A Sneaky Way to Deregulate
By STEVEN RATTNER
SLAPPING a catchy acronym like the JOBS Act on a piece of legislation makes it more difficult for politicians to oppose it — and indeed that’s what happened with the Jumpstart Our Business Startups Act.
Unveiled a year ago by House Republican leaders, the proposal was rushed into law with large majorities just two months later; its provisions are gradually taking effect.
Its enticing acronym notwithstanding, the JOBS Act has little to do with employment; it’s a hodgepodge of provisions that together constitute the greatest loosening of securities regulation in modern history.
Most troublesome is the legalization of “crowd funding,” the ability of start-up companies to raise capital from small investors on the Internet. While such lightly regulated capital raising has existed for years, until now, “investors” could receive only trinkets and other items of small value, similar to the way public television raises funds. As soon as regulations required to implement the new rules are completed, people who invest money in start-ups through sites similar to Kickstarter will be able to receive a financial interest in the soliciting company, much like buying shares on the stock exchange. But the enterprises soliciting these funds will hardly be big corporations like Wal-Mart or Exxon; they will be small start-ups with no track records.
Picking winners among the many young companies seeking money is a tough business, even for the most sophisticated investors. Indeed, most professionally run venture funds lose money. For individuals, it’s pure folly. Buy a lottery ticket instead. Your chance of winning is likely to be higher.
Supporters say the amounts that can be lost will be limited. But an American earning $40,000 can still risk $2,000 per year.
Other major provisions of the JOBS Act are less terrifying but still problematic.
For the first time, private equity and hedge funds will be able to advertise — and thereby separate inexpert individuals from their savings. Putting money in these alternatives is yet another type of investing that Americans shouldn’t try at home. Until now, only a small percentage of Americans who qualified to invest this way (the law requires they have an income of $200,000 per year for an individual or a net worth of $1 million) did so. The possibility that advertising will lure more people to participate does no one any favors. Besides, these days, the most successful private equity and hedge funds can already raise all the capital they can efficiently manage without advertising.
So I’ll wager that most of this new advertising will come from firms that sophisticated institutional investors wouldn’t consider investing in. No wonder that the Securities and Exchange Commission, whose former chairwoman Mary Schapiro opposed the legislation, has been taking its time writing the regulations to implement these provisions.
At the least, the S.E.C. should insist on standardized disclosure for these funds, particularly of performance and fees, similar to what is required of mutual funds.
Already in effect is the section of the act that makes it easier for small companies (defined as less than $1 billion in annual revenues) to go public. For example, these companies no longer have to file as much financial information as their larger brethren. By some estimates, that could have benefited as many as 90 percent of recent I.P.O.’s, including such prominent names as LinkedIn, Zynga and Pandora Media.
More recently, companies as diverse as the Manchester United soccer team (founded in 1878) and dodgy Chinese businesses have taken advantage of the provisions.
To be sure, the Sarbanes-Oxley securities regulation law, passed in the wake of the dot-com meltdown and the Enron fraud, has overly burdened public companies and deterred initial public offerings.
But the JOBS Act’s update for “emerging growth companies” goes too far, particularly in relaxing the prohibition on research analysts to recommend stocks while their firms are underwriting them.
Although 25 Democratic senators and one independent, Bernie Sanders, opposed the legislation, it had broad support from business groups and from some research organizations like the Kauffman Foundation. The Obama administration signed on, convinced that the need to encourage start-up capital was great and that the legislation’s shortcomings could be fixed during the implementation phase.
The largest number of jobs likely to be created by the JOBS Act will be for lawyers needed to clean up the mess that it will create.
This Crowdfunding is what Rattner warned about, the idea the small investors would be able to invest in start ups without proper vetting and regulation and in turn protection for the investor. While Solyndra is held up as the model of poor Government vetting and funding well apply that logic to this idiots notion and realize that your nest egg went directly into the elites pockets sparing that middle man, aka Uncle Sam.
The writer of this piece is the Charlatan who finds the marks and then in this case instead of promising money he appeals to the do gooder while swindling you out of your money. Its an old con and frankly Silicon Valley has mastered the Grifter act well under their guise of "saving the world." Utter garbage and farce.
Honestly we need to move into Clean Energy and here is a notion the BILLIONS that American Corporations are stashing overseas and investing in high risk stock options versus actually hiring people, innovating with real businesses and raising workers salaries invest in these industries! Wow and then when they take off they can go through conventional means to IPO and in turn prove their longevity and net worth. Sounds good to me.
This is more snake oil covered in the illusion of doing good. Here is the way you can directly do so. Check the box on the utility bill to raise your rates so that they can invest and grow into alternative energy and let them build the grids and take the risks and you can still do good.
By DAVID BORNSTEIN
If you wanted to get large numbers of people actively engaged in helping to solve global warming, how might you go about it? For years, the main approach in the environmental movement has been to sound the alarm bell and implore people to consume less, switch to green products, recycle, and speak up to companies and politicians. It hasn’t always been an easy sell. However, if the approach of a promising Oakland-based start-up takes hold, there may be another line of action that could become available to ordinary people: directly financing renewable energy. In January, a company called Mosaic, made a splash in the renewable energy world when it introduced a crowd-funding platform that makes it possible for small, non-accredited investors to earn interest financing clean energy projects. When Mosaic posted its first four investments online – solar projects offering 4.5 percent returns to investors who could participate with loans as small as $25 — the company’s co-founder, Billy Parish, thought it would take a month to raise the $313,000 required. Within 24 hours, 435 people had invested and the projects were sold out. The company had spent just $1,000 on marketing. All told, Mosaic has raised $1.1 million for a dozen solar projects to date. Now it is connecting with other solar developers to identify new projects for financing. More than 10,000 people have already signed on and are standing by to invest.
Mosaic Investors and partners at the Youth Employment Partnership ribbon cutting ceremony on Dec. 11. 2012, in East Oakland.A generation and a half after the first Earth Day, we may be witnessing the coming of age of solar power. Last year, when Warren Buffett’s MidAmerican Energy Holdings Company floated an $850 million bond offering for the Topaz Solar Farm, in California, it was the first time a public bond offering for a U.S. photovoltaic power project had been deemed “investment grade.” The offering was oversubscribed by more than $400 million and the company is now planning a second round to raise potentially $1.265 billion more. And last month, it was reported that First Solar, a manufacturer of solar panels, had signed an agreement with the El Paso Electric Company to sell its power for less than half the cost of power from typical coal plants. In 2011, almost half of the 208 gigawatts of electric capacity added globally came from renewable power, primarily wind and solar, and almost half of the additional power capacity in the European Union came from solar alone.
A big reason is cost. Over the past five years, the price of photovoltaic panels has declined by about 80 percent. We’re used to hearing about Moore’s Law, which refers to the steady and predictable increases in power and decline in cost of integrated circuits. Swanson’s Law holds that each time global manufacturing capacity of photovoltaic cells doubles, the costs fall by 20 percent.
Crowdfunding holds promise for the developing world, where financing for renewable energy is hard to come by
From 1977 to 2013, the price per watt of crystalline silicon photovoltaic cells dropped from about $77 per watt to 74 cents per watt. Couple that with another innovation — the spread of companies that lease, rather than sell, solar power systems – add in some tax incentives — and decentralized solar has become a viable option for many homeowners and businesses. This is a far cry from the time when buying a solar system meant paying upfront for 25 or 30 years of power.
If it seems far-fetched to imagine millions of Americans becoming mini energy producers, just look at Germany, where 51 percent of the country’s clean energy production is owned by individuals or farmers, while major utilities control just 6.5 percent of it.
One of the Mosaic financed systems now sits atop a 26,000-square-foot building in Oakland’s San Antonio neighborhood owned by the nonprofit Youth Employment Partnership, which provides education and workforce skills training to a thousand teenagers each year. YEP’s system, which cost about $265,000, was financed by a combination of its own funds, government and private grants, and a crowdfunded loan. Its utility bills have dropped by 85 percent. Because of the grants, YEP is leasing its system for 10 years and will have the ability to purchase it for a low price after that period. (Without subsidies, the lease would likely run for 20 or 25 years.) YEP’s monthly utility and lease outlays are less than before. “By year 10 we can own the system outright and then most of our power will be free,” explained its executive director, Michele Clark. “But what really matters is that it frees up money that we can use for our case management and mental health work.”
If electricity costs continue to rise – they have tripled since 1980 – the economics will prove more favorable. “If you buy solar, you fix your energy costs for the next 25 years or longer,” explains Marco Krapels, executive vice president of Rabobank, a major solar financier, who is a member of Mosaic’s board of directors. “You can have power independence. And it happens to be clean.”
There is another benefit, added Clark. The system aligns with YEP’s educational mission. “We have this great little computer program that shows us the electricity we’re producing,” she said. “We look at it on sunny days and see it at the top of the chart and discuss it. Then we take our students on field trips to the roof.”
Last June, Bloomberg New Energy Finance published a report estimating that the expected continuing surge in demand for solar systems over the next nine years in the United States would require $62 billion in new financing. That’s a big gap. Even though more than half of American adults say they are “alarmed” or “concerned” about global warming and about a quarter of the nation’s rooftops are suitable for solar power installations, including two thirds of those in New York , only a small number of U.S. banks are involved in financing solar projects. Many lack the expertise to evaluate the risks; others have little interest in modest power projects. “Solar is still by and large an asset class that’s not well understood,” said Krapels, of Rabobank.
But peer-to-peer lenders like Prosper.com and Lending Club – once considered improbable businesses — have revealed new possibilities. Combined, they have brokered over $1.8 billion in loans, offering lower interest rates and higher returns than borrowers or lenders could get from banks.
At the same time, crowdfunders like Kickstarter, RocketHub, Seedmatch and the aptly named Crowdfunder, have helped groups raise hundreds of millions of dollars for a multitude of projects and business ventures. Kiva has built a bridge that has allowed individuals to lend over $400 million to microfinance institutions. Now, we’re seeing the early application of this idea to clean energy, with Mosaic and others, including SunFunder and Milaap.
How many people will want to participate? How quickly could the pipeline of investments grow? How will the investments perform? All these are open questions. But other crowdfunders have solved them. Currently, one bottleneck is the time and expense of due diligence for each deal. Mosaic is a founding member of a working group called TruSolar which is developing standards to streamline this process and ensure project quality. Mosaic is also drawing on the experience of online business lenders like On Deck Capital and Kabbage, which leverage large data sets to evaluate lending risks cost effectively. “We’re building a portal for solar developers to submit project information electronically in an efficient manner that automates initial credit screening and analysis,” says Parish. “This will make the loan process much simpler, faster and more transparent for borrowers — and improve project quality for our investors.”
Another concern is panel quality, explains Conrad Burke, global marketing director for DuPont Photovoltaic Solutions, which is also a TruSolar member. As costs have plummeted, solar module manufacturers have had to fight for survival. “In such an overcapacity situation, corners are being cut,” he said. Some manufacturers have compromised on the quality of things like panel backsheets, which protect solar cells. “We’ve seen panels which are less than 10 years old deteriorating or failing,” he added. “You have companies which are two or three years old warrantying products for 25 years. We have to raise awareness about this. The industry can ill afford a black eye.”
All power systems fail at times, but if solar modules are not highly reliable over their warranty periods, the economic argument for their use is much weaker.
Crowdfunding holds particular promise for the developing world, where financing for renewable energy is even harder to come by — and where distributed solar power is an urgent need, observes Justin Guay, of the Sierra Club’s international climate program. The irony is that very poor people in the developing world who lack electricity pay far more for kerosene and candles than they would for solar energy. Over a decade, a poor family may spend $1,800 on these energy sources, five or six times what it would take to install a home solar system that could power lights, cellphones, computers, television, and so forth.
Today, with NGO, businesses and microfinance networks reaching into villages and shantytowns around the world, an infrastructure exists to deploy solar systems using a sustainable leasing business model. Just replacing kerosene — a fire hazard and contributor to pulmonary disease – with solar would yield enormous health benefits, reduce greenhouse gases, improve quality of life and expand economic and educational opportunities.
But the money needs to be fronted. “Large international financial organizations like the World Bank are not structured to do it,” says Guay. “Their bread and butter is to push out a huge coal plant or a hydro dam. If we’re looking at a distributed renewals future, crowdfunding is an exciting approach, particularly if it is coupled with the ability to invest through mobile phones.”
The biggest levers remain government policies. Domestically, if the U.S. government changed regulations around Real Estate Investment Trusts and Master Limited Partnerships (a bill recently introduced by Senator Chris Coons aims to do the latter), it could open up billions for renewable energy investments. Internationally, governments and multilaterals could reduce the perceived risk of solar investments through loan guarantees and other incentives.
But all that takes political will. Which gets back to the crowdsourcing ethos: let everyone participate in the solution and they will get more engaged. “Even if people invest $25, it helps them to think about energy in a completely new way,” says Parish. “They can be an energy producer, not just an energy consumer, and it will help them understand how our energy system works.”
“If we are going to solve this problem,” he adds, “We need to build a propositional movement, not just an oppositional movement. We’ll need to tap into people’s enlightened self interest.”
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