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all articles 3. August 2020

Crowdinvesting: Making a conscious impact with your own capital [Interview]

People wanting to invest their capital in sustainable projects should take a closer look at crowdinvesting. What is special about this form of investment is that, as an investor, you know exactly in which company or project you are investing. 

Because crowdinvesting is designed to ensure that each project is not financed by a few large investors but by many smaller ones, investment amounts starting from a few hundred euros are usually possible. 

There are now also a number of crowdinvesting platforms operating in Germany with a clearly sustainable approach. The potential rate of return on such investments is quite impressive.

Just how crowdinvesting works exactly, how it differs from crowdfunding and other capital investments, and where the opportunities and risks lie, are questions that we discussed with Isatu Waag. She is the founder and managing director of ecozins, a crowdinvesting platform specialising in sustainable projects.

Crowdinvesting: Interview with Isatu Waag from ecozins

Isatu Waag from ecozins

Hello Isatu, would you begin by telling us something about your background and how you became involved in sustainability and crowdinvesting?

Since early childhood, I have been environmentally aware and conscious of nature. Which is why I didn't simply have a change of mind, thinking that now my life should become more sustainable. It was more that I decided that the environment sector was where I wanted to work, which is why I studied agricultural economics, graduating with a master's degree.

After my studies I moved into the field of renewable energies and started working on project development, planning and implementing solar, biogas and wind projects.

This gave me a different approach to sustainability. My part in this was the commercial side. I was therefore also responsible for where the funding for the projects came from.

People who were interested in sustainable investing kept coming back and asking if they could invest in one of our projects. But we didn't do that back then. At the time, the Small Investor Protection Act had just come into effect and many project developers did not offer public participation.

I thought it would be exciting challenge to find a solution for this, especially since I had already become attracted to the idea of starting my own business during my time at university. At the same time, the concept of crowdinvesting in real estate came up with the Exporo platform. This gave me the idea that this approach would also be useful for the renewable energy sector.

The market on the investor side was there - with a clear trend towards more sustainability in all areas of life, including investments. After all, people want to know what is being financed with their capital. And that's where I find crowdinvesting an exciting opportunity, because it's very transparent.

Which is how I finally came to found Ecozins.de.

Tell us what idea you have for Ecozins. What have you set out to achieve?

There are two levels.

On the one hand, the sustainability concept of a climate-neutral energy supply is the overriding vision for me. On the other hand, it is important to me that people are aware of the effects of money.

Money always has an effect, whether positive or negative. Being aware of the powerful leverage that finance has in controlling social issues, such as climate protection or even social concerns, is an important concern for me.

People should have more fun dealing with their finances and at the same time be aware of the responsibility that it brings.

Crowdinvesting is a very good start in this respect. It is very transparent, the business models are easy to understand and you know exactly to whom you are entrusting your capital and which project the person or the company will use it for.

I think that illustrates the effect of money very strikingly.

Why don't you explain what exactly crowdinvesting is, and how it is distinct from crowdfunding.

Classic crowdfunding is more donation-based. That means you support a project, often a cultural or private one, and get a thank you for it. In the USA, start-ups have also taken advantage of this to launch products very early on or to generate advance orders.

Crowdinvesting eventually evolved from this. The difference to crowdfunding is that it is not donation-based, but a financial investment. I provide the project or person, usually a company, with capital that is paid back to me with interest. So here it is possible for investors to earn a return.

And this with full knowledge of what is actually being financed with the capital.

Exactly. I believe that this transparency is a very important aspect. For us, in addition to our economic objectives, our projects also serve climate protection. In other words, doing good for the environment and generating returns at the same time.

So where can crowdinvesting be positioned within the wider investment sector?

I always categorize financial investments into three areas, each of which is associated with different risks and opportunities. First is the traditional banking business, i.e. bank account, fixed-term deposit or short-term deposit account, which everyone needs and where there are now also sustainable providers. Because of the low interest rate, this area is not so well suited as a financial investment.

The second category is savings products and ETFs. Here too, there are now many sustainable providers. However, there is no uniform definition of what sustainable means. Such a fund invests in very many companies. For me as a private investor this is usually not very transparent. Although I can obtain detailed information, I have no influence on which companies are being invested in.

I like to call the third area direct investment. Here you invest directly in a project, for example in a solar or wind power plant or even in a start-up.

As far as risks are concerned, I have to weigh up for myself how far I am prepared to go. If you want a return, you must also be prepared to take a certain amount of risk.

In the case of direct investments, which is what crowdinvesting is, you should therefore be well informed about the project in advance. It is important to understand the business model behind it and to be clear where exactly the risks might lie and what would happen if the company were unable to repay the investors' capital. The worst case would be that the company goes bankrupt.

How exactly does it work when I want to invest in a crowdinvesting project?

First you go to the crowdinvesting platform and find out about the individual projects. Usually there is a small video in which the person in charge provides some information about the project, the progress so far and what he or she intends to do with the investment.

Additional information is also available, for example who is implementing the project, where it is located, which technology is used, which conditions apply to the investment, how much interest is paid and how the capital is paid out.

Once you have selected a project that meets your expectations, you can create a customer account and invest in the project directly online.

The money you invest is initially transferred to a trust account. It remains there until the conditions for payment are met. This is known as a funding threshold, i.e. a minimum amount that must be collected in order for the project to be realised at all.

If the funding threshold is not reached, investors get their money back immediately.

If the project is realised, there is a fixed term. We usually make annual interest payments and return the money at the end of the term. Another variant would be annual repayments.

How do you assess the acceptance of crowdinvesting in Germany, particularly in comparison with the international market? Has it already been widely accepted or is it still a niche idea?

I actually believe that it is still a niche topic here in Germany, which is very different compared with the USA, where crowdinvesting originated. In Europe, it has already become well established, especially in England and the Netherlands.

I think that crowdinvesting is still in its infancy here, but it still has potential for development. However, we also know that Germans are rather conservative when it comes to investing money.

Where do you see the particular potential of crowdinvesting?

Crowdinvesting is definitely predestined for new technologies or for start-ups, . What I personally greatly appreciate about crowdinvesting - and I am spoilt here because I am very much at home with renewable energies and this industry - is that I have predictable cash flows.

There is this major expenditure at the very beginning for investing in the technology. But after that, I have an annual, well-planned cash flow and on top of that the feed-in tariff, which secures the whole thing. Which is of course nice for a financial investment, if you can calculate it over 10 or 20 years.

In addition to renewable energies, I also see potential for areas with a clearly understandable business model that can ensure returns, which ultimately also benefit the investors, such as e-mobility, the development of charging points, energy storage or hydropower.

What happens if one of your projects has reached the funding threshold and can be implemented? Do you continue to support the project?

Yes, exactly. We support the projects over the term of the investment and always act as the first point of contact for the investors. They can always check on the progress of the projects in their customer account. All contracts, end-of-year statements and project updates are stored there.

Of course, it is always more exciting in the early stages of a project than when it is up and running because, to be honest, nothing much happens after that. But we always stay on top of the details and keep in close contact with the project developers and represent the interests of the investors until the end of the project.

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