As alternative finance continues to gain popularity in Europe, crowdinvesting is coming into the mainstream. But what exactly is it? Find out more and learn about ecoligo’s use of crowdinvesting in its business model.
An extended version of this article was originally posted on Climate KIC, as an interview with Kilian Rüfer.
What is crowdinvesting?
Crowdinvesting is when many investors finance a project, each making a small financial contribution in proportion to the total capital required. Over time, the investor receives the amount paid plus attractive interest in return, as a cash payment. This is the most important difference to crowdfunding, where the investor usually receives remuneration in kind.
The main branches of crowdinvesting are real estate, (renewable) energy and start-ups. Usually, people can either invest in projects or companies, depending on the platform. Crowdinvesting can also be used within a business model, such as in the case of ecoligo.
Who can invest?
This depends on the platform itself and aspects such as the country it is based in and the subsequent regulation. However, generally crowdinvesting is a very inclusive form of investing, with clear and transparent processes and low minimum investments. With ecoligo, investors can invest amounts from 500€.
What return can investors expect?
Our two recent projects offered returns of 5%, with a 0,5% bonus for those who invested in the first week. We expect to offer between 5 and 8% interest on all our projects, with an average running time of 5 years.
Interest rates vary across crowdinvesting platforms – the average is often around 5%, however some industries differ. Crowdinvestors can nevertheless expect more than they would receive from a bank-offered savings account. Furthermore, there are often non-monetary benefits as well.
What risks are the for investors?
All investments carry risk – a fact that is made clear on all crowdinvestment platforms. In the worst case, all capital can be lost. Investors are encouraged to educate themselves about the risks that are specific to each investment they make. They are also strongly encouraged to spread their investments over different projects to minimise risk.
In emerging markets, risk may be perceived as higher; factors such as currency risk, foreign jurisdiction and unclear project separation can influence the risk level of such projects. At ecoligo, we work with companies who can pay for electricity in ‘hard currencies’, to minimise some of this risk. Having an office in Ghana also allows us to track the project performance on the ground and react quickly if problems occur. Furthermore, we are partnered with Alliance Climate Solutions for support in our technical due diligence.
In contrast to crowdinvesting for start-ups or companies, the success of renewable energy projects is dependent on the energy produced from the power systems rather than on the growth of the company. Therefore, the project success is easier to plan and predict.
Investors on the ecoligo platform can read about the general risks involved here. Extended risk documents featuring the specific risks of the project is made available for download for every project.
What opportunities does crowdinvesting offer?
In ecoligo’s case, crowdinvesting allows us to finance projects that are otherwise not being realised: despite technological and financial viability, the volumes are too small for institutional investors. This is often the case with crowd finance in general: it is used when traditional finance is unsuitable or unavailable.
For investors, crowdinvesting offers far more than a simple return on investment. Tangibility and transparency are two major benefits – crowdinvestors can directly invest in the companies, projects and people they want to support, and can track the impact of their money. In the energy sector, crowdinvestors are also able to support the environment. In the case of ecoligo, they also have the chance to support sustainable development in emerging markets.
How were your first experiences with crowdinvesting?
Our first projects, which were to finance two solar systems for a flower farm in Kenya, were very successful. The financing times as well as the average investment, which was 2300€, were above the industry average. We are very happy about the support we have received from the crowd so far! Check out our project pages and press releases to find out more.
How can you ensure the quality of the installation and service in the project locations?
We only use high-quality equipment. This is sourced both from German companies – such as SMA inverters – and high quality component manufacturers worldwide. Our technical due diligence partner Alliance Climate Solutions is checking the chosen components for every project and we make all information regarding equipment available – click here for an example.
How does ecoligo use crowdinvesting in its business model?
ecoligo has a two-sided business model: we offer solar projects as investment opportunities to the crowd, and we are also a solar utility that provides low-cost solar electricity to businesses in emerging markets. By financing solar projects through our crowdinvesting platform, we close the finance gap that has previously prevented these projects from being realised. More information can be found on our website.
Photo: Barn Images
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