Crowdfunding and the democratisation of finance: Giving clean technology companies quick access to cheaper capital


Pioneering clean technology and sustainability-focused companies can find it more of a struggle to get investment when compared with those working in other industries, for example Information Technology. Crowdfunding provides a potential solution to this challenge by democratising access to finance, allowing them to reach a wider pool of potential investors that can provide cheaper capital.

In the past start-ups would focus on gaining funding from business angels, venture capitalists, or large financial institutions, investing millions of pounds with the expectation of a big and quick return. Today new digital crowdfunding platforms enable members of the public to invest almost any amount in a wide range of businesses and projects.

This has clear benefits for the companies themselves, and those who pledge investment, who can all access the sort of potential profits that would not have been possible under the previous system. In the case of projects that have a positive social and environmental impact, the value delivered can be even greater: anyone can invest, and everyone can benefit.

Some institutional investors remain sceptical, but others are following the crowd.  A report from UK Business Angels Association showed 45 percent of angels[1] now invest alongside crowdfunding platforms. GE Ventures co-invests with the Israeli equity crowdfunding platform OurCrowd in selected early stage companies, and established venture capital funds, such as Meridian Venture Partners and the Anthemis Group, are doing similar things on Seedrs, a UK-based platform.

There are more than 1250 [2] active crowdfunding platforms world-wide, accessible by more than 90% of the world's online population. The global market is expected to exceed $90 billion by 2025, almost 6 times the size of the global crowdfunding market in 2014[3].

The UK is the leading crowdfunding market, with London already crowned as the world capital of crowdfunding. The market has increased by a factor of 12 in the last 3 years (from £267 million in 2012 to £3.2 billion in 2015), with exceptional growth in equity crowdfunding (295% from 2014 to 2015) and donations (507% from 2014 to 2015)[4]. Additionally, the size of the UK market in 2015 is expected to be more than 5 times larger than the crowdfunding market volume projected for the rest of Europe[5].

This exceptional growth has been possible thanks to the city’s thriving start-up market and active investor base, as well as the proactive stance of the UK government towards innovation in financial services. The government has in fact recognised the crowdfunding industry as the ‘dawn of a new era’ and has taken a series of steps to promote growth - including a commitment to invest £5 million through leading UK equity platform Crowdcube and co-investing £100m through peer-to-peer loan platforms (Funding Circle, Zopa, Ratesetter etc.)

Despite this huge potential, the market is still in its infancy. This is particularly true for the low carbon sector, which in 2012 accounted for less than 6% of funding volumes globally, a small percentage of this (or 5%) relating to equity funding[6]. In the UK, only 44 percent of SMEs were aware of alternative finance models and only 9% of them used crowdfunding to fundraise in 2014[7], although more than a third of the UK’s online population has used at least one Fintech product[8].

The crowdfunding opportunities are vast, especially given that small cleantech enterprises find it harder to raise money than companies in other sectors, as their projects often involve higher capital requirements, riskier technologies and longer timeframes to market.

Among the 300 companies that the Carbon Trust has incubated, there are a few which have successfully raised crowdfunding to date. This is an increasing trend and we are starting to see more successful examples of companies that  have gone on to raise investment through the leading UK equity crowdfunding platforms Crowdcube and Syndicate Room: Affresol, a company developing a synthetic concrete from waste; Aeristech, a company developing a novel fuel efficient and low-cost hybrid turbocharger technology with applications in the automotive and power generation industries; and Sustainable Power, a combined heat and power (CHP) technology.  The first ever equity crowdfunding exit has been a cleantech company, E-Car Club (UK's first entirely electric pay-per-use car club), who was sold to Europe Car[9] in 2015 offering more than three time returns.

As with most forms of populism, success in raising funds from the crowd relies on the ability to generate a positive buzz around an idea. Socially or environmentally responsible ventures can harness the desire of the general public to invest in the sustainable and profitable future they want for the world, and are thus particularly suited to crowdfunding. Despite the inherent risks, as with all investment, there has hardly been a better time to use crowdfunding to start or invest in a cleantech business or project in the UK.