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Cleantech and Crowdfunding

Posted by
Anita Belitz Krasniqi
on
Tuesday, March 15, 2016 - 15:45

One of the fastest growing areas of sustainable finance is sustainability-themed investment. Sustainability-themed investments typically address a specific sustainability issue such as clean technology, or cleantech.

 

According to statistics compiled by the Global Investment Alliance, sustainability-themed investments were among the fastest growing sustainable investment strategies between 2012 and 2014. 

 

A sustainability-themed investment that has received considerable attention in recent years is that of clean technology. Clean technology, or “cleantech”, typically refers to technology aimed at increasing environmental efficiency or, more generally, reducing negative environmental impacts.

 

Sustainability-themed investments are typically defined as investment strategies that address specific sustainability issues such as climate change, food, water, renewable energy, clean technology, or agriculture.

 

According to the paper Crowdfunding Cleantech by Douglas Cumming, Gael Lebeouf, and Armin Schwienbacher, a paper featured at the upcoming Geneva Summit on Sustainable Finance, cleantech projects encompass areas such as green and renewable energy, recycling, or green transport.

 

Given that it is not easy to evaluate the economic and technological prospects of clean technology, cleantech investments are considered to be risky. This is one reason why, historically, a large part of cleantech projects have been financed by venture capital.  Cumming, Lebeouf, and Schwienbacher state that cleantech was one of the fastest growing sectors in the venture capital industry from 2000-2013, comprising over 10% of all venture capital deals between 2010 and 2013. Recently, however, venture capitalists have become less interested in cleantech, leaving a funding gap for cleantech projects. In other words, alternative forms of funding are required to finance cleantech projects.

 

One innovative and alternative form of finance which has been facilitated by the application of technology to finance (“fintech”) is crowdfunding.  Crowdfunding refers to the process of raising funds for a project through donations via an online platform such as Kickstarter or Indiegogo

 

Combining the innovative area of fintech with sustainable finance, the paper by Cumming, Leboeuf, and Schwienbacher presents a first-ever analysis of cleantech crowdfunding. The study analyzes more than 22'000 cleantech crowdfunding campaigns from 91 different countries. The paper shows that cleantech crowdfunding is more likely when oil prices are rising. Furthermore, when compared to traditional crowdfunding campaigns, cleantech crowdfunding campaigns are more likely to have higher capital goals (i.e., the amount of funds the entrepreneur seeks to raise). In addition, cleantech campaigns generally have longer, more readable and more visual descriptions of the project as well as a video pitch. The research indicates that cleantech crowdfunding campaigns are more successful in terms of achieving funding goals when they have a smaller goal-size, are for non-profit projects, and have a video pitch.

 

The analysis is important because it provides insights into the factors that make alternative sources of funding for clean technology projects successful.

 

Faculty expertise provided by: Prof. Philipp Krüger.