Changing the Rules in a Changing Climate
Raise Green Comments on the SEC’s Proposed Changes to Crowdinvesting Rules
Whether it’s an ominous orange sky in the middle of the day, climate fires ravaging communities, increased likelihood of contagion, asthma and morbidity from air pollution, or the destructive derechos, hurricanes, floods and other disastrous weather-events hitting neighborhoods across the country, we’re experiencing climate change everyday. These are sobering reminders that time is of the essence to make the shift to a clean energy economy. That’s why we need everyone involved in creating and financing the sustainable infrastructure needed for a climate-safe and resilient future.
Raise Green is a category-defining marketplace dedicated to bringing verifiable impact investment opportunities to everyone, and empowering communities to create and finance climate action projects. That unique blend of assistance and access is currently missing in the clean energy finance world, and it relies on specific rules regulated by the Securities and Exchange Commission (SEC). Earlier this year the SEC proposed some big changes to their rule aimed at “Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets".
The SEC’s rulemaking process invited comments on this proposed rule, and Raise Green took the opportunity to provide detailed comments in a joint letter with New Haven Community Solar (NHCS): https://www.sec.gov/comments/s7-05-20/s70520-7261538-217666.pdf. Raise Green and NHCS are both founded, designed and mission-driven with a core intention of amplifying marginalized voices and empowering everyone to be part of creating a more healthy, just and sustainable world. This rule-making offers a tremendous opportunity to expand inclusive finance through crowdfunding.
We throw that word around a lot, ‘crowdfunding’, but it took several years for crowdfunding platforms like ours to become available to everyday investors like you, and even longer for ‘crowdfunding’ to become a common noun known to the general public. Crowdfunding is a catch-all for a few different types of crowdfunding, but most of it is donation-based crowdfunding like Kickstarter where you donate, and may or may not get something back.
Equity crowdfunding (or what we refer to as ‘crowdinvesting’) is the actual sale of private securities (stock or debt that is not available on a public exchange like the NYSE or NASDAQ). When an Originator sells securities, their company is bound by law to use the funds for what they said, and to pay investors back (plus profit!) as promised, if their project is successful. Now more than 500k Americans have made a crowdinvestment since 2016 (Crowdfund Capital Advisors, 2020).
Even though crowdinvesting became legal after the JOBS Act passed in 2012, it wasn’t fully allowed in the U.S. until the SEC finalized regulations in 2016. With Reg CF, Reg A and other exempt offerings, private equity investing is now more accessible and transparent for accredited and non-accredited investors. But recent analysis from the SEC has found significant barriers to widespread adoption. Now the SEC has kicked off the process of revising exempt security offering rules, and Raise Green is pleased to help make comments that can help make more wealth building opportunities for impact investors at the community-scale and accelerate the clear energy transition.
Our 3 favorite proposed changes to Regulation Crowdfunding, and how they can benefit investors, Originators, and the fight against climate change:
1: Increase of the maximum raise (i.e. offering amount) per company to $5 Million or more
Currently, there is an investment limit of $1.07 million per company per year for crowdfunding raises. Increasing this limit would allow for an overall increase in capital raised, while simultaneously allowing for crowd investors to invest in and benefit from ownership of larger climate action projects (e.g. lower cost estimates and higher value creation efficiency). This would mean that Raise Green could inclusively finance projects that are several megawatts in capacity, which can be more profitable and have a greater impact than smaller projects due to economies of scale.
2: Removal of the investment limit for accredited investors and increased transparency of investment limits for non-accredited investors
This will not only allow for a greater influx of capital towards projects from accredited investors, but also help bypass the issues currently accompanying the calculation of investment limits for non-accredited investors. Such limits are driven from self-attestation of net worth, a process that is inherently difficult for most of the general public to calculate. By removing the accredited investor limit Raise Green projects can take larger investments from family offices, donor-advised funds, and other accredited and institutional investors which means more and larger projects can get funded more quickly, while still allowing for blended capital and access to non-accredited investors to be in the same deals.
3: Allowing companies and crowdfunding platforms to market and advertise an investment opportunity prior to officially listing it (taking “indications of interest”)
Under the current Reg CF exemption, issuers (i.e. companies that host investment opportunities on marketplaces like Raise Green’s) are unable to communicate with their investor base until they have gone through the process of preparing an offering. Allowing issuers to effectively “test the waters” and gauge interest may lead to an explosion of interest among both issuers and investors alike. Increasing transparency in the fundraising and project development process is likely to improve access and efficiency in our work to build a new asset class of green crowdfunded private equity.
Raise Green views many of the changes in the proposed rule as important ways to help accelerate inclusive climate finance and move towards a democratized clean energy future. We have more than 60 Originators in the pipeline to create climate action projects - if these Originators and others are able to operate under these new rule changes, we anticipate an explosion of interest among the impact investing community and an increase in the number and variety of prospective Originators. It’s an exciting time for Raise Green, and we welcome you all to join the movement to finance and create the climate-safe and resilient future that we all want and need. To see the entire letter in extended detail, check out this link.
As always, feel free to engage us in conversation and send any questions or comments you might have to firstname.lastname@example.org.
This is not a Research Report, should not be construed as investment advice, and does not constitute a solicitation to sell or an offer to buy securities relating to any products referenced herein Past performance is not indicative of future results. This blog represents a business discussion only and the views of individuals at Raise Green. Investing in Crowdfunded investments is risky and speculative. Please see FAQs on this Site for more information.