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Interview with Rick Davis, CEO of LOHAS Capital

Interview with Rick Davis, CEO of LOHAS Capital

Interview with Rick Davis, CEO of LOHAS Capital

Rick Davis, CEO of LOHAS Capital, recently sat down with Brett Chikowski of TexTalks to discuss groundbreaking new fundraising opportunities for companies in the health and sustainability sectors. Continue below to listen to the podcast and read the interview transcript:

Brett:  Hello, this is Brett Chikowski host and producer of TexTalks, a podcast and speaker series sponsored by the Herb Kelleher Center for Entrepreneurship at the University of Texas. Today I’m speaking with Rick Davis, CEO of LOHAS Capital, a company bringing some innovative solutions to the cleantech fundraising world, to discuss the evolution of investment in the cleantech/sustainability sector and how companies are adjusting to the contraction we’re seeing in private equity financing.

Rick:  Hi, Brett.  Nice to speak with you.  

Q: Rick, in his book Creating Climate Wealth, solar financing pioneer Jigar Shah states that “Deployment of cleantech solutions represents the greatest wealth creation opportunity of our generation.” How is that playing out?

A: Well, we’ve seen some high profile successes with Tesla’s electric cars and Nest’s smart thermostats and even some business model based achievements with SolarCity and the like, but they’re really just the most well known. The market is brimming with innovative cleantech companies with great promise.

Q: OK, but how do those next green companies breakout and raise market awareness?  

A:    First, I don’t think you need to be a green company per se to tap into that segment of the population that aspires to a lifestyle of health and sustainability. Tesla is selling a cool car first and a more environmentally friendly transportation solution a distant second. Nest is stylish and intelligent, and, oh yeah, it happens to reduce your carbon-emissions-producing electricity consumption. Even SolarCity leads with saving money, not saving the planet.  

That said, each of these is clearly a “cleantech” company and the underlying sustainability undercurrent to their businesses is an important element of their success. They haven’t flown the green banner, but they have adeptly tapped into a segment of the population that values those aspects when making their product and solution choices.

Q: If raising awareness and driving adoption of their solutions is a cleantech company’s goal, can companies really find and then effectively access this “sustainability undercurrent” you reference?  

A: Yes, let me give you an extreme example. In July of 2000, the electricity retailer Green Mountain Energy moved from Vermont to Austin with the goal of selling more expensive renewable energy to consumers in Texas’ deregulated markets, some of the reddest areas in a very red state. Literally, hello, I’d like a few minutes of your time to discuss how you can pay more on your electric bill. But, after a lot of experimentation, Green Mountain became expert at market segmentation, messaging and positioning, and consumer analytics to meet and then surpass their customer adoption goals.

Q: So there’s a small segment of the population that cares about these things, but if I’m a growing cleantech company, how does that help address my need for capital investment?

A: Well, first, it’s not a small segment. What sometimes gets referred to as “aspirational” consumers make up, by some calculations, as much as one-third of the global population. Second, with the advent of the new JOBS Act, companies with a positive health or environmental element to their business have an opportunity to tap into these same consumer sentiments when both building and funding their companies.

Q: Your referencing equity crowdfunding.

A: Yes, it’s created a real option to traditional venture investment, meeting the needs of growth companies as well as startups and serving as a potential solution to investment gaps between early and later stages.  

Using equity-based crowdfunding, companies have the opportunity to engage new customers or further solidify existing customers, turning them into owners and brand ambassadors; and ensuring that a company’s investment of time, effort, and funds results in real customers and revenues versus the hit or miss experience and opportunity cost of seeking venture investment.

One of the other challenges of a traditional private equity investment path is that typically the investors are dictating the company’s valuation, which has real ramifications for the owners and even the initial seed investors; but equity crowdfunding allows the company to set the valuation and terms of the raise, putting a crucial financial lever back in the hands of the entrepreneur.  

Also, companies don’t have to issue preferred stock or give up Board seats, and the JOBS Act allows for the expansion of the investor/customer pool beyond the U.S. to 30+ countries, including thriving markets like China.

Q: So our cleantech company avoids all of the time, expense, and rejection associated with going out to raise venture investment and simply raises money from the masses instead?

A: Well, that’s certainly the story that crowdfunding platforms are telling, but it doesn’t match the reality. The overwhelming majority of crowdfunding campaigns fail to meet their fundraising goals, and most waste time and money compared to a traditional private equity fundraising experience.

Q: So is the problem with the platforms or the companies?

A: It’s a combination of things. First, just because your company has a consumer offering doesn’t mean that you can inspire the degree of allegiance necessary to generate investment. What is it about your business that lends itself to that type of customer advocacy?

Second, the equity crowdfunding platforms that have burst onto the scene don’t offer any support to the companies seeking investment on their sites, beyond posting the basic company information and managing the investment transactions, if any. Most issuing companies, focused on their day to day businesses, lack the expertise or resources to market their offerings successfully, resulting in the overwhelming percentage of failed funding events.

Q: If you have a company marketing department, why can’t you market your own investment effort?

A: Well, most crowdfunding platforms are selling that idea, but the reality is that a typical marketing department’s lead generation efforts and running a crowdfunding campaign are very different activities. For the same reason that you shouldn’t submit your name to run for a political office without a plan to win and the resources to execute on that plan, you shouldn’t waste time and money on a crowdfunding effort without the strategy and expertise in place to reach your goals.

Which dovetails into the other big issue with crowdfunding platforms: they don’t cater specifically to the cleantech sector, ensuring that companies that could potentially tap into a compelling consumer sentiment get lumped together with businesses of varying types and focus. If that sustainability undercurrent we discussed is critical to inspiring an emotional response in your target audience, why would you want to water down that element in a sea of generic crowdfunding offerings?

Q: So they should emphasize, not dilute, that component?  

A: Exactly!  Our thought was what if promising cleantech companies could just tap into that Green Mountain Energy marketing wisdom; if they could find a better way to leverage not only their existing customer relationships but also access still undiscovered customers and convert some into passionate investors.

Q: And this is what your organization does?

A: Yes, LOHAS Capital serves innovative cleantech and sustainability companies, helping them engage customers and generate investor interest. We target clients with some positive health or environmental aspect to their business, including companies in the energy, transportation, green building, natural lifestyles, personal health, ecotourism, electronics, and consumer goods sectors.

For our portfolio clients, we increase fundraising campaign effectiveness through a host of marketing solutions designed to maximize customer and investor impact.

Q: What kind of “marketing solutions”?

A: Well, using deep industry knowledge, big data analytics expertise, and machine-learning technology, our marketing campaigns use predictive modeling and audience segmentation to meet fundraising goals and grow our clients’ businesses.

Q: So, data analytics meets the cleantech crowdfunding world?

A: Right!  And it’s the sector specificity that’s key. Knowing that consumers interested in one cleantech product are likely to be interested in another sustainability service, we’re building a database that can be intelligently leveraged across multiple portfolio clients and that’s supplemented by those clients’ own customer databases.

We meld our database and data analytics expertise with the customer database of our client, then professionally market a crowdfunding campaign to expand that database further, so not only that client benefits but also all of our clients. The dataset keeps growing with each client and our ability to maximize its output improves.

Q: Does this focus on consumer data impact who you accept as a LOHAS Capital client?

A: Absolutely. Having a successful, growing cleantech company with a compelling solution or innovative product and good management is table-stakes. We also want to see a substantial database of customers or supporters or, for our earlier stage clients, the capacity to build such a database.  

Q: So you are trying to pick the next cleantech winners and help them run successful equity crowdfunding campaigns?

A: Yes, but our solutions extend beyond just crowdfunding. We source client deals across a growing ecosystem of angels, VC’s, and family offices that are looking for investment opportunities in the cleantech and sustainability sectors. We match our portfolio companies with investors targeting specific solutions and company types. By developing this global marketplace, we’re helping our clients improve raise liquidity for their crowdfunding efforts while providing a more efficient path for accessing capital from traditional sources.

And we’re doing all of this with a focus on cost because the less a company has to spend on the legal, accounting, and administrative components of their raise, the more they have to invest in their campaign efforts. Much like SoFi, the now $4 billion startup which has lowered the cost of capital in the personal loan markets by connecting borrowers with a targeted marketplace of interested lenders, we’re lowering the cost of capital in the cleantech equity markets by connecting growing companies with a targeted marketplace of interested investors.  

Ultimately, we also hope to expand distribution for our clients to spur post-raise growth. We want our clients’ fundraising campaigns to be self-fulfilling prophecies: if they’re tapping into our data expertise to raise funds, why not also use those same marketing analytics to drive more sales, which increases their valuation for future raises, etc., etc.

Q: A virtuous cycle?

A: Yes, per your earlier Jigar Shah reference, he’s said that if you look at what Tesla, SolarCity, and Nest have in common, they were able to bypass the old, lethargic companies and go directly to the consumer. Well, likewise, LOHAS Capital is carefully selecting the next cleantech market sensations and positioning them for long-term success directly with consumers, through marketing savvy and superior data intelligence.  

In fact, we like to say, “We’re not just picking winners, we’re creating them!”

Brett:  Rick, this has been really informative. Thank you for your time.

Rick:  It was a pleasure. Thank you.