methodologies, processes and techniques that are described, and/or referred to, in this document, are proprietary to Envestex, LLC, and are U.S. and International patent pending. “Envestex”, the “Envestex logo”, and “GreenVX” are trademarks of Envestex, LLC. ENVESTEX CLEAN ENERGY INVESTMENT EXCHANGE BUSINESS PLAN FEBRUARY 2012 For more information contact: Gabriel Martinez, Founder gmartinez@Envestex.com 802.242.1291
www.Envestex.com ▪ 802.242.1293 Executive Summary Envestex presents a disruptive business model that empowers individuals to come together and exercise their collective financial power to support the companies and technologies that they believe in, while at the same time making a profit and quantifiable environmental impact. Envestex was created to enable and facilitate funding transactions between investors and early- stage companies while tracking their progress and ultimately returning profit to investors. The business is designed to simultaneously create short, mid, and long term revenue generating products and assets: essentially creating a large portfolio of future value with no net cost. If the Cleantech Industry is ever going to rival the current carbon based energy infrastructure, a significant increase in the research and development of new technologies and services is necessary. However, it is extremely difficult for early-stage companies to get funding beyond the initial small amount they collect from their founders, friends, and family. Most startup companies (≈90%) fail before they are able to garner investment through the usual means. There is a strong funding need for these companies that do not yet meet institutional investors’ criteria. Envestex seeks to fill this funding gap utilizing a crowd-sourced financing approach. We target companies seeking from 100k to 3M, and individuals looking to invest from 100 to 10k, together with a few selected institutional investors. Institutional partners will have primary access to second round financing for successful companies. Operating on a web and mobile based platform, Envestex connects private investors with investment opportunities pre-screened and analyzed using the GreenVX Index, a highly adaptable algorithm which calculates a relevant metric for comparing investment opportunities based on their financial and carbon/energy saving data relative to each user’s preferences. The core of the business model is a self-sustaining operation that utilizes commissions on funding transactions to pay for the internal operation of the company. At a better than break-even rate (low profits, no losses) the core operation creates a number of products with mid- and long-term value that can produce revenue with little or no additional cost. Investment risk is spread over all of the individual investors, and none is carried by Envestex. Based on the projected income statement, a 10% stake in Envestex will produce 1.17 Million in cash dividends at year six (2.29 Million cumulative and increasing annually) and be worth an estimated 6.5 Million. We are seeking first-round private investment in the total of 250 Thousand to fund the company through the first six months of operation, and then 1.85 Million for the next 1.5 years in three phases of investment. Although it is anticipated that revenue will be generated after the first year of operation, it is necessary to have good confidence of funding in order to attract talented staff. Investment parameters remain flexible, and can be structured as necessary. We have secured a contract with the First Client to utilize Envestex for facilitation of 6.5 Million to fund a spin-off company; the agreement provides a commission of 5% together with warrants for future revenue. Additionally, it is our goal to directly enable the removal of 2.66 Megatons (5.3 Billion pounds) of carbon dioxide from being produced annually in the United States. That amount is the equivalent of 377,000 homes’ total energy use annually, and about 0.1% of the country’s total annual electric energy use. Improved success of startup and early-stage companies in the Cleantech Industry will ultimately drive the increased success for the Industry as a whole, leading toward the overall goal of carbon- neutral global energy production.
www.Envestex.com ▪ 802.242.1293 The Company Envestex uses a highly adaptable algorithm which creates a relevant index for comparing investment opportunities based on their financial and carbon saving data to enable and facilitate funding transactions between investors and early-stage companies while producing short, mid, and long term revenue generating products and assets. Purpose We unlock the power of collective financing to advance global clean energy. Mission Envestex strives to vastly expand the market for investment and growth in the clean energy technology and services industry by fundamentally changing the way companies are evaluated, funded, and tracked. Vision We see a time where our world will operate in a carbon-neutral energy economy. Goals and Objectives Goals: Fill the gap for startup and early-stage companies seeking funding in the Cleantech Industry by providing a unique and effective platform for attracting and facilitating investment. Brand the GreenVX Index as a well-recognized metric for analyzing Cleantech and other Clean Energy related investment opportunities. Create a vast portfolio of Cleantech investments at no cost. Become the primary venue through which Cleantech companies seek seed and early- stage capital. Objectives: Launch a social media advertising campaign after the first two quarters of operation. Design and launch one or more smartphone applications before the end of the first year of operation. Close 10 transactions and produce revenue before the end of the first year of operation. Launch publicly available website investment platform by the second year of operation. Achieve profitability by the third year of operation. Capture 10% of the Target Market by the sixth year of operation.
www.Envestex.com ▪ 802.242.1293 Management Envestex presently consists of the Founders Gabriel Martinez and Bryan supported by Edward (Intellectual Property Attorney) and Nick (Corporate Attorney). Additionally, there are several people that have been working with the company on a part-time or as-needed basis to provide help through Phase 1, and are interested in continuing to work with the company once funding is available. Gabriel Martinez Founder and CEO Gabriel has shaped his life around his inherent belief that one will do well by doing good. He makes thoughtful and conscious decisions about the environmental impact and energy use of everything that he consumes and produces. Utilizing his background rooted in Mechanical Engineering and Material Science together with a natural and practically acquired business acumen, Gabriel creatively solves complex problems and delivers superior results. Gabriel received his Bachelor and Master of Science Degrees from Dartmouth’s Thayer School of Engineering. Promptly after graduation, he began work for the company founded by his thesis advisor, Ice Engineering (later IceCode) and progressed to increasingly more challenging positions, ending as Chief Operating Officer and Director. Through his tenure with IceCode, Gabriel coordinated over 6 Million in private investment and successfully negotiated contracts worth a minimum of 54 Million, as well as negotiated several litigation settlements and numerous legal contracts (see Resume Attached). Gabriel is dedicated to proliferating clean energy technology and believes strongly that the only way to do so is through the creation and quantification of both environmental and financial value. Bryan Founding Partner Bryan is dedicated to smart and sustainable solutions that will help the world transition to a post-oil economy. He has held a variety of supervisory, project management, and faculty positions in the fields of renewable energy and efficiency. He led a few of the largest commercial solar-electric installations to date in Vermont. In 2009, he was hired by the Over the past two years he managed a renewable energy and efficiency lab, taught Environmental Protection Agency courses, and instructed electrical apprentices seeking national certification in solar-electric installation and design. More recently, Bryan shifted his focus to community energy and rural electrification projects, especially projects affecting the developing world. He continues to do good work advising a town energy committee, researching and writing about renewable energy, and searching for the next best renewable energy solutions. He will forever be an advocate for sustainable, clean, and renewable energy solutions that make sense for both the client and the environment. He is an active, on-call interior firefighter, and served for three years as director and treasurer of a local cooperative business. Bryan holds a Bachelor of Science from and a Master of Science from , both focused on Earth Science. Edward Intellectual Property Attorney Edward has worked for many years with hundreds of high tech companies as a Patent/IP attorney and business advisor and has developed wide-ranging expertise in developing, securing, and positioning flexible intellectual property portfolios and managing strategies for their optimal deployment and implementation. He holds a B.A. in Electrical Engineering and a dual M.S. in Information Systems / Business Informatics from
www.Envestex.com ▪ 802.242.1293 and holds a Doctorate in Jurisprudence from In addition, he is a Registered Patent Agent and has been admitted to practice before the U.S. Patent and Trademark Office as a Patent Attorney. Nicholas Corporate Attorney Nick has been practicing law in the and is admitted to practice in New Hampshire and Vermont. His practice focuses on business and commercial law, as well as estate planning and probate. He is a member of the Vermont, New Hampshire and Bar Associations. He holds a B.S. from the and holds a Doctorate of Jurisprudence from Nick has served on the boards of the Board of Advisors We will endeavor to form a Board of Advisors of five selected professionals from different backgrounds relevant to Envestex business goals. A few prominent figures in Global Environmental Policy have been identified and have expressed interest in serving once the company is funded and operational. The Board will provide strategic advice to the team and as the company transitions to a corporation, will act as a the Board of Directors. Compensation for the Board will be in the form of equity in Envestex. Organization Once the company is fully operational, the plan is to function with a mostly flat management structure. The Chief Executive Officer will oversee all aspects of the company with support and advice from the Board of Directors, and have direct management of the Accounting and Legal departments (outside consultants/contractors). The Chief Technology Officer and President will directly manage all of the internal staff as well as contribute to each transaction as necessary. Several Associates, each an expert in a different area of the Cleantech Industry, will work in a fashion similar to partners in a law firm; where each will manage all aspects of two transactions simultaneously, but will allocate time to any or all of the other ongoing transactions on as-needed basis. Mangers of each transaction will get support from the other Associates and request their help. Time per transaction will be recorded and appropriately allocated for record keeping. The Engineers and Designers will work in a similar fashion to the Associates, with individually managed projects steered by the CTO. Gabriel is currently acting as CEO and President, until such time that the company is fully operational and finds a suitable replacement for one or the other roles. Envestex was formed as a member managed Vermont Limited Liability Company in October of 2011. It is very easy to transition to a C- or S-Corp in Vermont, and we anticipate doing so in order to facilitate investment into the company.
www.Envestex.com ▪ 802.242.1293 The Market Cleantech, Clean Tech, Green Tech, Clean Energy, Eco Tech, and on, and on…..there is a broad range of names for the industry, with inconsistent definitions as to what technology or service deserves inclusion. Envestex includes within the Clean Energy Technology and Services (Cleantech) Industry all companies developing, selling, or otherwise utilizing products and services that reduce or offset the use of carbon producing energy. The Industry includes renewable energy generators such as wind turbine manufacturers and wind farm developers, as well as energy efficiency service providers and consultants. State of the Industry The Cleantech Industry has been researched and followed with increasing interest in the past few years. Many reports can provide insight into the history and need for the industry as a whole. Two great basic resources are the Clean Tech Private Equity: Past, Present, and Future by Sustainable Asset Management from 2011 and the Family Wealth: Investing in Cleantech, April 2010 by Wells Fargo. Investment in the Cleantech Industry has grown exponentially over the past decade. Figure 1 below shows the investment into Cleantech (which does not include the services/efficiency component) through 2010 as it closed in on 250 Billion globally. Recording sources have different ways of categorizing investments into the Industry. However, the overall trends are quite similar: investment is growing, with the largest amounts of money going to finance the production and purchase of real assets. Corporate and government investment in technology development remains under 10% of total investment, while Venture Capital companies (VCs) account for around 2%. Figure 1 below details a typical allocation of funds within the Industry (biased by the source) for each category of investment: numbers are in the Billions and approximate. Figure 1: Global Cleantech Investment by Type Source: Sustainable Asset Management, Clean Tech Private Equity; Bloomberg New Energy Finance, February 2011
www.Envestex.com ▪ 802.242.1293 In 2010, 16.1% of all money invested by Venture Capital companies (3.76 Billion) and 8.1% of all deals (283) were allocated to the Cleantech Industry (Source: NVCA). Figure 2 below shows a breakdown of how VCs invested in Cleantech in the last three years, divided by the stage of the company being funded. The average deal size in 2011 was 3.8 Million for Seed Stage, 9.1 Million for Early Stage, 14.9 Million for Expansion Stage, and 18.0 Million in Later Stage financing. Figure 2: Venture Capital Cleantech Investment ($M) Source: MoneyTree Report Target Companies and Need With the vast majority of investment in the Cleantech Industry going to larger revenue producing companies, it is extremely difficult for startup and early-stage companies to get funding beyond the initial small amount that they may collect from their founders or from friends and family. Typically the initial seed capital is just enough to bring the company to the point that much more capital is needed to move toward producing revenue, and without a good source for that capital, failure is likely. This is what is commonly referred to as the “Valley of Death” for startup technology companies. Venture Capital companies tend to require positive cash flow and look for deals of more than 4 Million dollars. Angel investors tend to be extremely discerning about their investments, and typically invest less than 500 Thousand. Additionally, all of the VCs and Angel investors have different investment criteria and points of contact which only compound the difficulty of getting funded. There is currently no centralized source for Cleantech companies seeking funding. Additionally, there is currently no easily accessible and universal method for an interested investor to quantifiably evaluate similar opportunities based on their potential positive environmental benefit If companies were provided with a better ability to make it through the “Valley of Death,” then the Cleantech Industry may grow exponentially as the successful company base increases.. According to a study by Gompers and Lerner (Source), “…ninety percent of new entrepreneurial ventures that don’t attract venture capital will fail within the first three years.” Although that study was published in 2001, many up to date sources continue to assert that the failure rate is in the 80 to 90 percent range. Assuming that the 10-20% that do survive make it through primarily from Venture Capital funding in the Seed and Early Stages as shown above (154 deals total in 2011), we can conservatively calculate that the Cleantech Industry in the US has from 770 to 1,540 startup companies annually, with the majority of them failing early on. Figure 3: Typical Revenue Flow for Startup Company Over Time by Stage and # of Companies
www.Envestex.com ▪ 802.242.1293 The Envestex funding platform is targeted at the gap between self-funding and VC funding, in the range of 100 Thousand to 3 Million, with an average transaction of 500 Thousand. A goal is to build up to servicing 10% of the market of startup companies that would otherwise fail, or 70 to 100 companies per year, as well as to increase the number of companies that startup and apply for funding within the Industry. Target Investors There are tens of millions active online investor accounts that average consumers and individual investors (non-accredited investors) use to invest small amounts of money into public companies. This vast investor market currently has only limited ability to invest into private early-stage and startup companies. Through a crowd-sourced financing platform (see Business Model and Legal Matters), small private investors who are looking to invest in the range of 100 to 10,000 or more are targeted to come together to invest in the various companies utilizing the platform. The typical investor is web and tech savvy, and most likely does the majority of their banking online and preferably on their smartphone or other mobile device. Mobile venues provide a network of instant communication and will serve as the backbone for the future of the Envestex funding platform. People carry their mobile devices with them everywhere, providing constant contact to the platform, and updates and opportunities can be advertised to a huge network of investors instantly. This should speed up investment and reduce the overall time that it takes to collect the funds for each transaction. Several institutional investors (VCs, Angel firms, banks, etc) will also be targeted to take a portion of the transactions (see Business Model). Institutional backing should provide better assuredness for the private investors, and the selected institutional partners will get a benefit over their own competition for second round financing of the companies. Any individual or company with an interest in investing in the clean energy space can use our platform to invest. Any company that operates in the clean energy space seeking investment can use our platform to garner investment. Eventually, the GreenVX Index may be used by any company, public or private, to assess their relative environmental performance.
www.Envestex.com ▪ 802.242.1293 Technology and Intellectual Property Envestex filed two patent applications in November 2011. The first is specific to the business model, and the second is specific to the GreenVX indexing algorithm and its use. Both are now patent pending worldwide. More information is available upon request. The GreenVX Index From buying a new light bulb, to investing millions of dollars into a startup company, the GreenVX Index provides users with a powerful tool to really understand how "green" is an investment opportunity. The GreenVX Index is created through a unique and proprietary algorithm specifically to provide investors with the easiest possible method for comparing opportunities. The Index transforms a large amount of information into one single unit- less number that is used to compare any Cleantech investment opportunity. The resulting Index is specific to the user's preferences and geographical location. In order to create the GreenVX Index, data is collected and processed from three sources: the User (Investor), the investment opportunity (Company), and publicly available energy resources (Regional Energy Production). The Investor interested in viewing and/or comparing investment opportunities provides information that is used to build a personal preference profile. The profile can be changed by the user at any time. It is essentially a tool to understand whether the investor is more interested in financial return, or environmental benefit. The Company seeking funding (or any other such investment opportunity) is analyzed by Envestex in order to extract specific data about its financial return on investment ($ returned per $ invested) and its environmental benefit, usually in the form of carbon/energy offset (Pounds of CO2 offset per $ invested). The user defined regional data is analyzed by Envestex in order to extract specific base comparison data, which can change in real time and relative to the investment itself. The data may change with the specific use, such as if a user wants to compare an investment in one state versus another, or one country versus another, etc. The resulting data are put into the Index creation algorithm, and the GreenVX Index for each opportunity available through Envestex can be shown relative to each other. Figure 4: Flow of Information to Make GreenVX Index
www.Envestex.com ▪ 802.242.1293 Base opportunities are analyzed and provided (e.g., purchasing compact fluorescent light bulbs instead of incandescent). Everything is broken down into one, unit-less number that provides direct and easy comparison of the various opportunities. The user has the ability to analyze the data of each opportunity in detail, and to change their preference profile to determine how the Index changes relative to their preference and location. Additionally, the Envestex algorithms produce data that can be used to provide the investor with real time tracking of investment performance and net environmental benefit of their investments, which can be shared with friends and colleagues, and potentially used for tax credits (in the future). Index Examples For each investment analysis, there are a vast number of variables that factor into calculation of the GreenVX Index. Each variable has the potential to change relative to a user’s geographical location (e.g. average hours of sun per day at a site location), regional tax incentives and credits, personal cost of capital, etc. Table 1 below shows a small selection of investment opportunities and each corresponding GreenVX Index. The Index was calculated using the default user preference (equal weight to financial and environmental benefits) and average U.S. energy production data. Table 1: Sample Range of the GreenVX Index The investments are broken into two categories: those that generate revenue, and those that save (or offset) expenditure. This is an important distinction in that although some of opportunities (such as Compact Fluorescent Light bulbs) have a relatively high Index, they may not produce revenue. Such opportunities would not be the subject of the Envestex funding platform, but are helpful in providing a relative understanding of how each individual’s spending choices effect their carbon footprint. Investment opportunities that have an Index above the Base (>1.00) are good investments, and the relative value of each can be compared by its Index. Those that are below the Base (<1.00) are of no or negative value. Investor Preference The relative value of each investment changes depending on the user’s preference. For example, while in the default mode a typical Bond yields an Index of 0.00 (due to no carbon benefit), if the user preference is skewed toward only caring about financial return, the Bond would have an Index above the Base. Such investments could potentially have carbon benefit, which can be calculated through the source of the bond itself (e.g. a sustainable social investment bond). The Index for each investment opportunity becomes relatively more or less valuable with changes to user preference. Figure 5: Investor Preference Used in Calculating the Index Tools will be provided to investors to help them to either set their preference directly or indirectly through answering set of survey questions. They will always have the option to change the preference.
www.Envestex.com ▪ 802.242.1293 Investment Analysis Table 2 below shows an abbreviated and simplified calculation of financial return and carbon offset for a typical industrial wind turbine investment versus one of Google’s first investments in wind (Source). In order to generate the GreenVX Index, analyses of investment opportunities are broken down into the components necessary to produce two guiding factors: the Carbon Return on Investment (“cROI”) and the Financial Return on Investment (“fROI”). The fROI is a well-known and straight-forward metric that can be greatly affected by the choice of whether or not to discount future revenue. The cROI is unique and was invented by Envestex. This factor measures the pounds of carbon dioxide per dollar invested over the lifespan of an investment. The carbon dioxide is either that which is offset in the case of energy generating opportunities, or saved for those energy saving investments. The cROI essentially measures the net efficiency of an investment’s ability to reduce the emission of carbon dioxide as a function of the amount of money required to enable the reduction. Early-stage companies will typically have a higher Index than later stage companies. The potential fROI tends to be higher for them because of the associated risk: an investor can typically get a much larger portion of the company while it is worth less than later in its life. The potential cROI also tends to be larger at the development stage because the scope of the technologies being developed are typically much larger than with those companies that are focused on one singular aspect. For example, a company working on a new base fuel cell technology will have a broader potential impact than one that is selling/marketing their own particular brand of fuel cell: their effect is more limited. It then becomes quite attractive to invest in the research and development of new technologies as well as increasing efficiencies of current technologies. Additionally, the cROI highly depends on how you define your analytic ecosystem. For example, the analysis shown in Table 2 below does not directly take into account the amount of energy that went into producing the components of the wind turbines, the transportation costs, etc. Instead we rely on the overall use of energy to include those factors. As we work to grow the algorithms and databases over time, each variable will become more and more adaptive and precise, so that we can continually provide more accurate and relevant data. Table 2: Example Results of Investment Analysis in Wind Regional Energy Analysis The basic energy (and other) investments mentioned above in Table 2 are made up of many variables that change with the Investor’s Region Energy preference. For example, the average cost of energy might be 0.06 per kWh in Washington State, 0.19 in New England, 0.11 in the United States, 0.22 in Europe, etc. Beyond the cost of energy, the sales price of energy varies widely, depending on region, tax incentives, rebates, scale of utility, etc. According to data from the U.S. Environmental Protection Agency and the Department of Energy in 2008, 71.1% of all electrical energy produced in the U.S. came from carbon emitting sources, with an average of 1.79 pounds of CO2 released per kilowatt-hour of energy produced versus the
www.Envestex.com ▪ 802.242.1293 weighted average of 1.27 pounds from all sources (including non-carbon emitters). When you factor in transportation, petroleum plays a much larger role, but for the purposes of this analysis we deal with only electrical energy (see Table 3 below). There is a significant difference in the cROI depending on whether the investment being analyzed is saving or generating energy. In the case of saving energy, we use the lower carbon conversion factor (the weighted average of all energy sources) since saving, or not using energy is an offset of the overall use of energy which includes renewable sources. In the case of generating energy, we use the weighted average of only the carbon emitting sources since we assume that the non-emitting source reduces the need for the emitting sources. This distinction helps to temper the difference between money making and money saving opportunities. Including the energy and carbon used in transportation, mostly in the form of petroleum, adds to the carbon produced annually and effects the overall calculations. Calculating the Index Through a unique algorithm (which will remain a trade secret) the major components of the three sources of data (Investor, Opportunity, and Regional Energy Data) are combined and result in the GreenVX Index. An investor will be able to see all of the potential investment opportunities (Envestex clients, basic energy investments, and analyzed public and other investments) relative to one another based on the GreenVX Index. They will then be able to determine which investment is best suited to their personal goals, and allocate funding as desired. They will also easily be able to shift the Index by changing their personal preference profile or regional choices. The basis for the Index is highly adaptive and scalable. Its strength as a tool will only grow over time as the system for analysis is built. As the core of the Envestex funding platform, it is one of the main goals to dedicate resources to building an infrastructure around the Indexing Algorithm and its use, making it smarter and stronger over time. Additional Data In addition to the information provided to investors, the program will collect a significant amount of data related to what investors are interested in, where they are investing money, where they are, etc. This data will be gathered through the user profiles, user searches, and funding transactions. The additional data can be of great value to those interested in market trends and advertising (see Business Model). Table 3: Sources and Emissions: Electrical Energy Production in the US, 2008 Source: Modified from DOE/EIA-0383(2010) April 2010: Annual Energy Outlook 2010: Reference Case 2008
www.Envestex.com ▪ 802.242.1293 Business Model Envestex will operate on a web and mobile based platform to connect private investors with pre- screened and analyzed investment opportunities. The core of the business model is a self-sustaining operation that utilizes the short-term revenue from commissions on funded transactions to pay for the internal operations of the company. At a better than break even rate (low profits, no losses) the core operation creates a number of products with mid-term and long-term values that can produce revenue with no additional cost. Each company that is funded through the platform is provided with a loan facilitated by Envestex in one or more ways (see Legal Matters). Envestex receives a set commission in cash when the loan is closed. In addition to the commission, Envestex receives warrants to purchase equity at a fixed preferred rate before some future date, as well as a stake in the loan provided to the funded company (which is in addition to the total cash received by the company from the transaction). Figure 6: Envestex Business Model
www.Envestex.com ▪ 802.242.1293 As secondary (mid-term) revenue generation, the funding transactions and continued performance tracking provide a significant amount of data that can be collected and sold in various forms including market forecasting, advertising, etc. In the long-term, once the Index is established as a known and trusted standard, the algorithm can be modified to accommodate real time data from publicly traded entities; this will generate fees on a per-use or subscription basis. Lastly, the funded transactions generate a large number of private equity holders, who will want to be able to trade their assets. The company will provide a venue through which members of the funded transactions can trade their assets to one another at agreed upon prices; this will generate fees on a per-transaction basis. Connecting Parties The connection platform operates essentially like a match-making or dating site. Companies come to Envestex with a need for funding. Envestex visits the company and makes a fully detailed profile for them that is accessible by all potential investors in the Envestex network. Envestex also helps the company get their business plan and financial projections into good form, as well as conducts an in depth analysis of their environmental benefits in order to maximize their GreenVX Index. Investors come to the Envestex network looking for unique and profitable investment opportunities with inherent environmental benefits. Envestex provides investors with powerful analytical tools that can be specified to their exact needs in order to showcase the most relevant investment opportunities. Investors can be large institutions investing millions of dollars, or private individuals investing from 100 to 10,000 or more. It is a goal to have a significant portion (up to 50%) of each transaction backed by an institutional source, as such would provide a better feeling of security to individual investors. Collective Financing: Crowd Sourcing By crowd-sourcing funds, we break large loans into many smaller parts and spread the risk associated with the investment over many individual investors. The idea is that an investor will be more likely to invest a smaller amount of money if the risk associated is high. Rather than trying to convince one source to provide a large amount of money, we will solicit many investments from smaller sources: collectively financing each investment opportunity. Additionally, crowd-sourcing puts the decision of which companies receive the resources to make it through the Valley of Death into the hands of the collective, rather than leaving it up to a few private sources. The crowd decides which technologies and management teams they believe will be successful. In this way, we will help to give power to the people to determine directly how their money is spent, and where investment dollars should flow. Equity Secured Loans The funding platform operates essentially like an online trading site. Once an investment opportunity is fully vetted and made available to the network, the funding option is presented to everyone in the network and opens for a set amount of time. The primary financing method will be through equity secured loans (ESLs). All allocations by investors to the loan are held in escrow until the total amount required is reached, or the expiration of the offering. Once an investor has made an allocation to the loan, they cannot reallocate the funds to another loan until the close or expiration of the offering. If the expiration date is reached before fulfilling the requirement, then the company seeking funding will have the opportunity to make a plea to the allocated investors to accept the lesser amount as a total, or to extend the deadline. Investors would then have the opportunity to choose to return the money held in escrow to their account, or to continue with the transaction. See the Legal Matters section for more details on loans and funding options.
www.Envestex.com ▪ 802.242.1293 Directly from the loan funding transaction, Envestex receives a commission in the range of 5% to 10% which is scaled according to the total amount of the transaction. Larger transactions have lower commission rates. The goal is to use the commission only to pay for the operational expense associated with processing and funding the transaction. In doing so, we keep the rates lower than average brokers (although we are not “brokers”) and focus on making money on the future value of the company and transactional benefits. This puts Envestex in direct alignment with both the investors and the companies: when the companies do well, everyone benefits. We then have a vested interest in doing everything that we can to promote and help the company to be successful, including continued support through the network with regard to business connections and advertising. In addition to the real cash received as commission, Envestex takes a stake in the loan itself, equal to the commission. For example, when a company is funded for 500,000, Envestex receives a 7.5% commission in cash, and an additional 7.5% is added to the loan principal owed amount. So, when the loan reaches maturity, it will have 537,500 in principal plus whatever interest has been accrued to that date. Again, this invests Envestex in the success of the company. Royalty Based Financing While there are a number of ways to deal with potential legal issues with ESLs (see Legal Matters section), one cheap and easy method is to look at an alternative funding method. Royalty based financing (RBF) is a simple method for funding that can provide some significant advantages over usual methods and even the ESL. In RBF, the company seeking funding is still provided with a loan, but rather than waiting for the loan to mature and/or default before investors receive repayment, the company provides a percentage of its monthly revenue stream to the lenders until a pre-set maximum amount is reached (3 to 5 times financed amount). The RBF loan is not secured with equity. It is simply a right to revenue up to a specified amount. The company can retain complete control. The downside for the company is that the cost of capital is higher and definite. For the investor, it means a cap on the amount they can make. However, being able to get monthly payments fast reduces the risk of total loss and reduces the total time required to get paid back (see Competition and Competitive Advantage section). Warrants Along with the real commission and additional principal allocated, Envestex will obtain the right to purchase 5% of each funded company at a fixed rate of 1/5 of the transaction amount for up to 7 years from the time of the funding transaction. For example, for a transaction amount of 500,000, Envestex will have the right to purchase 5% of the funded company for 100,000. That right can be exercised at any time and would only be exercised based on careful assessment of the funded company. In the case that it is exercised, it may be used as a typical option would. However, a buyer for the private securities would most likely need to be determined before exercise. Byproducts During the time following the funding transaction, Envestex will keep a running tab on the companies’ progress in achieving their financial and environmental goals. The information will be available to all investors in the network. The GreenVX Index and all other investment data will be updated as regularly as possible. Investors are provided with an on-going tally of the environmental benefit (or potential benefit) that their investment is accumulating and they can post progress of their investments to twitter, facebook, linkedin, etc. to share with their friends and colleagues. Traffic through the website can easily be targeted for specific advertising, generating additional revenue. Additionally, the information gathered through investor funding can be utilized to
www.Envestex.com ▪ 802.242.1293 generate reports on market trends, and additional targeted advertising. Once Envestex has been running successfully for a few years, the indexing algorithms can be adapted to automatically profile and report on public companies’ environmental performance. With a large investor base, and potentially large understanding of the GreenVX Index in the public, it will be a goal to drive publicly traded companies to opt-in to reporting their GreenVX Index on a subscription basis. There is the potential to generate a large amount of fees for the service. Currently, there are few and scattered methods for the sale of private securities. If Envestex has a large investor network holding private securities we may be able to facilitate the private exchange and sale of the securities. Doing so on a per-transaction fee basis may provide a significant amount of revenue. Any potential revenue from the Byproducts mentioned above has not been included in the projected financials. Attracting Customers In the first quarter of operation, we will launch a social media advertising campaign to garner the interest of potential investors and companies seeking funding. Additionally, institutional investors will be sought for partnering on opportunities, and we will leverage their private investor connections. Institutional investors may potentially be given a first chance/preferred rate for a second round of financing with the customer. The smartphone application market is burgeoning and wholly untapped for the Cleantech market. A search for “cleantech” on either the Android or iPhone application markets yields few results. There are a number of different analytical tool applications for smartphones that will be created and provided for free to the world, which will also drive traffic to the network. For example, we can create a tool that allows any user to scan the barcode of an item in which they are interested, and based on its price and various energy use components, will provide the user with a quantified understanding of how desirable the product might be relative to the standard. Tools such as this will serve as advertisements for the main Envestex business model. Once operational, it is a goal to make the sharing of investment portfolio performance (specifically the environmental benefits) desirable. This will serve as a powerful, ongoing, and free social marketing campaign. Facebook has been identified as one strong candidate for use. Additionally, several products that utilize the GreenVX Index in one or more various forms have been identified and requested by potential customers. For example, we have had a serious inquiry from a large retailer interested in an application seamlessly integrated into or used in conjunction with a retailer's web platform providing browsing customers with a "Green" differentiating metric that can influence their buying decisions. In that scenario the GreenVX Index would be modified specifically for use with the application as it automatically and instantly pulls the necessary data from a retailer's offerings, processes them, and delivers a Green Factor for each product relative to each individual user. The information can be a powerful differentiator for any user who has an interest in understanding the environmental impact of their purchases. Revenue would be generated on a subscription basis by the retailer, or on a click-through basis, depending on the specific arrangement. The uses of the GreenVX Index and its variations are limitless. However, we will initially focus only on those applications which serve to support and/or advertise the core Business Model.
www.Envestex.com ▪ 802.242.1293 Financial Plan We are seeking private investment of 2.1 Million to fund the company through the first two years of operation. Although it is anticipated that revenue will start to be produced at the end of the first year, it is necessary to have good confidence of operational funding in order to attract talented staff. Investment parameters remain flexible, and can be structured as a convertible loan or as an equity purchase, or any combination as necessary. Rates for a loan and/or equity value are open for negotiation. There are many different ways to calculate the equivalent value of an investment into the company. As an example: based on the financial projections (see Projected Income Statement below), at a 60% discount rate (high - based on the associated risk), 5 times multiple for company value (5 times EBITDA), and 90% Dividend return rate after the third year, the $2.1 Million investment is worth about 20% of the Net Present Value of an exit after the 6th year. If the $2.1 Million purchases equity at the 20% ownership rate, the equity holder will see a 26 times return on investment over the six years if projections are met. In order to reduce the risk of investment, we will look to break the 2.1 Million investment into three installments, the granting of which may be dependent on reaching specific results. Table 4 below shows the phased plan for building the Envestex platform. Phase 1 was entirely funded by the Founder and included all of the necessary components to get the company ready to be financed. The LLC was established. A logo was commissioned together with branding materials. Two patent applications were filed for the business model and the GreenVX Index algorithm. The initial website was built and launched. A beneficial relationship was established with a large first client, and this business plan was drafted. Table 4: Phased Plan of Finance and Operations
www.Envestex.com ▪ 802.242.1293 Phase 2 will involve hiring and training initial staff to build the base of the infrastructure required to run the fully operational business. Focus will be on software tools and legal structure necessary to fund the first companies. The first transactions will be conducted through a private (not openly apparent through the website) network of investors. Although this will require more time per transaction, it will allow us to work out the majority of the unforeseen issues in order to be better positioned for efficient operation in Phase 3 and beyond. Phase 3 will see the first companies funded, as well as the launch of the marketing campaign. It will be a goal to enlarge the investor network to include some institutional partners as well as increasing the numbers of individual investors. The basis for one or more smartphone applications will be built as part of the social media advertising campaign. Staffing needs will be assessed and we will hire one additional person where help is needed. The goal will be to fund 10 transactions by the end of the Phase. Phase 4 will be full operation of the business. We will hire the full staff and launch the website open to the public for investing. Smartphone Applications will be launched and updated on an on-going basis. Data tracking for the first funded companies will be provided to investors for their own use and sharing. The goal will be to close 24 transactions by the end of the Phase. Uses of Funds The majority of the funds needed are to cover staff costs including salaries, taxes, and benefits. Table 5 below shows the breakdown of estimated expenses through Phase 4. Legal costs are somewhat high because we anticipate the work involved with forming separate LLCs and facilitating transactions will require much legal support. Further details can be found in the Analysis and Assumptions section below. Table 5: Uses of Investment Funds
www.Envestex.com ▪ 802.242.1293 Table 6: Projected Income Statement Projected Income Statement The breakdown of expenses and expected revenue through each of the initial Phases of operation (colors correspond to Table 4 above) can be seen in the Projected Income Statement. The projection is meant to be overly conservative with respect to expected revenue, and generous with respect to expenses. Analysis and Assumptions Items marked in blue are drivers for the projection. Those in black are calculated from the blue inputs, or from other calculations. The most important assumptions are listed by line below. Further detailed analysis and calculations are available upon request. 1 – 4: It is assumed that the average transaction value is 500,000. This is the main driver for the statement. The projection is built with a sliding commission scale from 10% for the smallest transactions to 5% for the largest. It is also assumed that loans will reach maturity at an average of 2 years, and warrants would be exercised after 3 years. 5 – 7: Most of the expenses and all of the income are tied to the number of transactions, as that number will dictate the amount of labor necessary from the analyst and support/legal staff. It is assumed that the first two quarters (Phase 2) will be spent building infrastructure and therefore will have no transactions. Additionally, the first four transactions (Phase 3) are assumed to be commission free, as inducement to enroll in the service. The increase of transactions is modest considering the market need and lack of competition. Here the total number of transactions is assumed to be less than 5% of the total market for Cleantech companies in the Target Market (see Target Companies and Need). 8 – 11: Here we use a risk factor associated with the ability of the funded companies to repay loans and our decision whether or not to take the payment as equity. The model assumes that of the 100% of companies
www.Envestex.com ▪ 802.242.1293 getting funded, 60% will be failures. Of those that remain, we assume that ½ (or 20% of the total) will have chosen an ESL, and ½ will have chosen royalty based financing. Of those choosing ESLs, ½ will simply make enough (or have the assets to) pay back the loan: those we take the principal and interest payment that was tacked onto the original loan (10% of the companies). The other half of the ESL companies will do well enough that it is sensible to covert the loans to equity (10%). Of those surviving and having chosen royalty based financing, we assume a ramp up of revenue at an exponential rate over 4 years (20% of the companies). We then assume that it makes sense to cash in on the warrants for the RBF companies and the equity secured companies that were converted to equity (30%). We assume a 10 times multiple on value from the beginning of the loan through warrant maturity. Of course this will vary wildly, however the attempt is to reach a conservative average estimate. 12: We reserve a space for Other Products, although none are included. This may include any of the Byproducts as mentioned in the Business Model section. 16 – 17: At full operation the staff expense comprises of two executives, four software engineers, one designer, two administrators, and one analyst for every 2 transactions per quarter. This assumes that any analyst can manage 8 transactions per year. This ultimately may increase as the number of transactions increase, but the allowance provides for the future potential for middle management, additional administrative assistants, and designers. Benefits cover basic health insurance, taxes, etc. 18: Legal costs are heavier in the first year as the infrastructure is being built. It will undoubtedly require more legal work at the onset than once fully operational. 19: A budget is included for outside consulting and having portions of engineering work done, etc. 20: A small budget is included for travel related to each transaction. Part of the operation will involve Envestex staff visiting each company seeking funding, taking pictures at their site, etc. This will help to put names and faces behind the investments, in an attempt to increase investor comfort. 21: We have been in discussions with a rental space much larger than initial needs, with a stepped leasing payment that will allow for growth and subletting individual offices. 22 – 24: Equipment covers mostly furniture, office supplies, and computers. Insurance is for the office space and some basic liability coverage. Accounting covers an independent outside accountant to keep the records and issue statements. 25: Contingency is an allowance for anything that may have been unforeseen. 28: An interesting metric is the cost per transaction, which should decrease over time as the infrastructure becomes more efficient. This number can be used to analyze the value of the specific parameters of any potential transaction. For example, using this metric and the present value of future payments, we reach the conclusion that a transaction less than 100k operates at a loss to Envestex. 30 – 31: Profit from commissions only is shown. This is important in that it shows that even if no future value is harvested, the company can be profitable. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) include profit from the future value products as listed. 33 – 34: The Operating Margin is calculated based on EBITDA and Expenses. The Envestex value is calculated using a conservative multiple of 5, based on the relative security of future revenue if the company is operating successfully.
www.Envestex.com ▪ 802.242.1293 Legal Matters Although there are strict regulations with respect to the sale of private securities, the methods utilized by the Envestex funding platform will avoid the typical requirements to register with the Securities and Exchange Commission (SEC), to work only with Accredited Investors, and/or to limit the promotion of the investment. This will be accomplished through loans to the companies seeking investment secured by that company’s equity. Required Registration The General Rules and Regulations under the Securities Act of 1933 (the Act), require that any sale of securities must be registered with the SEC, unless an exemption from registration can be claimed. The registration process typically takes a long period of time and requires extensive and expensive reporting to be completed. With the Envestex Target Investors and Companies, time and money are two resources sure to be in short supply. Therefore, it is best to structure the offerings in a way that is exempt from registration. Although there are a number of exemptions to the Act, they are typically limited by certain factors which can also prohibit the Envestex Target Companies from selling their securities. The most often used exemptions are: 1. Intrastate Offering Exemption (Section 3(a)(11) of the Act) To qualify for this exemption, the sale of securities must be only to investors within the state in which the company offering securities is registered. 2. Private Offering Exemption (Section 4(2) of the Act) To qualify for this exemption, purchasers must be “sophisticated investors” (which requires a number of different qualifications), and they must agree not to resell or distribute securities to the public. 3. Regulation A (Regulation A of the Act) This exemption allows for simplified registration for offerings less than $5 Million within any 12 month period. However, registration is still required and there are limits on solicitation. 4. Regulation D (Regulation D of the Act) Several rules allow for exemption under Regulation D. However, all exemptions require either limited registration and/or that the investors be “Accredited Investors” (see below). The most often used exemption in funding private companies fall under Regulation D. The main issue with Regulation D is that under any exempted scenario, the investor must be an “Accredited Investor,” which means that they must fall within one of the following categories: 1. A bank, insurance company, investment company, licensed by the US SBA, etc.; 2. Private business development company; 3. An organization not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; 4. A director, executive officer, or general partner of the issuer of the securities being offered; 5. An individual whose net worth exceeds $1,000,000; 6. An individual whose income in excess of $200,000 in each of the two most recent years; 7. A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered; and 8. Any entity in which all of the equity owners are accredited investors. (Source: Securities Act of 1933, Regulation D, Rule 501)
www.Envestex.com ▪ 802.242.1293 The typical Envestex Target Investor would not qualify as an Accredited Investor. There are other exemptions under Regulation D; however they limit the total amount of investors to a number much less than necessary for the Target Market to participate. Regulation A of the Act allows for simplified registration for companies with offerings of 5 Million and under. To qualify, business must not be a developmental stage company and should have a specific business plan with no plans to merge with unidentified businesses (not a shell company). An investment company is also ineligible for Regulation A Offering exemptions. Although the exemptions under the Act do not meet the initial goal for facilitating investments, it is important to note that Envestex will reserve the option to fund some companies utilizing the sale of securities rather than the convertible loan, if the parameters of the transaction make the option viable for an exemption or simplified registration. For example, it may be important for a company not to carry debt on its books, as they would need to in the case of the ESL, and they are not interested in the RBF. Debt can be avoided by immediate sale of securities. The trade-off is then that the investors do not have the ultimate choice as to whether to be paid in cash or equity. Equity Secured Loans In order to avoid any requirement to register with the SEC or to have to qualify investors as Accredited, Envestex will use a very simple method for funding companies: private loans secured with company equity. The loans are crowd-sourced: meaning that the net amount of the loan is made from a number of unrelated individual investors pooled together through Envestex. Typical convertible loans are either secured with non-equity company assets, or unsecured. Upon maturity and/or default, the lender usually has the option to require conversion of the principal and accumulated interest into equity ownership of the company at the specified rate. While this method would be ideal for the Envestex funding platform, the SEC considers convertible loans to fall under the Securities Act of 1933 and would require registration unless falling within a particular exemption (as mentioned above). An added complication comes from the Securities Act of 1934 (Specifically Section 12(g)(1)), wherein it is stated that private companies with more than 500 investors and over 10 Million in assets are required to file their financial statements with the SEC. Envestex can complete the funding transactions and wholly avoid any registration or qualification requirements before or after the transactions by structuring the financing as equity secured loans through one of two methods: The first method would be in the form of loans from the investors to a LLC created by Envestex specifically to hold one asset: the loan. The loan would be secured by equity of the funded company. In the event of a default, the LLC could foreclose and obtain an equity position. In order to assure that all the investors have equal security rights, individual investments would be pooled in escrow until the full amount of the loan is collected. The loan then would be made to the target company secured by the equity, whereby the investors would have a pro rata share based upon the amount of their investment. The only issue to determine is how to make decisions on whether to foreclose in the event of default or maturity. It would be ideal to allow each individual investor to be able to make an independent decision, so the legal documents will have to provide the holding LLC with the ability to claim default in part, combining cash and equity as the payoff. The second lending structure would be for the investors to make non-recourse loans to Envestex (again escrowed until all funds are collected). Envestex would then make a secured loan to the target company and would pay the investors by passing through the payments from the target company. Envestex would then control the
www.Envestex.com ▪ 802.242.1293 decision-making process in the event of default or maturity. In the event of default of the target company, Envestex could foreclose and then satisfy the loans to investors by distributing the foreclosed shares to the investors, or any combination of the two, depending on the situation and the investors’ preferences. There are still several issues to be resolved in the loan structuring. However, based on legal review and advice, we are confident that the issues are minor and can be solved once the agreements are drafted. Although the loan method may require an extra step in the process of getting funding from investors to companies, it avoids the cost and time required to register, while providing as much transparency and alignment to the two parties as possible. Royalty Based Financing Royalty Based Financing (RBF) can be attractive to both the investors and the companies seeking funding while avoiding all registration required by the SEC. RBF is a simple method for funding that can provide some significant advantages over usual methods and even the ESL. In RBF, the company seeking funding is still provided with a loan, but rather than waiting for the loan to mature and/or default before investors receive repayment, the company provides a percentage of its monthly revenue stream to the lenders until a pre-set maximum amount is reached (3 to 5 times financed amount). The RBF loan is not secured with equity. It is simply a right to receive a specified amount of revenue up to a limited amount. The company can retain complete control. The downside for the company is that the cost of capital is higher and definite. For the investor, it means a cap on the amount they can make. However, being able to get monthly payments fast reduces the risk of total loss and reduces the total time required to get paid back (see Competition and Competitive Advantage section for more details). RBF will require the use of one of the two methods mentioned above for Equity Secured Loans: investors either loan to Envestex and Envestex loans to the target company, or investors loan to the holding LLC which then loans to the target company. In either scenario, Envestex will control the disbursement of loan and payback funds. First Client We have executed a contract with our first client to look for funding through Envestex. Exact details are confidential, but it can be related that the client is a very well-respected research and development company with 50 years of successful experience and more than 100 employees. They have had several successful spin-off companies in the past, and they have a new technology that has major energy and production cost related benefits in the wind turbine industry that they would like to spin into a new company. They are looking for 10 Million (together with already-secured 4 Million in matching funds from the government). Envestex will receive a commission of 5% of the funding transaction, together with a warrant to purchase up to the amount of the commission in equity at the transaction rate within 7 years from the date of the transaction. The parameters of the transaction with the First Client are a bit outside of the Envestex model: they are looking for more money than the range for the Target Market and the most likely investors are intuitional rather than individual. However, the work completed in the process of facilitating their funding transaction will provide extremely useful experience, and may serve to speed up the development process of Phases 2 and 3. A successful transaction with the First Client will serve as a case study that can be published on the Envestex website, further enhancing the ability to attract customers. Additionally, the commission received will provide early revenue to the business and help to build the Envestex brand and confidence
www.Envestex.com ▪ 802.242.1293 Competition and Competitive Advantage There are currently many ways for companies to seek funding, and for investors to find opportunities. However, the Envestex platform combines the best of all of the existing methods. Advantages for Companies In order to attract companies seeking funding, it will be necessary to highlight the benefits that can be afforded by funding through Envestex. Table 7 below shows a basic comparison of the conventional methods versus the two Envestex methods. The Table assumes that arrangements with Angel Investors can vary between those of Banks and VCs. Those items highlighted green are the better deals for the companies and Envestex combines the best of both alternatives. Those in dark green are the better of the two Envestex methods. Transactions with Envestex do not require the company to give up control or to stress about making fixed payments which may exceed their revenue: they can focus on building the business and pay as they are successful. Dilution is variable because ultimately it depends on how many investors want to convert all or a portion of their investment into equity upon loan maturity/default. However, the maximum dilution for ESLs should be light (less than 25%). There is no dilution in the case of RBF. ESLs do not require regular payments, and there are no penalties for non-payment: default results in equity conversion. RBF requires regular payments that are linked to revenue generated, so there is no danger of default (other than bankruptcy or complete company failure). Table 7: Envestex Advantages: Companies
www.Envestex.com ▪ 802.242.1293 Envestex is fully aligned with the investors and the company in the deal, as our financial success depends on the increase in value of the company. We do not push for IPO: we can benefit from dividends or private sale since we hold a warrant to such a small amount of the company (≈5%). Cost of capital varies depending amount of the transaction, and can be zero if all investors convert to equity. The cost of capital for RBF seems high (≈44% IRR), but there are other significant trade- offs, that make it an attractive option. Overall, Envestex does operate in a similar fashion to a typical Venture Capital company, however, we do not look for large equity ownership stakes, do not use our own funds, and look for much smaller investment deals. Unlike VCs, we facilitate the investment of private individuals in order to provide both the investors and the company seeking funding with the support necessary to be successful without controlling either one. This brings the interests of all parties involved into alignment. Additionally, we will use the network of investors and funded companies to provide connections to each other that can be beneficial. We plan to have at least one person on staff dedicated to facilitating relationships between the funded companies. Advantages for Investors In attracting investors to the network and funding opportunities, it will be necessary to highlight the benefits of investing through the Envestex platform. Table 8 below shows a basic comparison of the conventional methods for investing in public and private companies, as well as other similar investment platforms not specific to startup companies. Those items highlighted green are the better deals for the investors and Envestex combines the best of all alternatives. Those in dark green are the better of the two Envestex methods. Table 8: Envestex Advantages: Investors
www.Envestex.com ▪ 802.242.1293 The initial amount of money required for an individual to invest through Envestex is low (≈100), especially when compared to typical private placements (≈100k). One need not be an Accredited Investor, so the barrier to entry is also low. ESLs provide risk levels equal to the best conventional methods, and RBF reduces risk even further. The risk is low in both methods because it is spread out through many different investors, and lower in RBF because repayments start sooner and the financial return on investment is defined. Return can potentially be higher with ESLs, but so is the risk. RBF provides monthly payments based on the company’s revenue, which can start immediately if the company is early-stage, or within 1 to 2 years if it is a startup. ESLs provide repayment in a lump sum, at which time the investor has to make a decision as to how much, if any, to reinvest as equity in the company. No equity is provided through RBF. Both Envestex methods provide investors with the quantifiable GreenVX data which can be shared with friends through various social networks. Overall, investing through Envestex will allow individuals to control their own investments in a large network of clean energy opportunities that could not otherwise be accessed. Coupled with potentially great financial returns, Envestex provides an ideal opportunity for investors and companies alike. Competing Companies While on the surface it seems that Envestex is acting as a typical broker for investment, the details of the model show that it is quite the opposite. A typical broker will look for a very small amount of transactions with a high funding amount in order to get a large commission and potentially large warrants/options. Turning that formula upside-down, Envestex seeks many smaller investments, with small commissions and warrants, in order to create a huge portfolio of future value investments for free (the operational cost being covered by the small commissions). Although components of the business model exist in different forms running in many companies (e.g. match-making site with profiles, public securities brokerage site), Envestex is absolutely unique in its combination of those components and the analytical tools provided including the GreenVX Index. However, there are several known companies doing something that seems to be similar to at least one component of the Envestex business model. Cleantech.com is an information collection and reporting agency that provides larger businesses (and VCs and Private Equity firms) with market information on companies operating in the clean energy fields. They do their own analyses of existing companies. They also offer an “innovation pipeline” where they provide early-stage companies the opportunity to relate their information to Cleantech’s users and investors. They do not facilitate funding transactions in any way. They make money by selling market reports and hosting seminars. They have what they call a “Cleantech Index (CTIUS)” which tracks the financial performance of 72 publicly traded companies that they consider to operate in the Cleantech industry. Their Index is similar to the Dow Jones index, and does not measure the environmental benefit of those companies in any way. Weemba.com connects commercial and individual borrowers with professional lenders through a broad social network. They claim to “exponentially increases the likelihood of successful financial outcomes for its members” by using their own proprietary “methods and state-of-the-art safeguards.” On their site, borrowers create a very personalized profile and post whatever project for which they need funding (from unsecured private loans to business loans), trying to attract financing from one of the lenders. Lenders search through
www.Envestex.com ▪ 802.242.1293 the projects based on criteria like credit score and revenue (if a business). All connections and loan/financing takes place outside of Weemba, and they do not facilitate the transactions in any way besides servings as a meeting place. Weemba makes money by charging lenders a small flat fee for successful connections, and sells advertising on its site. This is the same business model as Lending Tree and several other similar sites. LighterCapital.com is a startup company that wants to connect entrepreneurs looking for funding with successful entrepreneurs looking to invest through a model of Revenue Based Financing. They claim to be able to provide borrowers with “no dilution…no loss of control…[and] no personal guarantee” for loans in the range of 50 to 500 Thousand. Although their stated target is small and growing businesses, to qualify they must have a track record of producing at least 200 Thousand a year in revenue with at least 50% gross margin. They will also take a small stock warrant in the funded transactions. They are still in the startup phase. Their model is somewhat similar to Envestex, although they do not crowd- source their funds, they have strict investment criteria, little facilitation, and use no proprietary investment quantification factor. RebirthFinancial.com is a peer to peer lending service that connects private lenders with small businesses looking to borrow 5,000 or more. Loans are typical interest bearing loans payable in up to 5 years at fixed interest rates. Businesses must be generating revenue and in good standing: not early-stage or startups. They make money by charging a 150 application fee to borrowers together with a 1.25% closing cost. Additionally they charge a 3% servicing fee to the lenders. Once the transaction is closed, it is out of their scope of responsibility. It is unclear how many borrowers and lenders are currently in their network. Kickstarter.com provides small companies and individuals a social media platform to advertise and solicit funding from individuals for specific projects. Typical pledging of funds provides users with some token gift or one unit which will be produced from the pledged funds. The platform is not used for investment, nor is there any financial gain from the pledging of funds. Kiva.com is a non-profit micro-financing facilitator focused on small loans (<500) to individuals in the developing world. Interest rates on loans are low (≈3%), but they have a high rate for repayment. Kiva does not take any commission on the transaction and makes money only through lender and sponsor donations. The Envestex business model connects investors and companies in a similar fashion to the competing companies mentioned above, however, we combine the best of them all for a much broader market. Additionally, in our case we utilize the combination of the GreenVX Index and the business model to analyze and facilitate the transactions between parties, as well as to offer a financial return and tracked environmental impact to the users. This provides a much clearer and more positive net benefit to the investor and the company.
www.Envestex.com ▪ 802.242.1293 Environmental Benefits In pursuit of the Envestex Mission, it is our goal to enable the removal of 2.66 Megatons (5.3 Billion pounds) of Carbon Dioxide from being produced annually in the United States. That amount is the equivalent of 377,000 homes’ total energy use per year, and about 0.1% of the country’s total annual electric energy use. This can be accomplished if the number of transactions reaches 100 per year, and each has an average savings/offset of just over 26 kilotons. Ultimately, this breaks down into a carbon return on investment (cROI) average of around 106 pounds of CO2 offset or saved per dollar invested through Envestex. With an average financial return on investment (fROI) of 1.15 and the default user preference settings, the average GreenVX Index would then be 3.25. The goal is conservative and reachable, and can have a profound effect on the energy use in the country. Envestex GreenVX Index Assuming that the goal cROI mentioned above is met, we can say that the cROI for Envestex will be the same. Additionally, if we use the same assumptions stated in the Financial Plan, an investor putting 2.1 Million into Envestex would see a total fROI of 26.8 at exit. The default GreenVX Index for the investment into Envestex is therefore 15.7, which is very high for money generating investments (see Table 1 above). Consequently, investment into Envestex has a much higher effect than most other basic utilities. Tracking Progress Once companies are funded through Envestex, their real and changing potential environmental impact will be tracked and reported to all investors through the network. We will require regular updates from each funded company so that investors will be able to track progress. Envestex will use the GreenVX Index and the cROI metrics to quantify the carbon saved/offset by each company and encourage users in the network to share the information with their friends and colleagues. Individuals sharing their investments’ carbon and financial information is intended to serve as advertising for Envestex, but also to spread awareness that the reduction of global carbon production is necessary and can be financially rewarding. It is our hope that use of the Envestex investment platform will support and increase the global effort toward clean energy production.
www.Envestex.com ▪ 802.242.1293 Selected Sources Clean Tech Private Equity: Past, Present, and Future, Sustainable Asset Management; 2011. http://www.sam-group.com/images/SAM_Clean_Tech_Study_2011_tcm794-263788.pdf Family Wealth: Investing in Cleantech, Wells Fargo; April 2010. https://www.wellsfargo.com/downloads/pdf/familywealth/InvestingInCleantech.pdf MoneyTree Report: Overview of Venture Capital Investments, PricewaterhouseCoopers/National Venture Capital Association; Q3 2011. http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=803 Bridging the Valley of Death: Transitioning from Public to Private Sector Financing, National Renewable Energy Laboratory; Murphy, Edwards; May 2003. http://www.nrel.gov/docs/gen/fy03/34036.pdf The Money of Invention: How Venture Capital Creates New Wealth, Gompers and Lerner, Harvard Business Review Press; 2001. http://www.amazon.com/exec/obidos/ASIN/157851326X/qid%3D999444994/sr%3D1-6/ref%3Dsc_b_6/104- 0722551-9751156 Not merely tilting at windmills – investing in them too, Needham, Google Blog; May 2010. http://googleblog.blogspot.com/2010/05/not-merely-tilting-at-windmills.html Annual Energy Outlook 2010, DOE/EIA-0383(2010) April 2010: Reference Case 2008. http://www.eia.gov/oiaf/aeo/pdf/0383(2010).pdf Securities Act of 1933, Securities and Exchange Commission. http://www.sec.gov/about/laws/sa33.pdf Securities Act of 1934, Securities and Exchange Commission. http://www.sec.gov/about/laws/sea34.pdf