CrowdSolar

Preliminary Overview
Daniel S. Herr, pursuing MBA, Civil Engineering Undergraduate Matthew P. Doyle, pursuing MBA, Finance Undergraduate Submitted: 19-March-2012

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Company Overview
Crowdsolar allows the average person to invest in solar while providing building owners with the opportunity to generate electricity from the sun without high up-front costs. CrowdSolars vehicle and platform for these investments directly funds solar photovoltaic installations with accredited investors through an easy to use and share online platform.

Product / Service Description

The Need
The most pressing issue that solar energy continues to face is high initial cost. The limited availability of financing opportunities makes going solar unfeasible for many businesses and homeowners. CrowdSolar provides the foundation for a sustainable clean energy catalyst allowing the industry to transition away from government subsidies and artificial incentives, which are set to expire by 2016. More importantly, in the worst economic times of our age investors are searching for alternative investment opportunities and the ability to encourage the development of clean energy in their local communities. CrowdSolar addresses those needs and aims to change the game in the adoption ability and market penetration of solar energies.

The Crowdfunding Approach

According to Amy Cortese in her book Locavesting, Crowdfunding is an approach to raising money that aggregates small sums from many individuals via the Internet. Think social networking meets finance. In the United States Crowdfunding was originally used for charitable means because of regulations, but has recently developed into an investment vehicle. In March of 2012, The House of Representative passed the JOBS Act which allows startups to raise as much as $2 million in this manner.1 The final rules are currently being written by the Banking committee in the Senate in order to avoid a lengthy SEC rule-making process. Crowdfunding provides the opportunity for individuals or companies to invest in their local communities, while receiving a return on that investment.

The Technology
CrowdSolars primary purpose is to fill the need of the investor. In order to effectively track, market, and sell individual projects to investors, CrowdSolar is building an online lending platform as its foundation. The online platform will allow customers to learn about potential projects, follow their news streams, share projects on other social media platforms, invite friends, interact with and
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http://venturebeat.com/2012/03/08/jobs-act-passes-crowdfunding-bill-startups/

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comment on the projects, and ultimately fund a solar project. Additionally, CrowdSolar requires that every project include real-time performance monitoring which is comparable online to total building usage, predicted energy production, and financial savings. To these ends, CrowdSolar is building a platform, best practice protocols, and transaction mechanics for securely and easily crowdfunding projects. CrowdSolar is not just an idea and a service, but a place where investment happens with the perfect technology and methodology recipe as its foundation. By nature people love to find common threads, hear about success stories, and get recommendations from people like them about what to buy, consume, or in which to invest. Providing a platform which allows people to share their thoughts, good or bad, builds an environment of trust and a desire to return and use the service much like Amazon.com has done with online shopping through its ratings system. Our vision requires the work of experienced developers, designers and computer engineers which we are recruiting. This new online and mobile platform is the technology that our country needs in order to reliably and affordably bring clean technologies through the marketplace and into consumer adoption. Our platform model will be scalable so that once we have proven the concept and refined financial procedures with accredited investors, we can develop comparable solutions for the non-accredited average investor as well.

Market Analysis
Customers
The initial target markets of Crowdsolar are two-fold: accredited investors and electricity-consuming building owners Building Owners Most building owners cannot afford the up-front capital cost of solar; Crowdsolar partners those building owners with investors looking to diversify their portfolios with a low risk investment. According to the Energy Information Administration commercial building floor space is expected to reach 109.8 billion sq ft by 2035 consuming 885TWh of electricity per year2. The standard industry number tossed around is that less than 40% of rooftops in the country are suitable for solar. At over 500-Billion 220W PV modules, that would be a lifetime of work; luckily the National Renewable Energy Labs say that we only need to convince 7% of current rooftop, parking, and building owners to go solar in order to supply all of our energy needs3. CrowdSolar provides American mid-sized commercial businesses the opportunity to hedge against the risk of rising electricity costs. Overall electricity prices have increased more than 50% in the last ten years while Solar PV install costs have decreased by more than 30%4 in the same time.
2 3

http://www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf http://www.nrel.gov/docs/fy04osti/35097.pdf 4 http://openpv.nrel.gov/gallery

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CrowdSolar attracts building owners with the ability to immediately begin saving on their electricity bills while reaping all of the benefits of solar power. Investors The biggest talking point about alternative investments, such as those offered through CrowdSolar is the low correlation with traditional financial investments such as stock and commodity shares. Alternative investments are an increasingly important asset class for the industry, including many of the 7,000 independent investment advisor firms that we serve at Schwab, said Bernie Clark, executive vice president of Charles Schwab & Co., Inc and leader of the Schwab Advisor Services division on March 6, 2012.5 CrowdSolar will provide the opportunity to earn a reasonable return, invest in the time-tested alternative investment of solar energy, and fund demonstrable social impact.

Penetration of the Crowd Concept

Crowdfunding has been made popular by organizations such as Kiva.org, KickStarter, IndieGoGo, RocketHub and others. At this point it has been a sandbox in which many have played and through which few investors have actually prospered with a return. This has more to do with the people in the box than the quality of the sand. The concept has been used from Grameen Bank (the frontrunners of microfinance) to President Barack Obamas 2008 campaign financing. The true answer lies in bringing the appropriate tools to the box. Kiva.org is a non-profit institution that uses the internet and a worldwide network of microfinance institutions to alleviate poverty by empower individuals to lend as little as $25 to entrepreneurs in need. Kivas success has been through building a network of 187 field partners in the 217 countries which has allowed them to loan more than $292 Million US dollars from 713,398 members since 2004.6 There are over 10,000 documented Microfinance Institutions in the world, but the key to their 98.91% repayment rate has been Kivas selective focus on working with well-vetted, growing, and transparent institutions usually considered Tier 1. These field partners of Kiva are required to post photos, tell the individuals stories, and state specifically for what they will use the money. Kiva allows microfinance institutions that lack access to capital markets to efficiently raise money and serve more clients. CrowdSolars approach is our unique tool (our online platform) which will cater to the needs of local community investment and involvement facilitation, vetted NABCEP (North American Board of Certified Energy Practitioners) contractor relationships, secure financial transactions, and transparent energy production and return on investment data.

Competition
SolarMosaic (solarmosaic.com) based in of Oakland California is the most direct competition for CrowdSolar. Solar Mosaic offers communities the opportunity to purchase tiles of solar electricity (minimum of $100) through a simple online platform similar to Kiva. Currently their investments are WITHOUT interest. They are clearly interested in getting into the legitimate investment market as their website states, Were currently working with the Securities
5 6

http://www.marketwatch.com/story/schwab-endorses-industry-changing-service-for-alternative-investments-2012-03-06

http://www.kiva.org/about/stats

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and Exchange Commission to be able to offer you a return on your investment by summer of 2012. An addition to SolarMosaic, we will have competition from SolarCity and SunRun as they plan to securitize their solar leases beginning in the summer of 2012. There is plenty of room in this game for CrowdSolar to make a dent with well less than 1% market penetration7 at this point. Additionally, CrowdSolar holds a competitive advantage by focusing from the ground up upon the needs of the investor instead of offering securitization as an afterthought. Our platform builds the ease, transparency, and security not established through bundling and selling leases as securities. Crowdsolar has the ability for broader reach with its platform and quicker market penetration by using boots that are already on the ground. Crowdsolar will only use experienced and existing local NABCEP certified PV Installers. NABCEP is the gold standard when it comes to PV installers and currently there are about 2,000 certified PV Installers throughout the US. To get the certification installers not only have to demonstrate proficiency in methodologies and concepts, but must have years of documented installation experience prior to testing. Below is a list of other indirect competitors in the crowdfunding realm that could eventually become competition or prove a valuable strategic alliance or partnership. This list has been condensed for the Preliminary Overview:
SecondMarket https://www.secondmarket.com/ Prosper http://www.prosper.com Early Shares http://www.earlyshares.com Microplace https://www.microplace.com/

Management
For the immediate future the company is co-directed by Matthew Doyle and Daniel Herr, actively managed by Daniel Herr, and advised as listed below.

Management Team
Matt Doyle, Candidate for MBA @ University of Nevada, Reno Matthew Doyle has a passion for finances and investing. He also has a desire to share his knowledge to help others. Matthew received a Bachelor of Science in Finance in 2004 from the University of Nevada, Reno. After college, he pursued a career with the Nevada Gaming Control Board and was hired as an investigations agent, which led to a promotion as a senior agent in February 2011. As an agent with the Nevada Gaming Control Board he has gained vast experience in gaming compliance, financial analysis, tax analysis and international and domestic background investigations. As a senior agent he has supervisory authority over several agents. This job has also provided him the opportunity to travel throughout the United States, Europe and the United Kingdom. For more about Matt please visit matthewpdoyle.wordpress.com/about/.

http://www.iea.org/papers/2010/pv_roadmap.pdf

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Daniel Herr, E.I.T., Candidate for MBA @ University of Nevada, Reno Daniel received his Bachelors in Civil Engineering from Cornell University in Ithaca, New York and promptly returned back to the west in pursuit of outdoor adventure and entrepreneurial opportunities. After working as a Civil Engineer, recreational-residential community developer, chasing tornadic supercells in Oklahoma and backpacking throughout New Zealand, Daniel rediscovered his passion for sustainable building practices. In early 2010 Daniel joined the fledgling Clean Energy Center in Reno, Nevada, took the helm and grew the company from $75,000 to $2.5M in annual sales in two years. Clean Energy Center designs, engineers and installs energy efficiency and renewable energy systems including Solar Photovoltaics, Solar Thermal, and Wind Energy systems. Through Daniels efforts the Clean Energy Center was recognized as a leader in the state of Nevada and received the Nevada Center for Entrepreneurship and Technologys Green Technology Company of the Year Award for 2011. For more about Dan please visit danherr.com/about/.

Board of Advisors:
Patrick Baldwin, VP of Sales & Engineering, Better Green Building Company Patrick is a NABCEP Certified PV Technical Sales Professional, thought leader in social business, corporate strategy, and relationship marketing. Duncan Campbell, Founder & Co-Chair of Friends of the Children 501(c)(3) Duncan is a very experienced and successful serial entrepreneur with a vast legal background, expertise in real estate finance and founder of Friends of the Children in Portland, Oregon.

Operating & Development Strategies

The first and most pressing matter for CrowdSolar is solidifying our legal structure to allow accredited investors (and eventually non-accredited average investors) to legally receive a return on their investment and not be taxed extremely. We will proceed by forming the first investment vehicle, getting the necessary licensing, preparing legal structure for tax-credit and depreciation passthrough (as possible) and preparing for our first round of pilot projects during 2012 with construction to begin in 2013. If allowable we plan to use a portion of the monies to fund a small proof of concept pilot project. Milestones Mar - Jun 2012: Initial Funding & Competition Rounds Mar - Dec 2012: Active Recruitment of Board of Advisors & Investing Member-Employees May - Dec 2012: Online Platform Development Aug - Dec 2012: Beta Platform Testing Aug - Dec 2012: Pilot Project CrowdFunding Rounds Jan - Feb 2012: Pilot Project Design & Planning Feb - Mar 2013: Pilot Project Procurement Mar - May 2013: Pilot Project Installations & Commissioning Feb - Aug 2013: Second Business Funding Round

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Apr - May 2013: Project Recap, Analysis, & Strategic Implementation Plan May - Jun 2013: Full Online Platform Release May - Aug 2013: Heavy Project Recruitment Jul - Sep 2013: Full-Operation: First True Cash Inflow (Not In Black) Jul - Jul 2014: Rinse & Repeat: Scale and Work to get in Black

Legal Structure Crowdsolar plans to use an asset-backed securities model for investment. If possible we will use the SCOR U-7 Form from NASAA (North American Securities Administrators Association) in filing for our Securities and Exchange Commission 504 Rule offering exemptions for selling up to $1,000,000 to accredited investors without registration with the SEC. This will allow us to sell up to 210kW systems without an issue so long as each project is its own offering. Once the CrowdSolar platform is solidified with accredited investors, the company plans to build a vehicle which allows non-accredited investor the abilities to participate in and receive returns from solar projects. One other exemption we are investigating is the ability to circumvent the no general solicitation and advertising by focusing on inbound marketing to acquire investors without soliciting. Our plan is not based around this approach and the legality surrounding this approach is uncertain.

Differentiated Marketing Focus

True to our companys modern name, Crowdsolars approach to marketing is focused around inbound marketing. The first and most important building block is being found by those who are looking for you. The facts dont lie, 77.3% of people in the United States are on the internet. Within out target market 95% of all households earning over $75,000 / year use the internet and have a cell phone.8 Approximately 50% of internet users in 2011 used a search engine daily9 and of those 66% used Google to search.10 Online we can engage the majority of our market, and in the information age you need to be Google-able. Building upon this foundation, our crowd-involved business is all about the lifetime value of customer as opposed to the one-time sale. The simple fact of the matter is people buy from humans, not from companies, or logos, websites, or buildings. We will build and curating valuable content that will attract and convert consumers into customers. The real key in social media marketing is not about being ON social, its about BEING social. Speak with your customers, not at them. Personnel & Culture The personnel strategy for CrowdSolar includes the initial focus on recruitment of experienced platform framework engineers and graphical design personnel. Being relatively close to Silicon Valley and offering all of the diverse recreation opportunities of Lake Tahoe and the Sierra Nevadas, we believe CrowdSolar provides very compelling opportunities in Reno, Nevada. We will administer and manage these employees and the company with effective communication, inclusion, and a focus

8 9

http://pewinternet.org/Reports/2010/Better-off-households/Overview.aspx http://askville.amazon.com/percentage-internet-users-search-engines/AnswerViewer.do?requestId=13926336 10 http://www.forbes.com/sites/greatspeculations/2012/01/17/bings-market-share-squeaks-higher-google-still-gorillaof-search/

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on the company values of Integrity, Respect, Honesty, Compassion, Healthy Lifestyle, Curiosity, Solutions, Intellect and Determination. Research and development strategy is to use social media monitoring software as much as possible to determine the needs and desires of our customers. Financially we aim to be transparent and aggressive looking to build and maintain an edge beyond simply compliance. The largest gorilla for our guerilla marketing strategies to tackle is the overarching mindset that solar is too expensive. One of our tactics for attracting and identifying customers will be to create social pages and groups where individuals can Like campaigns such as Peak Demand Charges Suck or Commercial Energy Bills in Reno are Too High. If we own these pages, we can begin to interact with the customers that might be interested in saving money on their electricity bills by going with CrowdSolar.

Working with and finding Building Owners

Our firsthand experience show that corporations and small business owner alike are often unwilling to dive into making a big change such as going solar without significant consideration and time for thought. The typical sales cycle for photovoltaic projects is approximately 6-8 months. Part of our focus in developing our inbound marketing efforts will be to provide business owners with tools which allow them to discover the value potential of a solar investment, read case studies of similar businesses and property owners, and ultimately evaluate the risk and return for their building. CrowdSolar will help national and multi-national businesses decide which of their locations are most appropriate for a solar upgrade and CrowdSolar investment. The second tier to CrowdSolars success hinges upon our adequately trained and experienced technical sales professionals. The number one guiding principle of sales staff is be honesty. Our focus is upon relationship sales, lifetime values of customers, and technically proficient but easily understood explanations. Two of CrowdSolars found members & Board of Advisors have been personally responsible for building a solar photovoltaic installation company from ground zero to $2.5 million in annual sales in two years. The selling point we are shooting for is if the business owner can pay forward 3 months worth of energy bills, their utility expenses will be dramatically reduced over the next 40 years. The terms of CrowdSolars leases will be 15-years while the life of the system is roughly 30 to 40 years. Not only will the building owners be saving money on their electricity from day one, but come year fifteen they have the right to purchase the system for $1.00 and pay nothing11 for electricity for the next 15 to 25 years. Solar is generally a 15-20 year asset with a 40 year life and a 5-year MACRS depreciation schedule. For more information about these incentives please visit the Database of State Incentives for Renewables & Efficiency at dsireusa.org.

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The only caveat being that most electricity provider have a minimum monthly bill (say $15.00 / month) to stay connected to the grid and receive net metering privileges.

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Financial Highlights
Three Years to Real Revenue
CrowdSolar collects money in three parts for any given project via an Administrative Fee, Markup on Materials, and a Management Fee for Monthly Payments from building owners. The total amount of any given project coming into CrowdSolar is approximately 11.5 - 12%. The administrative fee is paid by the building owner at the outset of the project. In exchange for the signed contract and the cost of three months utilities, the building owner will receive a 15-year lease which provides a 14.5 times savings (net present value) on their money invested. This amounts to in excess of a 40% ROI which does not include the savings for years 16-40 where they receive free electricity for their $1 buy-out (if they so choose). During 2012 (year 1) CrowdSolar plans to begin raising funds for 4 projects totaling 90 kilowatts with a total investment cost of approximately $412,000. Monies will be held in an escrow until the project is fully funded, so CrowdSolar will see its first cash flow in early 2013. Our model does not require working capital once the business is off of the ground. Major costs, are not incurred on projects until they have fully funded by investors. We can size a system, determine the investment requirements, and estimate annual production for every project prior to providing offering details. We will provide investors with pictures of the site, descriptions and models of a potential system, and a story about (as well as an appeal from) the building owner about the need for the system.

Break Even Analysis

Our biggest financial hurdle is the cost of the platform development to which we have been referring. We have estimated that our development expenses in hiring for and managing the development of the platform will take $1,000,000 by year three to see us over the hump. We anticipate break-even by forth-quarter of year five. For details please see the Appendix.

Economic Impact
Through our workforce demand and recruiting CrowdSolars plan will bring high-skill, high-income employees to Northern Nevada as well as putting local contractors back to work installing commercial photovoltaic systems in the area. Thirdly CrowdSolar will fill its need for professional

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services through local companies, partnerships and individuals such as Lawyer, Brokers, and CPA. These high-income low overhead professionals are strategic areas for development in-line with the Governors of Nevadas economic plan and EDAWNs forwarding looking strategic efforts.

Use of Funds
CrowdSolar aims to leverage 25% of the funds from this competition in conjunction with rebate monies from NV Energy for a small proof of concept project for a non-profit or school building in the Reno / Sparks area. Additionally, pursuant to the availability in the rules, a small portion of the award (likely 10%) will be used to pay off educational debt incurred through the MBA program which will allow the team members to focus more upon securely establishing the business and pulling together future funding. The remainder of the funds (65%) will go toward building the online foundations for our social media marketing campaign, our website, and travel for establishing investor relationships, meeting with strategic partners, visiting potential installation sites, and recruiting the most valuable and influential board of advisors possible.

Risk Assessment
Solar energy is great from a risk and design perspective as it is understood, measurable, and has a calculated risk of production. Based upon 30-year weather records we know for instance that Reno, Nevada receives on average 5.96 sun-hours per day, accounting for inclimate weather for all times of the year. Tools such as NRELs PV Watts allow us to generate precise production values for any location in the United States. CrowdSolar will provide a stamped letter from an independent state licensed Electrical Engineer indicating the estimated annual production for every system. The largest risk for CrowdSolar projects is loss of building or business owner. CrowdSolars management is working hard to hedge against these risks by develop a lease agreement that survives the current building owner and provides contingencies for sale and transfer of property. Secondly, online security is a must and CrowdSolar aims to make every precaution and adopt best practices against invasion of privacy, fraud, and theft online. Thirdly, in terms of system performance and warranty, CrowdSolar will only contract with licensed, project bonded, and insured contractors who are NABCEP certified to ensure timely response to service needs should they arise.

Offering
CrowdSolar is currently seeking investors, strategic partners, and a board of advisors in getting us to the next level. Ideally we are recruiting investor-partners who will help feed the coffers and dedicate substantial efforts toward this business. We expect to hit the black prior to year five. To make it over the hump, CrowdSolar is seeking investments of $1.25 million over the next three years with a requirement of $600,000 during year 1. Our initial assessment of the return potential is less than seven years. Our expectation is $700,000 in annual earnings (before interest, tax, depreciation, or amortization) by year five. Our model has the potential of global reach and expansion well beyond Nevada, California and the pacific states. Solar projects are large and the sales cycles is long, so while we would like to have a huge return within five years, the promise is on a longer steady growth path

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