Apr 30 2014, 7:11pm CDT | by Forbes
Let’s just say social entrepreneur David Levine owes a big “thank you” to the Jumpstart Our Business Startups Act (JOBS). Passed in 2012 , it allows startups, including social enterprises, to tap a new source of financing–equity crowdfunding.
Levine founded Geostellar, a four year old online solar marketplace that also aims to map the solar power potential of every residence in the U.S., while demonstrating to homeowners their potential cost savings.
Recently, however, while embarking on an effort to raise $1 million in order to revamp his business model, his biggest financial backer decided it wouldn’t continue funding the enterprise, putting a major damper on Levine ‘s efforts to convince other folks to get in on the act. Then Levine listed his Martinsburg, WV-based company on Return on Change, a crowd- funding platform for social enterprises (I wrote about it last year) and, thanks to some smart maneuvering , was able to raise the money anyway.
Levine, a serial entrepreneur, raised $2 million in an angel round in 2011 and $14 million in a second round the next year. But right as he launched another fundraising effort, his major investor decided for strategic reasons it wouldn’t participate. “It makes it very difficult to raise another round if your major investor won’t keep investing,” he says.
According to Levine, the investor agreed to reset all of the preferred stock to common stock , allowing Levine to raise money at a lower valuation without hurting the company or other investors. They worked out a recapitalization plan in which Levine would invest some of his own money, raise more money ($1 million) and sell current investors more stock at the new low price.
Then, Levine heard about Return on Change and decided to see if he could raise $1 million in three months through the site. Shortly after listing, an investor proposed he make an investment through a self-directed IRA. Levine then learned from the company’s custodian that, if Geostellar could register its preferred stock offering as a security with the custodian, an investor could move his or her retirement account into a new one, which would purchase the preferred stock, maintaining the tax advantages. With that, according to Levine, investors started clamoring to join in. He raised the money successfully.
What does the Geostellar system do? Basically , homeowners enter an address and the average cost of their monthly electricity bills on a web site, then Geostellar’s technology presents a clear comparison of the benefits and costs of solar leases, loans and cash purchases. The “secret sauce”, as Levine puts it, is technology using 3-D imagery, which allows you to zero in on your home on a map and see through infrared colors how much sunlight your residence can get and the solar power potential for your abode. Then you can click on various installation financing options—say, leasing or paying in cash—and see what kind of return you’d get and how quickly it would take to start saving money.
With the funding , Levine plans to overhaul his sales approach. Instead of relying on solar power installers, he’ll use door-to-door sales teams employing a mobile app with which they can explain the results to homeowners, along with call centers and an arrangement with the Spirit Foundation in Austin, which trains veterans to do home energy audits, among other tasks.
The system has data on about 80 million homes. Says Levine, “Now we’re working our way through the Midwest and South.”
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