UK energy newcomer raised £487,000 through reward crowdfunding

UK energy newcomer raised £487,000 through reward crowdfunding

The UK consumer energy market is dominated by six companies who between them supply over 90% of the market. Newcomer and disruptive brand People’s Energy raised almost £488,000 last year through reward crowdfunding on Crowdfunder UK, and started trading in August 2017.  They needed startup cash, and offered savings against future bills as rewards. Their eventual aim is to really shake up the market through acquiring a million customers who will all be shareholders, making company decisions and receiving a slice of refunded profits.

Here’s the “gap in the market” they want to exploit. None of the current “Big Six” energy companies are recognisably customer-centric. There is a generally critical public perception that they offer complicated tariff structures making it difficult to find the best prices or to compare different suppliers, and that they deliver similarly uninspiring levels of customer service – no more than 43% of any of the Big Six’s customers would recommend their supplier.

There is also public resentment over their “profits before people” ethos: consumer prices never drop when wholesale energy prices do, and energy prices have risen at three times the rate of general inflation over the past 20 years. Amid unproven accusations of collective price-fixing, in April 2017 the Government put in place a price cap on each suppliers’ top tariffs, possibly remaining in force until 2023.

A relatively uncompetitive market dominated by a few large, unresponsive companies who lack customer trust is a ripe target for disruptive new entrants, which is what People’s Energy aims to be. Karin Sode, People’s Energy’s head of marketing, kindly answered some questions for me.

People’s Energy launched by using donations-for-rewards crowdfunding to raise over £487,000 and generate 2,055 customers. What was the thinking behind this?

We differ from all the other suppliers in that we want to give our customers shares in the company and pay back the profits to them, not to some other faceless shareholders. For that reason, we turned down potential investors who wanted equity in return for their investment.

Equally, equity crowdfunding was not an option because although it would have been easier for us [than reward-based crowdfunding] it would dilute the model and our unique offering of ownership to customers. We knew that it was a tall order but we were determined, worked very hard at it, and are pleased that we succeeded and were able to launch the company on 1 August 2017.

Was it difficult to get an operator’s licence given you will operate very differently from the Big Six?

Ofgem (the UK energy market regulator) has been very welcoming and appreciative of the very different model we offer to help shake up a market that suffers from real trust issues. Getting the initial licence was not the hardest thing, a bigger challenge was one of initial funding to get started, and we resolved that through our crowdfunding campaign.

After receiving the licence, we then went through a probationary period called ‘Controlled Market Entry’. We could take on only a limited number of customers while we proved to Ofgem we had the operational capability to serve them well. We went through that period fast, and successfully, and I’m very pleased to say we are now fully licensed to operate and welcome as many customers as we can.

A stated aim is to put 1 million people in charge of their own energy as shareholders in People’s Energy. Will you need to raise more money to achieve this?

We will operate on a “cost plus model” based on wholesale prices and our fixed costs, plus a small buffer that allows us to be robust. We’re a new business with no legacy costs to have to cover. There will be a single tariff for all customers, with our prices always in the lowest 30% of other tariffs on offer. Right now we’re in the lowest 10%. We are now broadly self-funding.

However, there will be a need for some further funding to realise other ambitions to invest in innovative renewable and energy storage solutions. In the meantime, a key interim aim is to sign up 20,000 customers within 18 months of our launch, which is a deadline of February 2019.

Where will People’s Energy customers come from?

We hope to appeal to younger customers through our sharing economy model. Market research shows that the more innovative companies operate in a more community/membership way, such as Giffgaff (a mobile/cell network) and Monzo (banking services).

We plan to build out the community approach and encourage people to share what we offer through personal endorsement to their contacts. This will help us grow the numbers at pace. In addition, we are currently in talks to establish partnerships with various bodies that will help drive up customer numbers more quickly.

A sharing economy newcomer aims to disrupt the UK consumer energy marketIn terms of offering your customers control, what sort of issues will they have a say in?

A key aim is to rebuild trust between consumers and energy providers. That can’t be done through words and promises but has to grow through the actions we take. Offering customers an element of control is therefore a direct attempt to make people feel heard and valued, really given a voice.

We want customers to have a say in whether or not we use the profits to purchase renewable generation facilities (including wind and solar farms), invest in development of power storage, or if they prefer to have the profits repaid to them.

We also plan to consult customers on whether they want profits shared depending on their energy usage or if every customer should get the same rebate. The latter option would support individuals in lower income households, but may not be considered fair for people with large usage such as small businesses. We believe the customers should have a chance to decide for themselves rather than us deciding on their behalf in a remote boardroom.

People’s Energy will provide electricity only from renewable sources. Will residential prosumers be able to sell back to you energy they produce from renewable sources?

We are not yet able to accommodate this, though it is absolutely something we want to facilitate as soon as we possibly can. For now, after switching over to People’s Energy for their energy supply, people will be able to continue to sell back surplus energy they produce to their current supplier.

If you are considering a crowdfunding project, whether offering equity or providing rewards, please get in touch if you’d like an objective assessment of your ideas from an independent crowdfunding adviser. Please email me at [email protected] or contact me through Twitter, @Cliveref.

Update on 20th March 2018
CrowdFundRES is a European project that contributes to the acceleration of renewable energy growth in Europe by promoting crowdfunding for financing renewable energy projects. It has published a practical guide for crowdfunding platforms, project developers, investors and policy makers on “Crowdfunding Renewable Energy.” You can access it here.

 

Top 10 US Reward and Equity Crowdfunding Platforms

Top 10 US Reward and Equity Crowdfunding Platforms

Mass digital connectivity has significantly disrupted the business investment market. Online crowdfunding enables company owners to trade equity for funds to invest in growth. Who’d have thought 10 years ago that it would be possible for business owners to raise seven-figure sums from people they didn’t know, or even have as a customer? The vital stepping stone was the sometimes massive sums raised on reward crowdfunding platforms. Except early backers are unable to invest in the companies themselves, only acquire their often innovative products.

Reward crowdfunding

  1. Kickstarter is the world’s largest reward crowdfunding platform. It was launched on April 28 2009 in New York as an alternative way to raise funding for performance arts projects and productions. Its model is to encourage low value donations from a large group of people rather than a lot of money from a few individuals.
    It quickly expanded to cover many other hobby, craft and product categories, and has raised almost $3.05bn through hosting 124,935 successful projects (the figures are updated daily by Kickstarter).
    It has an “all or nothing” policy meaning projects that fail to reach their target don’t receive any funding and the backers who made pledges don’t pay anything. Successful projects pay a 5% commission plus up to 3% transaction charges.
  1. Indiegogo actually launched first in January 2008 in San Francisco, again as an alternative way to raise funds for arts projects. Indiegogo also quickly grew to host projects in many different categories.
    A significant difference is that Indiegogo allows projects to receive the money that’s pledged even if they fail to reach target. When this happens their regular 5% commission rises to 9%, plus there are always transaction fees of approximately 3% on every project.

Top 10 US Crowdfunding Platforms (Reward and Equity)Since 1 January 2014, Indiegogo has hosted slightly more projects than Kickstarter: 231,900 vs 218,896 (as measured by crowdfundingcenter.com on May 17 2017). However,  Kickstarter has hosted significantly more that reached their target – 68,984 vs 26,272.

Based on these figures Kickstarter has an average success rate of 31.5% and Indiegogo achieves 11.3%.

These two broad scale platforms dominate the US reward crowdfunding market and to have a point of difference the next largest platforms focus on specialist business sectors.

  1. PledgeMusic is third placed behind these two giants, as measured by website traffic. It launched in August 2009, aiming to do for the music industry what Indiegogo and Kickstarter were doing at the time for other arts genres. It is used by all types of people from hopeful wannabes to established performers with an existing fanbase.
    It operates like Kickstarter on an “all or nothing” basis for people raising money to complete a project like record an album, and on a “keep what you raise” basis when people use it as a sales channel for any finished content that can be downloaded. It charges a flat and all-inclusive 15% commission on “sales” and fundraising projects that hit or exceed target. This looks expensive though they claim a success rate of over 90% for the average 100 projects they carry per month.
    The platform operates globally by accepting payments through credit cards and Paypal.
  1. Seed&Spark is an industry specific crowdfunding platform for the tv and film industry and is based in Los Angeles. It launched in December 2012 and within an overall aim to build an independent film community it provides filmmakers with a reward-based crowdfunding facility. They claim a 75% success rate.
    Projects must reach a minimum 80% of target to keep the money pledged by backers. Then upon completion of a film, any project that also gathered over 500 backers is automatically eligible for distribution through Seed&Spark and their partners including all major cable and digital platforms such as iTunes, Comcast, Verizon, Netflix, and Hulu.
    Seed&Spark charges a 5% fee on successful projects, though offers project backers the opportunity to add this to their pledge. Many choose to do this and on average the crowdfunding projects themselves pay just 1.9% of funds raised to the platform.
  1. Barnraiser is a platform for artisan food producers, small farmers and exponents of sustainable, healthier living. It encourages its community of over 30,000 like-minded people to crowdsource advice and contacts from each other, and also provides a rewards crowdfunding facility they claim has a 65% success rate.
    It launched in 2014 and 187 projects have been successful. The largest amount raised was $93,190.
    Successful projects are charged a 5% fee based on the amount raised plus payment processing fees of 3-5%. If funding isn’t successful there are no fees.

Equity crowdfunding
Title III of the JOBS Act came in to effect in May 2016 and extended online equity crowdfunding opportunities to Americans earning under $200,000 per year, though included limits on the amounts that could be invested. New platforms were launched to provide a full online equity crowdfunding facility to this wider market, whereas the previous ones serving higher net worth individuals (“accredited investors”) required transactions to be made offline.

The Wefunder platform tracks progress of this new retail equity crowdfunding sector based on mandatory Form CU filings on the SEC’s EDGAR database. Since May 16 2016 to May 23 2017, just over $35.8m has been raised through Regulation Crowdfunding offerings.

Top 10 US Crowdfunding Platforms (Reward and Equity)

  1. Wefunder is the early market leader and it launched in 2012. The minimum investment size is $100, and Wefunder has created internal Investor Clubs in order that part-time investors in its network can access the wisdom and leadership of more experienced and professional investors and combine their investments with them on equal terms.
    Wefunder members have provided 55% of all online equity crowdfunding investments through Regulation Crowdfunding in the first 12 months of online equity investment trading being open to non-accredited investors.
  2. Investments made through StartEngine, which is based in LA and launched in June 2015, represent nearly 22% of the Regulation Crowdfunding total raised so far, according to SEC figures. StartEngine also raised $17m from 6,600 investors under Regulation A+ for its client Elio Motors.
  3. In 2016 Indiegogo ventured into equity crowdfunding in partnership with Microventures to launch a platform called First Democracy VC. To date it has accounted for 9% of the sector’s total $35.5m.
  4. NextSeed is based in Houston and its investor network has invested $2.8m in equities, 8% so far of the combined Regulation Crowdfunding. Investors can put in as little as $100 and NextSeed’s equity crowdfunding projects have ranged from as low as $25,000, typically for personal leisure/entertainment/service providers such as bars, restaurants and hairdressers.
    NextSeed also provides companies with debt facilities which contribute to their claim of having provided their clients with total funding of $3.8m.
  5. Three other platforms in this sector tie for fifth place as they have each raised in the region of $1m for clients from equity investors:
  • Republic (offers Reg CF only and investments can begin at just $10);
  • SeedInvest (which mainly focuses on non-Reg CF raises of over $1m);
  • FlashFunders (where Reg CF investments can start at $50 and they also handle Reg D raises over $1m and Reg A+ raises up to $50m).

Whilst equity crowdfunding is now at least possible to some degree for everyday Americans, and there are some equity crowdfunding platforms that at last provide the single “one stop shop” we are accustomed to in the UK, there are still some built-in restrictions that impede faster growth. These include businesses cannot use Regulation Crowdfunding to raise more than $1m (about £833,000).

If you are based in the UK and considering any form of crowdfunding to raise money for a business startup, to scaleup an existing business, or to use a crowdfunding platform as a sales channel for your products, then please get in touch if you’d like a free and confidential consultation with an independent crowdfunding adviser – which is me! Call 07788 784373 or send an email to [email protected]