Crowdfunding

Crowdfunding
Source:	EU
Domain:	Finance/Fundraising
Prerequisites:	Adherence to Green Bond Principles EU Taxonomy Regulation/Enforcement for consumer protection
Potential Impact:	Moderate
Application to Armenia	Funding renewable energy projects in Armenia through crowdfunding platforms can become a good modality for attracting green finance. Among enabling factors, availability of top global crowdfunding agency headquartered in Yerevan could be mentioned. Collaborative partnership of private sectors and key experts with the Central Bank of Armenia in designing respective regulatory framework (currently underway) will also serve as critical catalyzer of the process. Key regulatory constraints for the crowdfunding are: 1) absence of the suitable legal status for the company willing to attract investments through crowdfunding (all existing types requires specifications of the shareholders/partners and the volume of their interest at the moment of incorporation), and 2) current version of the regulatory acts discussed with the Central Bank of Armenia proposes limits on the number of participants (maximum 50) and volume of investment (maximum 2,000 USD); Review of the numerous platforms suggests that the most successful ones have regional focus. So, Armenia could consider establishment of respective crowdfunding platform that will benefit from targeting its Diaspora investors/backers.

Crowdfunding is one of the fastest growing sources of funds for any new venture. It is a method of funding a venture or project through the collective efforts of individual investors - backers. There are around 500 online crowdfunding platforms or websites that investors can use for crowdfunding, many of them well suited for funding green businesses. Out of this amount, around 30 platforms globally offer equity crowdfunding for renewable energy projects.

The success of any crowdfunding initiative depends on the business idea or proposition. As more people become mindful of environmental issues, they tend to show more interest in supporting green businesses.

Aside from the obvious importance of funding, there are several other benefits to a crowdfunding approach. For example, it gives new enterprise exposure to wider investor pools, as well as helping to validate the business concept through crowdfunding support. Crowdfunding can also be a major platform for promotion, marketing and product improvement.

Crowdfunding can be a great way to validate the concept of green business through the aggregate response of individual investors. As well, you might receive helpful comments and ideas from them. People who are interested in funding green business might want to mention how the business can do a thing or two differently to improve its offering.

Core areas of success

Platform Aspect	Detailed Characteristics
Platform regulation	The regulatory environment targeting promotion of crowdfunding practices is of critical importance for operations of the platforms;
Platform technology	This should not be limited to the user friendly website providing information during investment decision making stage, as investors looking for increasing levels of sophistication in their post investment service for instance greater number of tools to help people understand how their investments are performing or tools to help with secondary sale of investments and eventually as competition grows start to select platforms based on their broader technological capabilities.
Platform investment instrument	All platforms are focused on providing RES developers with debt finance, which is not surprising given that the majority of the capital in the renewable market is debt.
Platform developer onboarding	The RES Crowdfunding platforms appear to have advanced processes for conducting project due diligence and take care to ensure that the projects raising capital on their platforms are well run. No project is launched on to a RES crowdfunding platform without a due diligence process being conducted, as standard all platforms appear to conduct financial, technical and legal due diligence on projects.
Investment information provided to investors	The report finds that across crowdfunding platforms there appears to be broad recognition that a downloadable offer document is required, this is either due to regulatory requirements and/or simply from an understanding that it helps the investment sales process.