, and Temerity Capital.
Will Wiseman, the company’s co-founder and CEO, said the goal is to funnel capital toward projects ranging in size from $250,000 to $5 million, which struggle to get funded because they’re too small for institutional investors, and too big for community lenders.
“Small to medium scale projects — despite bankable economics, and real technical benefits — are often underfunded by community banks and credit unions,” he said. “They lack the experience underwriting the projects, both from a technical and an economic perspective.”
Leveraging the crowd
Climatize got started when Wiseman and his co-founder Alba Forns joined the 2019 global climate strikes of September 2019 in Barcelona, where they were both working at the time. It struck both that the protestors could together be not just a political force, but a financial one as well.
“If you get 100,000 people together and their best option is to make a cardboard sign, that’s a glaring problem,” Wiseman said. But if they all pitch in a handful of dollars, he added, they instead have a “meaningful pool of capital” to work with.
“The energy transition represents one of the largest wealth creation opportunities of our lifetime,” he added. “We want to be able to make that wealth creation opportunity accessible to anybody and everybody who wants to participate in it.”
So they turned to an old idea — if not one with a perfect track record — in the hopes that new market conditions would set them up for success.
Because much has changed. When Mosaic hit the market, the crowdfunding framework was not as well developed as it is now, and underlying supporting financial technologies such as Plaid didn’t exist, while Wunder Capital only serviced accredited investors, meaning “they had to turn away about 98% of the people who showed up.” (Bryan Birsic, Wunder Capital’s co-founder, is on Climatize’s advisory board.)
Climatize uses a similar model to Mosaic’s, leveraging crowdfunding to connect investors with solar projects. The startup finds and vets the projects, then lists them on its platform, where investors can pitch in with as little as $10. (The platform’s average account size, though, is about $35,000.)
So far, Climatize has funded 11 solar and storage projects, using capital from over 900 investors to install roughly 960 kilowatts of solar capacity and 1,357 kW of energy storage, to the tune of $4.3 million total. Its projects tend to range in cost from $60,000 to $980,000; a solar installation at a farm in Tennessee is its biggest installation so far.
Investors, which range from your everyday climate activist to large pools of institutional capital, start accruing daily interest as soon as a project has been fully funded, and can earn up to 10% per year. Climatize charges the project’s developer for 5% of the funds raised — and an additional 0.5% annually for servicing the project’s debt notes.
“The developer would rather pay the interest on the debt than not have the project,” Wiseman said, “because they can make money building the project.”
The next step
Institutional capital and crowdfunding do not have to be mutually exclusive, in Climatize’s case.
The startup is already raking in from institutional investors such as family offices and foundations. And that more institutional direction is where Tim Chiang, partner at Myriad Venture Partners, which led the pre-seed round, sees it developing.
“Climatize has an opportunity to expand beyond people who want to invest out of the goodness of their heart,” he said. “There’s great opportunities to build off of that early success and expand it to institutional investors.”
Crowdfunding, while appealing, has its limitations, especially when it comes to scale — crowdfunding regulations only allow up to $5 million per project.
Wiseman, however, wants to leverage the emerging market for tax credit transferability. Essentially, Climatize could help people buy the credits to save capital that would be reinvested into the debt side of the projects, creating a “virtuous flywheel” that allows the company to approach much bigger projects.
Having started with solar — “the most vanilla” of climate investments, per Wiseman — the model has the potential to expand. For instance, Climatize is already taking into consideration applying it to EV charging projects.
“In a distributed energy resource world, there is a place for distributed energy finance,” he quipped.
