Raising growth capital for your climate tech venture this year? Think your business is a slam dunk for funding because climate is becoming a hot investment category? Think again. It’s no easier than it ever was. Here are some thoughts from Greenbackers Founder and Managing Partner Robert Hokin – some which might make you a little uncomfortable – and if so, good!
There are few things more powerful to me than the passion and vision of a climate entrepreneur. But when trying to raise venture capital, passion and vision are just not enough. You need to nail the key criteria that venture capital firms use to decide which companies to fund – and believe me, they have many choices in todays marketplace.
Many VC firms and corporate investors have very narrow criteria: Specific technologies at specific stages in specific geographic regions, minimum and maximum cheque sizes. Others have broader criteria and invest across many technology sectors and geographic locations. Nearly all investors, though, look for certain critical factors in an early-stage companies.
If your start-up meets these following criteria, you might just be ready for venture funding. If it doesn’t, you’ll probably receive a polite note wishing you best of luck, but passing on your opportunity. Just because your program is helping the planet, doesn’t make it an automatic yes.
1. Compelling Value Proposition
Of course, every entrepreneur thinks that his or her idea is compelling, but few pitch decks that we see at first pass here at Greenbackers present ideas that are truly unique. It’s very common for investors to see multiple versions of a similar or the same idea over the course of a few months or years. What makes an idea compelling to an investor is that it reflects a deep understanding of a big problem or opportunity, and it offers a solution that delivers extraordinary benefits to customers. This is the key starting point for getting venture investors interested, but it is not the whole story. The idea by itself does not make you fundable. You need the rest of the ingredients to make yours stand out.
2. Solid Team
You may have a great idea, but without a strong core team, investors are unlikely to bet on your company. This doesn’t mean you need to have a complete, world-class team. Startup founders need to have the skills to launch the company and the ability to attract a world-class team to fill missing gaps. A lone entrepreneur, even with all the passion in the world, will never be enough. If you don’t demonstrate that you can, will and are able to build a high-performance team, investors will move on.
3. Market Opportunity
If you are focused on a product/market opportunity that is not technology-based, then you probably should not be pursuing venture capital, at least not via Greenbackers. Venture capital is typically focused on businesses that gain a competitive edge and generate rapid growth through technological and other advantages. Avoid market sectors that are already saturated. Show that you have a beachhead market that you can win, and then scale from there. Contrary to popular belief, it’s not about how big the market is; it’s about how much value you can create. Companies that create a lot of value grow their markets and dominate them.
What makes your technology so great? The best answer is: “There are plenty of customers with plenty of money who want to pay to have it.” Not: “it’s cool.” Assuming you have a technology advantage right now, how are you going to keep it over the next several years? Patents alone won’t do it. You need to be able to convince investors how will be able to stay ahead of the curve because of the unique talent or exclusive partnerships you have secured.
5. Competitive Advantage
Every interesting business has real competition. Competition is not just about direct competitors. It includes alternatives, “good enough” solutions as well as the status quo. You need to convince investors that you have advantages that address all these competitors, and that you have some form of “unfair or unique” advantage that will enable you to sustain your competitive advantage over several years. A few years ago, entrepreneurs could get away with saying that the existence of competition validates their solution, but today you won’t get away with it.
6. Financial Projections
If the idea of developing credible financial projections makes you wince or wail, then you are not an entrepreneur and you shouldn’t ask investors for money. Your financial projections demonstrate that you understand the economics of your business. They should tell your story in numbers: What drives your growth, what drives your profit, and how your company will evolve over the next several years. Make sure you base your projections on reality; research industry benchmarks and similar companies that have gone before and avoid presenting projections that you can’t validate.
Do you already have strong validation from paying customers? Or is there at least good evidence that your solution will be purchased by your target customers, i.e trials or Letters of Intent? Do you have an advisory board of credible industry experts? Do you have a credible development or distribution partner within the industry? Do you have satisfied beta customers to whom investors can speak? The more credibility and customer traction you have, the more likely investors are going to be interested.
Good grades matter – so do your homework
Securing venture funding means that you need a good grade in all seven areas, and an A+ in at least a couple of them. No matter what the headlines and newsfeeds say, it’s tough to raise venture capital.
You are competing with a lot of other talented entrepreneurs to get the attention of a limited number of qualified venture capital investors. You can’t be just as good as anyone else; you must be MUCH better than everyone else to get a venture capital firm to fund you. So do the work, show that you understand what it takes to build a successful company, and that you excel in each of those critical factors mentioned. Greenbackers may be able to help.
At Greenbackers Investment Capital, we help and support all visionary, passionate entrepreneurs everywhere.
Greenbackers mission is to connect professional investors to climate tech ventures (and all related subsectors) globally. Operating from London, Glasgow and Houston, we bring together institutional funders (VC, Corporate Venture, Impact funds, Investment Banks, development funds, Angel syndicates etc,) to curated and investment ready deal flow via an invitation-only “consume-on-demand” online platform, The Greenbackers Investment Showcase, for Seed, Series A, B & C.
Our goal is to industrialise capital flows into the climate space. We firmly believe that our secure, deal-sharing platform streamlines the origination process and increases efficiency for funders. So do the investors participating. We currently have 275+ professional, institutional funds already engaging.