Crowdfunding Shines Light on Solar
03/13/2013 8:30 am EST
Focus: ALTERNATIVE INVESTMENTS
Billy Parish of Mosaic explains how the concept of crowdfunding is pushing solar projects into the mainstream.
Nancy Zambell: My guest today is Billy Parish, the president and co-founder of Mosaic. Mosaic is a really interesting company that’s participating in crowdfunding in the solar space. Billy, why don’t you tell us about crowdfunding, and then how it works in the solar area.
Billy Parish: Crowdfunding is really just another word for investing. It’s allowing lots of individual investors to collectively participate in financing something. It’s being used to crowdfund peer-to-peer loans, for consumer loans. It’s being used in our example to crowdfund loans to finance solar projects. There’s a lot of buzz around it, but it’s really just another way to talk about lots of people coming together to invest in something.
Nancy Zambell: Crowdfunding started when people were using equity funding. You’re a little different. You’re actually lending the money.
Billy Parish: With Mosaic, we’re allowing people to directly invest in high-quality solar projects, and these are the same types of projects that banks have been making loans into for decades. Warren Buffett just invested $4 billion in solar projects in California, and we just allow people to do the same thing. The risk profile of lending into a solar project is very different than lending into a business or investing equity in an early-stage company.
Nancy Zambell: What makes it different?
Billy Parish: Your loan is backed by an asset that is generating revenue and the default rate on solar projects is very low. The default rates on loans to small businesses or the equity returns and risks associated with investing equity in an early-stage company are much higher. Our goal this year is zero default, 100% on-time payment for all of the loans that the investors on our platform make. So far, we did that.
Nancy Zambell: Then people can actually invest just a small amount of money to get started?
Billy Parish: Yes. That’s one of the other things that I think is special about what we’re doing. The investment minimum on our platform is just $25. Our goal is to make it possible for as many people as possible to participate in financing clean energy. We think this is an amazing asset class that allows investors to diversify their portfolios. It’s non-correlated with the market so it can produce a well-diversified portfolio. And we think that opportunity should be available to as many people as possible. We’ve really created a low barrier to entry and created a very simple online process for people to invest in these projects.
Nancy Zambell: How many projects do you currently have that have been funded?
Billy Parish: We’ve fully funded 12 projects in California, Arizona, and New Jersey, and the next round of projects are coming in the next couple of weeks.
Nancy Zambell: How much money have you funded?
Billy Parish: So far, $1.1 million has been loaned through our platform to fund those 12 projects, and we have about 100 investors on the platform.
Nancy Zambell: Tell me about what sort of projects you are funding. Are they all commercial businesses? Are they residential communities, or combinations?
Billy Parish: So far, they’ve all been commercial scale projects—so bigger than a house, smaller than a utility-scale solar project in the desert. There are a lot of great projects in that segment of the market, and some of them have been for affordable housing units operated by some of the biggest affordable housing developers in the country. We did a convention center in New Jersey. It’s a wide range of projects, but mainly in the sort of mid-size, so the loans that we make are anywhere from $25,000 to $350,000.
Nancy Zambell: Those are the types of loans that are very hard to get at your local bank.
Billy Parish: Exactly.
Nancy Zambell: How long do you anticipate it will take to pay these loans back, on average?
Billy Parish: Anywhere from seven to 10 years right now, and the expected annual rate of return so far has been between 4.5 and 6.38%.
Nancy Zambell: The solar industry had a pretty good year last year, and a lot of the solar stocks have rallied in the early part of the year. What do you anticipate going forward for this year, in light of the fact that, for Europe, a lot of the (solar) credits they used to give to European companies are gone now?
Billy Parish: Solar is growing very fast all around the world, and that’s largely because of the cost of the technology has dropped so much. Prices of solar panels have dropped 80% in the last four years. So one of the distinctions I want to make is, when you think about investing in solar you’re typically thinking about investing in public equities or investing in solar or sun-powered—publicly-traded manufacturing companies.
Frankly, it’s been a hard time for those companies, because the prices have come down so much, as the Chinese have really ramped up production. We allow people to invest in the projects themselves, which again, have a very different risk return profile associated with them. That’s lending into this asset-backed opportunity instead of investing in a publicly traded company. People often confuse the two. Our platform at joinmosaic.com is the first platform where people can participate in financing the projects themselves.
Nancy Zambell: That’s really an interesting take. I have, in the past, recommended companies that made solar equipment, not the panels, but the actual manufacturing equipment, and they did very well during the 2010, 2009 timeframe. This is interesting that people can actually invest in the asset-backed properties themselves. How would somebody actually get started doing this? Would they just go to your website?
Billy Parish: Just joinmosaic.com. It just takes a couple of minutes to create an account, and we’ve created a project-by-project investing experience. So you can look at the different projects available on the site and choose the ones that you want to invest in, and kind of create your own basket of investments.
That’s another thing about crowdfunding. Crowdfunding allows people the opportunity to directly invest and to know where your money is going. Often, investing through Wall Street and in all of these new financial products, you never know where your money is going. One of the things we’ve seen is a lot of people really appreciating that this is an investment that they can see and touch and feel and feel good about—not something that’s opaque, black box, where they don’t understand where their money is going. That’s one of the reasons people keep coming back to the platform.
Nancy Zambell: In terms of due diligence, do you have your own team of analysts that actually go through these projects? I’m sure you must get just a zillion requests for funding, so how does that work? Could you just kind of take me through the process?
Billy Parish: Our due diligence process is led by our chief investment officer who joined the company from Union Bank, where he was the head of solar finance. He’s one of the most well-respected and experienced financiers in the solar energy state. He actually does very similar underwriting and due diligence processes that he did at the bank. We do technical reviews and legal reviews, and we check out the equipment, make sure that the projects are well put together.
If we like the projects, than we list them on the platform for people to invest in. We have a very rigorous process, and (are associated) with the best developers in the country. We do get a lot of requests from people who want financing for their projects, but we really want to only finance the best projects—the projects that we think have the lowest likelihood of default.
We’re partnering with the top 20 developers in the country to finance their projects. All of them have big portfolios of projects that they need financing for, and are looking for the lowest cost capital they can find. We basically allow people to be the bank and to finance these projects directly. And that’s been a very attractive value proposition for the developers that we work with.
Nancy Zambell: Then, on an ongoing basis I would assume that your investment officer also monitors the investments.
Billy Parish: Absolutely. We regularly will check up on the projects, and we provide that ongoing reporting to the investors through the platform.
Nancy Zambell: That’s a fascinating concept. I thank you so much for your time.
Billy Parish: The pleasure is mine. Thanks, Nancy.
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