Deciphering the Principle of Equity Crowdfunding to Finance Greentech Projects
Several crowdfunding platforms operate successfully to contribute to the financing of Greentech startups and SMEs: SoWeFund, kisskissbankbank, WiSEED, etc. We therefore thought it would be useful to interview a representative of these operators, in this case WiSEED, which are playing a growing role in financing innovation in startups and SMEs.
What need does crowdfunding address for innovation?
There are many ways to finance its development: the sale of products or services (the preferred method), financial support from friends and family (love money), business angel networks, the BPI (French Investment Bank), bank loans, grants, and venture capital.
Equity crowdfunding first appeared in France in 2008 with WiSEED, then took off following the 2014 regulation, and today represents a structured and credible alternative. Equity crowdfunding involves financing young companies, particularly in the seed phase, by mobilizing non-professional individual investors. This is WiSEED’s historical core business.
Its added value illustrates the dual need it addresses:
a strong demand among individual investors for meaningful investments in the real economy;
- financing needs that remain insufficiently met by the more traditional investment sector, particularly during the seed phases.
- What differentiates Equity Crowdfunding?
Capital crowdfunding has a major advantage: exposure. Crowdfunding brings much more than just money from individual and professional investors; it also allows for visibility, engagement, and the recruitment of brand ambassadors.
The company can reach a new audience of consumers, suppliers, investors, and other partners. When you publicly expose your company to the collective intelligence, you make yourself remarkable and allow everyone to discover what you do. Venture capital investment, on the other hand, is done confidentially and without any exposure. Another advantage of equity crowdfunding is the possible better fit with corporate culture. Indeed, the world of venture capital brings together people with similar backgrounds, and some entrepreneurs fail to identify with the VC (Venture Capital) culture. For some, it’s even anathema, a contradiction in terms with what they want to be. But this doesn’t make them any less “fundable” than others. Many startups therefore appreciate the control they retain over their corporate culture when raising funds through equity crowdfunding.
Equity crowdfunding also has its place alongside existing financing methods. Investment funds and business angels are increasingly investing alongside equity crowdfunding platforms. At WiSEED, the vast majority of transactions are syndicated with other organizations, which facilitates leverage.
What are the limitations of crowdfunding?
When you publicly present your company, it’s important to take the necessary precautions regarding confidentiality (strategy) and intellectual property; experienced platforms are equipped to support you throughout the process.
The collection capacities of the platforms are progressing regularly, and for WiSEED a typical Equity transaction is between €300K and €1000K; €300K is also the minimum for WiSEED for simple reasons of operational profitability.
Equity Crowdfunding, like any fundraising, is time-consuming for the manager. The conditions for intervention in terms of valuation and shareholder agreement will still be more flexible and more standardized.
What part does the green growth sector play at WiSEED?
The environment and energy transition form the first sector financed in capital, representing 50 participations for approximately 50% of the total participations monitored (in capital only).
WiSEED is the main professional player identified in this sector in France, and our investment strategy covers all the subjects of the ministerial pole: Building and sustainable cities, Water, Biodiversity and biomimicry, Circular economy, Renewable energies, energy efficiency and decarbonization of activities, Sustainable mobility, Sustainable digital, Risk prevention, Health and environment, Green fintech, Air quality, Sustainable agriculture and agri-food.
WiSeed wishes to develop this segment which corresponds to its deep raison d’être, since its beginnings, also driven by its investor communities.
Among the Greentech Innovation labeled start-ups financed are:
Lumi’in, has just raised €600,000 in December 2020, after a first round carried out in 2019. The startup aims to become one of the world leaders in solar lighting with autonomous street lamps and solar lighting systems. This financing allows it to develop its presence in several countries and is particularly aimed at the public lighting market.
T.Zic raised €400,000, which will enable it to develop point-of-use water disinfection solutions using innovative UV LED water treatment technology.
- How does WiSEED’s innovation funding process for startups and SMEs work?
- This process begins with a preliminary assessment of the project’s eligibility based on a document submitted by the company, and an interview is conducted. If the project matches its investment strategy, it is submitted for e-voting to more than 160,000 WiSEEDers. This phase allows the community to challenge the project through direct exchanges with the management team, and allows WiSEED to assess the community’s “investment intentions” (a short video must be prepared at this stage). After the vote, the project enters the Due Diligence phase during which WiSeed analysts study the project “from all angles”, financial, intellectual property, team complementarity, market/product fit, etc. (be prepared by setting up a “data room” in advance of the phase, it will be required regardless of the financial partner). Once the audit is completed and positive, the discussion on the terms and conditions of the intervention results in the signing of a LOI (letter of intent). The project then enters fundraising which lasts between 1 and 4 months. When the desired amount is reached (a minimum amount and a target amount are determined), we enter the closing and payment phase of the funds. It is a holding company (a SAS with variable capital) called WiCAP + name of the invested company, which enters the capital of the company and brings together the hundreds of “WiSEEDers” who have invested.
The participatory dimension of the adventure does not stop there since one of the investors (selected by the manager upon presentation of various experienced volunteers) will represent WiCAP in the strategic committees and will participate in the life of the company. WiSEED retains the role of supervisor (ensuring the administrative and accounting management of WiCAP) until the end of an “exit”. Quarterly reporting is then put in place.
The cost of an operation? Success fees through a progressive package depending on the amount invested (e.g. 4% beyond a million euros) and annual management fees.
Can you give us an order of magnitude of WiSEED’s activity in crowd funding?
Thanks to its web technology platform, WiSEED organizes an alternative investment marketplace. A historic player in crowdfunding in France, WiSEED has deployed more than €240 million in 561 projects. WiSEED leads an impact investment strategy, oriented towards the Environment (transition and energy efficiency), Real Estate, and Human (health and food) sectors. WiSEED facilitates access to investment aimed at both financial profitability and the creation of societal value.
Contact at WiSeed: Jean-Marc CLERC, Head of the Energy Transition division