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Greenbackers Inside Track: Do’s and Don’ts of Raising Climate Tech Venture Capital

While there seems to be more capital available than ever in the climate arena, the majority of businesses still struggle to access it. Greenbackers Managing Partner, Robert Hokin, shares some top tips in how to stack the deck in your favour.

Unfortunately, there is no sure path to getting an automatic ‘Yes’ with term sheet back from investors during your pitch and, more importantly, through the due diligence process. For one thing, there is fierce competition out there for funding. And effectively communicating the problem you are solving for consumers and creating value for investors may not always be an easy task, especially for a very technical solution, pitched at non-technical funders. BUT there are four simple Do’s and Don’ts that may help increase your chances of making a successful investment case and stack the deck in your favour.

Do’s for Raising Capital

  • Start the conversation early. Even if you think your company is too early for a specific investor, it is never too soon to get to know them. This may even work in your favour as funds evolve their strategies and look to deploy capital at new stages, via new structures and across new verticals.
  • Openly admit your program’s weaknesses. It is a sign of integrity to identify and communicate areas for improvement in your team or business. Also, demonstrating the commitment to address these weaknesses by looking for or identifying partners that can shore up areas where you may fall short or are not as strong as you need to be is a positive signal that you have what it takes to lead the business at every stage of its growth.
  • Involve your team in the fundraising process. A founder that tries to answer every question on his or her own can raise red flags with investors. VCs are looking to work with individuals who have the power to lead, leverage the expertise around them and surround themselves with experts. While it’s not expected for a founder to know everything, the ability to know how to leverage teams, advisors, consultants and even investors to fill in the gaps really matters. Hearing a founder say, “here is the short answer, but let me get you on a call with our head of operations to walk through this one,” builds trust and confidence.
  • Ask questions of your prospective investor. You should query any and every investor you speak with about their investment philosophy and strategy. It shows that you care about more than just the money. Many brands attribute their success to the ability to tap into the resources and expertise of their investors across every aspect of the company’s growth – from recruitment and operations to marketing and the sales process. (Also click here for some very focussed questions to ask!)

Don’ts for Raising Capital

  • Don’t let valuation get in the way. In the initial stages, valuation should rarely be part of the conversation. It is okay to have a low valuation when you are just starting out. You will grow into the valuation you are aiming for when the time is right. While we may be seeing mega-rounds for businesses that have less than $5 million in sales, it is never a good idea to take a larger amount of money than what you really need. A $10 million financing round is unnecessary for a small business – especially one at the earliest stage. Starting too high could also mean you will have to eventually take a step back. This is worse than taking small steps up, one at a time.
  • Don’t present from a slide deck on an introductory investor call. This may seem counter-intuitive, but engage in conversation first. It is an important first step to get to know your potential investor and vice versa. Founders who dive right into their pitch deck on the first call often leave me wondering if they even are interested in getting to know me, our program and how we can help them. They spend the entire time talking about themselves and their company. Instead, it would serve them better if they were able to open the discussion up to a two-way dialogue from the very start. Learn from this!
  • Don’t go too broad. Instead, focus on going deep. This means being clear and focused about your growth philosophy. Demonstrating sell-through is much more important with what you are currently bringing to market. Start with one brand, one product category and one target consumer until you have meaningful traction (and sufficient capital) to extend into new categories and new target markets. The ‘one-step-at-a-time’ approach is music to most funders ears.
  • Don’t start a company with the idea of selling it in a few years. Instead, be more purpose driven. Ask yourself, why do I want to do this? If the answer is ‘Because I want to exit within a few years,’ then there is not enough motivation for you to be successful. When you are meeting with potential investors, they will see through this. VCs typically look to invest in founders that are not afraid of the long haul. So, your focus should be on gaining significant, sustainable market traction, improving the lives of your clients, and, in doing so, naturally driving success for yourself as well as your employees, investors and suppliers.

These are just a few of a myriad of things you need to keep in mind when you go into fundraising mode. Do feel free to get in touch with us here at Greenbackers Investment Capital if you would value some dynamic support for your next fundraise. Our mission is to accelerate equity capital flows into the climate space. By providing a secure, deal-sharing program to streamline the origination process and increase efficiency for investors, we have now 300+ funds participating on the platform. We’re here to help!

2 June 2022