An Investment In The War Trumps An Investement In The Battle
So many people are asking how to invest in this or that renewable energy piece. They want a major fund manager but they want the buy-in amount cheap enough so that the average Joe can invest. They want to start a business to install wind farms and still have a vote. They even want to maintain ownership for long term income. These goals are at odds with each other and don't serve the cause anywhere near what they could. People, let's think about this intelligently. You can't 'do your part' which implies compromising on something and get rich at the same time. There are hundreds of wind companies out there with vast experience in the industry trying to make money. They are the experts that your consutants will go to and they're only ramping up so fast. Are they just short of capital or is there a shortage somewhere in the chain? If the former, why don't you just invest in one of those companies? If the latter, then how can you sidestep that problem which they couldn't?
If you're willing to partner up with each other and join or create a company, that implies trust amongst yourselves. If you're limiting your investment to reduce individual risk, that implies some level of charity for the cause. So if you're basing this endeavor on either charity or trust, then why not take the best advantage of your money to make it really powerful and just 'trust' that you'll get your return? Just consider how powerful a large group of small investors could be if they had no requirements on how they used their money? As an example, can you picture a million people putting an average of $78.23 in a box and telling three companies to build their factories for free but they have to sell their products that much cheaper? You do realize that you didn't just save each company $26 million, didn't you? They don't have to pay interest or lifetime dividends on that money either which could double or tripple their cost cutting. They will instantly go to "The Most Profitable Maker Of That Product" status. How many units do you think they will sell and at what price? Yeah, this is definitely what we need. Lots of cheap products we can install AND export! All it cost you was organizing 0.3% of the country to give less than a hundred bucks. (Is there anybody not doubting the ineffectiveness of our business structures and government requirements yet?)
As you can imagine, there are many cracks in the wall of action on this, but here's a rough draft of a proposed plan that attempts to fill those cracks. In the form proposed, it applies to companies creating smaller renewable projects, financially equivalent to a PV installation that a single home or business might install, however the numbers could be changed to fit other project applications. What do you think? Would you be interested in joining or do you think of it as too risky? If not, what changes would it take to further interest you? How can we join together to take the best advantage of all the hard working people's passion to fix this crisis? I know there's a way if we put our creativity together!
The fundraising would officially be simple non-deductable donations straight to a company. HOWEVER, in return for a 3 figure donation ($100 - $1000), a numerically coded receipt would be offered. This receipt would later be usable as a discount coupon for purchase of the company's product. Depending on the stage of the company at the time of the donation, the discount would be for an increased value, commensurate to donor risk. Anyone could "donate" any number of times but each coupon would be limited to donations the above dollar range. Company development would be divided into 5 measurable stages which would value those receipts from 6 times original value down to 2 times. Any donations after the company becomes profitable will still return double their donation value. Since only one coupon could be used on the purchase of each product, this essentially becomes a sales commission on a pre-sale ranging from $100 to $5000. The first 100 or so actual product sales (categorized as field test products) would constitiute 3 times payback and would still need to be completed prior to entering the final stage. This stage insures there's enough business stability to begin paying back discounts as high as the $6,000 maximum of the earliest donors.
Obviously, the standard disclaimer applies that you should not donate any money you need a guaranteed return on because should the company not make it and go under, the donations don't return anything. This is no different from a risky investment except for the minimum investment amounts. The company should make every effort to continually disclose progress toward stage milestones well in advance as well as all major upcoming expenses and expectations of costs to each of the following stages.
My reasoning behind this is that any investor will normally want a minimum of 5 times their money, will have many strangling requirements and will not get their return until the business passes that magical "exit strategy" period. Contrary to the traditional way, the more eager an investor is to make money, the more they will want to invest and the stronger the company's bottom line from cash coming in plus the additional guaranteed sales. Why not offer them (you guys) the ROI as soon as you want (after products are being sold), as long as you can broker a sale. If you can't sell a unit, you can put your name on a list and utilize your coupon on an upcoming, non-discounted sale and be served in order. Receipt coupons are fully transferrable with notice to the company for legitimacy purposes. So, if you like the product, you may purchase it with your pre-negotiated discount or you may choose sell the coupon to someone else.
What am I missing that you guys might want? Let's discuss how to impliment it. Just think of the benefit to the whole country if you finance your kid's college by rolling over Stage-One "donations" in various new technology startups every 3-4 years at a 600% ROI. We need to stop fighting the little battles with this or that energy company or those politicians and start putting some in serious thought about how to win this like a war.
If you're willing to partner up with each other and join or create a company, that implies trust amongst yourselves. If you're limiting your investment to reduce individual risk, that implies some level of charity for the cause. So if you're basing this endeavor on either charity or trust, then why not take the best advantage of your money to make it really powerful and just 'trust' that you'll get your return? Just consider how powerful a large group of small investors could be if they had no requirements on how they used their money? As an example, can you picture a million people putting an average of $78.23 in a box and telling three companies to build their factories for free but they have to sell their products that much cheaper? You do realize that you didn't just save each company $26 million, didn't you? They don't have to pay interest or lifetime dividends on that money either which could double or tripple their cost cutting. They will instantly go to "The Most Profitable Maker Of That Product" status. How many units do you think they will sell and at what price? Yeah, this is definitely what we need. Lots of cheap products we can install AND export! All it cost you was organizing 0.3% of the country to give less than a hundred bucks. (Is there anybody not doubting the ineffectiveness of our business structures and government requirements yet?)
As you can imagine, there are many cracks in the wall of action on this, but here's a rough draft of a proposed plan that attempts to fill those cracks. In the form proposed, it applies to companies creating smaller renewable projects, financially equivalent to a PV installation that a single home or business might install, however the numbers could be changed to fit other project applications. What do you think? Would you be interested in joining or do you think of it as too risky? If not, what changes would it take to further interest you? How can we join together to take the best advantage of all the hard working people's passion to fix this crisis? I know there's a way if we put our creativity together!
The fundraising would officially be simple non-deductable donations straight to a company. HOWEVER, in return for a 3 figure donation ($100 - $1000), a numerically coded receipt would be offered. This receipt would later be usable as a discount coupon for purchase of the company's product. Depending on the stage of the company at the time of the donation, the discount would be for an increased value, commensurate to donor risk. Anyone could "donate" any number of times but each coupon would be limited to donations the above dollar range. Company development would be divided into 5 measurable stages which would value those receipts from 6 times original value down to 2 times. Any donations after the company becomes profitable will still return double their donation value. Since only one coupon could be used on the purchase of each product, this essentially becomes a sales commission on a pre-sale ranging from $100 to $5000. The first 100 or so actual product sales (categorized as field test products) would constitiute 3 times payback and would still need to be completed prior to entering the final stage. This stage insures there's enough business stability to begin paying back discounts as high as the $6,000 maximum of the earliest donors.
Obviously, the standard disclaimer applies that you should not donate any money you need a guaranteed return on because should the company not make it and go under, the donations don't return anything. This is no different from a risky investment except for the minimum investment amounts. The company should make every effort to continually disclose progress toward stage milestones well in advance as well as all major upcoming expenses and expectations of costs to each of the following stages.
My reasoning behind this is that any investor will normally want a minimum of 5 times their money, will have many strangling requirements and will not get their return until the business passes that magical "exit strategy" period. Contrary to the traditional way, the more eager an investor is to make money, the more they will want to invest and the stronger the company's bottom line from cash coming in plus the additional guaranteed sales. Why not offer them (you guys) the ROI as soon as you want (after products are being sold), as long as you can broker a sale. If you can't sell a unit, you can put your name on a list and utilize your coupon on an upcoming, non-discounted sale and be served in order. Receipt coupons are fully transferrable with notice to the company for legitimacy purposes. So, if you like the product, you may purchase it with your pre-negotiated discount or you may choose sell the coupon to someone else.
What am I missing that you guys might want? Let's discuss how to impliment it. Just think of the benefit to the whole country if you finance your kid's college by rolling over Stage-One "donations" in various new technology startups every 3-4 years at a 600% ROI. We need to stop fighting the little battles with this or that energy company or those politicians and start putting some in serious thought about how to win this like a war.
7 Comments
-
Comment by Todd McKissick on July 26, 2008 at 7:44pm -
Larry, Thanks for the comment. For the most part, I agree with you. I don't relish the idea of getting vulture capitalists involved. I'm in a conversation with 3 of them right now and they are actually proud of their greedy opinions because they've made so much money. Just a case of can't see the forest, I guess. I actually asked one of them how much they would consider donating to an art gallery to bring the arts to a run-down neighborhood and his reply was in the hundreds of thousands. I then asked if he needed a resume and guaranteed return on that money. That was a leading question setting him up for the next. He just laughed it off like it was silly. Then I asked what he would donate to a game-changing renewable energy company and he said he not only couldn't because of the rules, but he wouldn't without some due dilligence on their track record. So I guess we should all just go build galleries and be happy, 'eh?
The problem with your idea of having shares is that in order to offer shares, the business has so many rules to comply with that it needs a set of high level professionals to manage just that process. There are quarterly and annual reports that, by law, have many requirements and large fines for getting them wrong. Then you have to do a valuation of the company and get it pretty close in order to set a value on each share. The business credit worthiness is then directly tied to the performance of all the above. By the time you get all done, you're about half a million over your original budget so you have to raise that extra money too. Now your business is only half as profitable so the original projections of profit are only half as good and it looks like half as good of a deal to the investors. This is where they get you. The investors you're forced to go to when you enter this level of fundraising will require enough control on your board of directors to "insure that the business makes them a profit" and we all know this means you just lost control. Here's a direct quote from one venture capitalist via email to me just today:
(quote)
As to the speciifc 500% interest question, no VC worth his salt is interested in capping his returns at 5x. It's just not worth it. And you think your product is different, but they see 100s per year that look very similar. Yours isn't THAT different, and certainly no less risky than others at the same stage. Your deal is always judged in the market not vs it's own #s, as they are all just wild guesses for early stage deals, but against the relative merits and pricing of the other deals that investor sees.
My advice, find at least one if not 2 partners to join you who has successfully run a venture backed startup and made signficant money for investor before, and bring them on and split everything evenly. Only then start looking for funding. No one backs a one man band. Don't underestimate what the others bring to the table.
The reality is, giving someone money who has no hard assets to secure it or historical cashflow to pay it back is ridiculuously risky, and frankly any level of money at any valuation should be viewed by the entrepreneur as extraordinarily cheap money. Most companies are valued at 1-2x historical revenues and 10-20x historical profits. Startup revenues and profits are zero, so the valuation at ANY price and ANY amount of money is ridiculously expensive. So whether you give up 30%, 50%, 80% is in some respects irrevelant, as long as you get any amount of cash into a business where the numbers don't justify it yet.
(end quote)
Astounding, isn't it?
As far as getting lawyers in here to voice an opinion, I really doubt that will happen. Those guys are trained to avoid giving away free advice on the premise that it could come back on them. Obviously, no one in their right mind would do anything without consulting the appropriate legal advice, but certainly legal opinions joining in here would greatly aid the fine tuning of the type of plans you and I are discussing. They must all not have kids and grandkids with a stake in our energy future.
The biggest problem this country doens't see is that they could pay cash directly to every company to design products and make factories and then sit back and reap the fruits of a great job and low product prices and they would be ahead of where they are now.
-
Comment by Larry Smith on July 27, 2008 at 9:11am -
I have a couple friends that own venture backed companies and know they require you also put in about a third of the start up capital out of your own pocket. Unfortunately we have to start small. However I do have ideas about how to do that, yet lack the marketing ability to bring them to market. Also have a patent lawyer in the family, which helps.
I have to share this as well, back in the early to mid 90's, scanners for PC's was coming out and I had a idea to tie one into a mars money machine to put into malls and what not for people to scan thier photo's. At that time I had just bought a Kodak machine so I called Kodak and started a dialogue. Guy was real helpful and picked my brain for about a month...then, I called and he told me they was already producing one and quit taking my calls...about a year later, look what showed up at the Walgreen's! So I am a bit gun shy when it comes to trying to build a prototype of any of my designs, and patents are not cheap, even with a family member to help. Morality isn't high on the list when money is involved, probably why the government doesn't do what they need to...as they are bought and paid for by the multinationals.
Hopefully more will take a look here and get involved.
-
Comment by Franck Prissert on July 31, 2008 at 8:09pm -
Hi Todd, good job. I differ with you on a number of issues, but we're here to put our brains together. Here is what I think - and what I have been practicing for a while with real money.
There are two issues at hand, Stationary Power - i.e. electricity, i.e. coal pollution - and Mobile Power - i.e. oil. Stationary Power has a few viable alternatives to dirty coal. One, the simplest, is clean coal - easier said than done, but doable at a social cost we must all agree upon. Then, in that order of feasibility, i.e. economics at the current state: geothermal, wind, biomass, nuclear. Hydropower also works, but its expansion is mainly limited to turbine efficiency. I do not agree with you on Solar - except for CSP and down the road Copper Gallium Indium Arsenide, or anything more efficient thant the 15% polysilicon PV. You correctly point out the storage issue for Wind and Solar, for which we don't have a current solution - flywheels, maybe, but not on a residential scale. All these solutions need to be worked on but quite frankly, even if you grow the base demand by 2% a year from the current 1 Mn MW or so, it is not an "urgent" problem. Don't get me wrong, it is a problem, but it has more to deal with pollution from coal than demand growth. In other words, if we did not care about pollution, we have plenty of coal to supply demand growth. I am obviously short cutting the topic here, and we can debate.
The real problem is Mobile Transportation, i.e. Oil. If you google my name, you'll see I have been against corn based ethanol since inception, Indeed, this has wasted precious investors and taxpayers money, and I will get back to this, Now, to be sure, I am not opposed to corn based ethanol because of its impact on the food chain. This is one of the misconception I refer to in my discussion forum. If you look at the USDA numbers, clearly consumption of corn has increased because of ethanol, in particular in the US. But the fact is that production has increased by a similar amount. And if you look at the other suspects, i.e. Brazil, India, China, you will find the same - no supply/demand imbalance, indeed India is becoming a net exporter, at the margin. So you may ask, why did corn prices rise? Well, from my standpoint, Oil is an answer - as an input -and the dollar weakness - which affects all commodities. Then there is speculation momentum, i.e. what leads to bubbles, and if I am correct we are about to see it burst.
So the reason I don't buy the corn ethanol story is not because of its impact on the food chain, it simply is its economics - 1 bushel equals 2.8 gallons, etc....
Now, going back to Mobile Power, the problem seems to also be storage. Lithium Ion has its shortfalls, which may be solved with the use of ultracapacitors. The fact of the matter is, we do not have an electric car solution - yet. When we do, we will have to look at a greater growth in electricity demand than the 2% per year I mentionned earlier, but this is five years away, if I have to venture.
In terms of investing, and in view of the above, you might wonder why I even bother. Indeed, when I was asked to create the Palatine Energies Renouvelables fund, my first answer was just that. The fact of the matter is, 1) standing still is not an option; 2) a lot of people want to invest in this theme; 3) my job is to participate while preserving these people capital, while Wall Street is eager to burn it - after all, any company who pretends having a solution requires a lot of R&D money.
My solution is this. When I look at al the investment vehicles available to the public at large, in addtion to their investment strategy which I find way too volatile, I do not see any of a size large enough to fund this initiative. I run a $100Mn fund, and this is even too small to fund riskier proposals. We need to raise north of $500Mn, and then we have the tools - meaning we alloacate 20% to risky investments, and that $100Mn will go miles for companies in dire need of R&D money; while the remaining 80% will invest in more run-of-the mill companies, Industrials, Utilities, Information Technology - smart metering as an example, but also Oracle and the likes. The net result would be a product, much like the French fund, with a diversified strategy, hence a lower volatility and hopefully a positive return. And if just a few of our riskier investment plays out, icing on the cake. In the meantime, we will have played our role - providing capital where it is needed, without causing undue risk to investors.
Raising such a large amount is unthinkable, at first. Even if the 1100 members of the group were to put $5000 each, it would be nice but way short. We need to reach out to University endowment funds, to regional financial institutions in at least the 29 States with RPS legislation, in other words to anybody who asks the question "how do I invest without taking undue risk?"
I have been doing just that for the past year or so, to no avail. I think most people, in particular institutions, are skittish, rightfully so. After all, two Wall Street indiced bubbles lost people a lot of money - Fuel Cells first, then Ethanol. Then there is the eternal political risk - will the ITC be renewed? Now, if we stop at that, we won't go anywhere. The fact is that there are some companies worth investing in.
As you rightfully say, subsidies won't get us there. The Florida PSC just canned the Renewable Energy program of FPL. In addition, subsidies are just taxpayers money administered by some government body - and often geared toward job creation as opposed to science advancement. I think people who would better served by entrusting their money in the type of fund I suggest - with a track record to boot.
How do we get there? We start a fund with our members - it will be small but will show a constituency. Then each member markets it to its local "low hanging fruit" market - State pension fund, university, financial institution. We can envisage the following: if we cannot raise $100Mn within say 3 months, we return the money to the members. Ideally, we get an IRS ruling - how, I don't know - whereby contributions to the fund are tax deductible.
It's getting late. What are your thoughts?
-
Comment by Todd McKissick on July 31, 2008 at 11:19pm
-
Hi Franck. Thanks for the great comments. You have many directed points on differing subjects so I'll try to address in order.
Storage is definitely key to both mobile and stationary. I agree on the mobile but have spent more of my time on the stationary. I've chased various solutions to their ultimate end for a very long time now and played dumb to a great many experts to glean every bit I could from each of them. The result is that I've come to a few conclusions. We can either create a physical storage system or we can intelligently vary both the supply and demand fast enough (and high enough capacity) to balance the grid. As we get more variable sources this need becomes larger in scale. So the question becomes which is most economical. Large centralized storage is only financeable if very profitable. With the CSP growth and PV adoption rate, peak afternoon supply is being bolstered, even if it's a little off in time matching so that has lessened the investors interest. Even the CSP plants that 'can' do thermal storage aren't choosing to do so because of the difference in price makes afternoon power so much more profitable that there's no reason to do nighttime... yet. Another side of this is that distributed storage at the customer site is easier to fold into the price unnoticed. Just look at how many people are buying batteries just to get off grid, knowing the replacement cost. My take was to find a way to distribute the cheap thermal storage that is inherant in CSP since it comes at zero energy cost. In other words, the product of concentrated solar thermal collection (heat) is directly storable at a cheap cost to an individual and with little inconvenience. Power generation from this sector would then be mostly dispatchable and proportional in size to it's public adoption. More importantly, it would be increasingly implimented now instead of waiting for the problem to happen first.
So what are the roadblocks and how do we get people excited about it? First is that it's not available now, so that just takes time. Next is that we have to create a demand for them. Price and payback are the best ways there with a whole house solution being next. I started a company to solve that one so that's covered. Next is that it has to be easy to connect to the grid and lucrative to make this excess available for resale. That's what the smart grid is being designed for. My research shows that many groups are working this from all directions but no one is coordinating one plan from them. We have people wanting smart plugs that allow a PHEV to charge AND sell back while a customer shops at a store by putting billing info into the plugs. We have others wanting controllable appliances and outlets for energy and home automation reasons. We have utility companies that want remote meter monitoring capabilities and curtailment control of people's major power appliances. We have others trying to extend internet connectivity to all outlets in a building through the power lines. I'm part of a small group currently designing a single system of standards that supports all these features in a way that can be adopted by only those people interested while not impacting the others. This system is the only sensible way to accomodate the storage capacity in PHEVs for further grid accessable storage.
The utility side of that smart grid only requires them to create instantaneous prices and publish them on the internet. The utility companies are already moving toward smart meters, so any actual meter cost is only incremental on those about to be installed. Certainly, those are small costs to gain that capability but there's still much apathy. I'm sure monopolistic desires play here as well. This is one of the few things the federal government needs to step in to mandate. Every bit of the rest is free market pulled. Regarding quantity, this actually lends itself to tremendous home electrical efficiency gains. I estimate an average savings of nearly 50% per upgraded house and up to 8% for industry. Your mileage may vary.
The result will be a constant leveling of the grid combined with an increase in the tolerance of opportunity generation like wind and PV. Beyond that increased capacity, we can combine the renewables mix you mentioned to make up the coming shortfall not covered by existing central generation facilities. Because of their increased market penetration, Increases in supply from all these renewable sources should more than cover the attrition rate of fossil fueled generation, allowing us to begin a steady reduction there.
The players are all in place now. All parties are just waiting for national standards to be accepted (most would opt for mandates) concerning grid connection, net-metering compensation, appliance and DG billing communication and so on. This needs to be step one.
Step two is happening now and will continue to grow on its own. However it can be assisted by persons such as yourself. It concerns the availability of capital to the thousands of startup companies making the tech advances I mention above. Just in my circle of regular communication, there are half a dozen businesses that are both sound ventures and just waiting to find that elusive funding. They are all providing innovative new products that are inevitable to the long term but unknown to the investment circles. In my company's case, we have many people wanting to simply donate cash but we're unsure of the legality of that so we hold back. This led me to the proposal in this article above.
This article was an attempt to start a debate on financial structures which allow large numbers of people to offer small amounts of high risk money to those companies they believe in. The leader of a group of more than 7,000 members with an intense, directed interest told me that he could find 5,000 donors of $100 ea. in a matter of weeks. When we investigated the legal ramifications, we found two camps. One said it violated SEC regs and the other had no idea who to ask about it. Since the proposal offers a form of return, I envisioned it being a program where donors select the company they're interested in as opposed to a wider fund covering the various risk categories. This way each company's target could be publicly compared to actual receipts showing the fundraising progress. And since it is promoted as a non-deductable donation, a majority of the disclosure games that companies play would be unnecessary. This should lead to a more open and full disclosure of company plans and progress since there's no stock price to manipulate or short. I think I've included mechanisms to cover everyone's wishes in such a vehicle.
It's too late for me to proofread my post so I appologize if it strays here and there. Your thoughts on it are greatly appreciated.
-
Comment by Pat Jack on August 7, 2008 at 1:59pm -
I get an inkling of an idea, and here you are with as simple a plan as possible, but still, in the minds of persons who have not functioned at the business levels you have enjoyed, this stuff is thick and complicated. I will 'study' this discussion and see if I can begin to visualize the flow of dollars out of people's hand and into electrical lines ... wow this is so huge.
Great writing at all levels here. The economies of scale for knowledge and knowledge sharing at all levels are huge at Pickens Plan.
-
Comment by christopher tidman on October 24, 2008 at 7:34pm -
We have limited energy at our disposal to create this alternate energy supply, so we need systems with a high energy return on energy invested. PV is terrible compared to solar/thermal which is lower than biogas but better than wind power.
"The mess" that everyone is talking about was caused by the fact that every dollar is owned by someone who expects to collect interest on their money. This means that we either print the extra dollars so that everyone can be paid their interest, which causes inflation or we don't and cause some people to go bankrupt.
Nothing will change until we change the banking system, and we can do that by putting interest free money into the system. Form an Association, borrow dollars from members interest free and loan it to alternate energy producers interest free. Start small but skip using the banks, the Government or the venture capitalists. You'll have a lot more fun.
Add a Comment
You need to be a member of PickensPlan to add comments!
© 2008 Created by PickensPlan
Badges | Community Guidelines | Report an Issue | Privacy | Terms of Service
OK, I still like the idea of having shares and starting a private corp. I don't know anything about the SEC rules...who needs or wants venture money? Those guys take over the company when it becomes profitable and kick you out. My personal feelings on this is if a Venture Capital company was brought in, I would look else where to invest and put my energies. I have a resentment it appears.
And your right, invest in the war. Going through the posts, I see what to me tends to be a problem in the states (I'm guilty too at times), every one is happy to TALK about it and are very good about pointing out why it CAN'T be done, without working or thinking of ways to get it done.
Are we trying to solve a problem or get rich? Yes, we should be able to do both. However, we don't have to get rich over night. I am sure for some just the idea of having helped and holding some paper that shows a ownership would be enough. Others appear to want to have a major corp. I know I have posted this in another thread, look at the Chinese, they are kicking our butts by not making 500% profit on things but by making pennies per product. They are not investing in R&D, they just reverse engineer or buy rights CHEAP and they even brag about it.
Now I am sure we have some lawyers here, just as it appears you know a bit about running a company. My own expertise is midlevel, metals production and silicon wafer production. So I am sure there is enough unrealized knowledge floating around in the average people. Just need someone to bring them all together.
I do feel that by making a system affordable, there is a huge untaped market selling self contained systems to the average home. Regardless of what the government and the news stations tell us, just drive around a upscale community and see how many more lower income hoods are there, to service the wealthy, within a 5 mile radius. An affordable quality system, brought at a quantity would still net a profit...how much do you need to live? Can't take the extra with you when you die.
I am probably a bit scattered here, yet I think you get the idea.