Startups often have a problem during the process of creating a viable product: you need money to develop that product, and that means you need investment funding. But without sales and revenue, most investors won’t touch you. It’s a chicken or egg type things. Which comes first? Sales and the resulting revenue or investor funding.
Of course, there are exceptions to this, but they are rare. Startups often begin in a garage, a basement, or even a college dorm room. But that won’t work when the product you are creating is a wind farm-scale turbine that will revolutionize the power-from-wind industry. So Wind Harvest came up with a unique solution.
Show me the Money
“The shortage of capital has always been Wind Harvest’s biggest obstacle,” Kevin Wolf, President and Co-founder of Wind Harvest says. “Turbine prototypes and the full commercialization process costs a lot at a time when companies have no income from product sales.”
So what do you do? You can’t sell an unfinished product, even when you have proof of concept. Wind Harvest has a multi-year head start on their competition, but there is still a long way to go.
The concept behind Wind Harvest turbines is both easy to understand and see the benefit of. The idea is to use near-ground turbines (that are animal safe) to harvest the turbulent winds that rush under tall turbines to increase the output of wind farms. 20% of which have good to excellent near ground resources. The installation of these near-ground turbines can actually result in an increase in the efficiency of tall turbines as well.
And near-ground turbine power production is not limited to just tall turbine farms. These turbines can also be installed on its own. This is an option in places like Barbados that have near-ground winds that can contribute greatly to the island’s energy needs, but concerns over impacts of views on tourism stop the tall turbines from being permitted
First the Wind Harvester turbines must finish the commercialization process. But that means raising capital. So we’ve come full circle.
Crowdfunding to Put Wind in Their Sales
Wind Harvest found an elegant solution in crowd funding. Here’s how they did it.
- First, they set up a Regulation Crowdfunding and 506(c) offering with Wefunder
- They developed a wholly-owned subsidiary, Wind Harvest Pilot Project
- That subsidiary raises capital through the crowdfunding promissory notes, and loans 90% or more of the capital it raises to Wind Harvest. The subsidiary receives annual interest payments at the end of each year until 2026.
- At the end of 2027, Wind Harvest (or its successor in the case of acquisition) will make the last annual interest payments and repay the principleto WHPP. When WHPP finishes paying back all of its noteholders, it will be dissolved as a working company.
The loans will be used to build and test Wind Harvesters v3.1 and 3.2, moving the company closer to production and revenue generation moving the product through the final stages of the commercialization process so that the company put “wind in their sales” so to speak.
What Investors Get
The crowdfunding project is set up with two levels of funding. Those in the first round (up to $600,000) get better terms than subsequent rounds. The interest rate for the initial round is 10% and is 8% for subsequent rounds. A unique addition to the offering is that the crowdfunding noteholders receive a pro-rata share equal to 640 Wind Harvest common shares for each $100 they lend.
There’s a low minimum investment of $100 which is enticing even to investors with small portfolios who are risk averse. But it also serves as proof of monetization. Successful crowdfunding shows other potential investors proof of public interest.
The Next Step
Here’s the thing. Once the company has their pilot project and certifications steps completed, scheduled for the end of 2021, then Wind Harvest has projects in its pipeline that will be ready to buy the turbines. Then they will have something all start up company desperately need: sales.
The sales will result in revenue. Revenue and positive projections will set up the company for a large Series B round.. Investors mean more working capital, which results in more rapid product development and deployment. It’s a brilliant way to draw attention.
Is crowdfunding like this right for everyone? Certainly not, but if are a startup who struggles with working capital and attracting more traditional investors, it is certainly a way to jumpstart your company and survive until you do have those magic sales numbers and revenue projections that make venture capitalists sit up and take notice.
Faced with a unique and challenging situation, Wind Harvest found a way to adapt. And that perhaps is the greatest lesson we can learn from this company. You’re already thinking outside the box for by virtue of being a startup. So step a little further and think differently when it comes to funding. In the long run, it may be the very key to surviving and thriving in even the most challenging of spaces.