Are you ready to pitch your business solution to the climate crisis?
The Battle for Cleantech Funding
A recent spate of stories in green media suggest a second climate funding boom is in the offing for startups in the cleantech sector. It’s a nice change of pace after funding dried up for almost a decade after the first wave of cleantech investment in the aughts.
Although the curve for cleantech companies might not be as steep in the coming decade for reasons that run the spectrum from public opinion shifting on man-made climate change to maturing technologies, this cluster is still a harder sell for investors.
Cleantech Investing Is Still Risky
While times change, investing fundamentals about risk remain the same. The cleantech/climatetech industry is projected to be worth $4.3 trillion by 2030, which is more than any other sector. But it’s still a very different beast than software companies, where capital costs are practically nonexistent and startups can create a minimum viable product (MVO) in months. In cleantech, it can take 7 to 10 years to go from proof of concept to a scalable product with a reasonable profit margin.
When the prospect of positive cash flow is dubious and many years away, the stakes for an investor are high. Traditional venture capital firms often steer clear of the cleantech industry because they see the risk of failure as too high to justify. In fact, MIT even published a post-mortem on the cleantech industry in 2016 arguing venture capital simply doesn’t make sense in energy. Ouch!
What’s Driving The Carbon Free Second Act?
While the enthusiasm of the early 2000s, inspired by Al Gore’s book and documentary, An Inconvenient Truth, has long since dissipated, there are signs of a re-emergence. Philanthropists, family foundations and accelerators are stepping in to fill a void, and donations toward climate change mitigation have doubled since 2015. Some of those funds are getting funneled into supporting cleantech startups.
Living in the Pacific Northwest, I’m most familiar with the corridor of funds and foundations that run from the Bay Area to Vancouver, B.C., but similar clusters also dot the landscape in both Boston and Chicago where cleantech hubs already existed.
Attracting venture funding isn’t easy. You’ve got to make a credible business case because funds are limited, competition is tough, and only companies that are well-prepared stand a chance.
7 Questions to Ask
Regardless of whether the cohort model, philanthropic funding, or venture capital is right for your climate tech startup, there are seven questions you need to successfully answer before pitching your company to investors. The answers to all of these feed in to your overall brand strategy, market positioning, and revenue growth potential.
If you’re unsure what kind of funding best suits your need, I highly recommend you take some time to read a tutorial on different kinds of investing so you don’t burn up your limited time and capital
1. What is your unique value proposition?
You need to offer something that differs from existing technologies in the market. Understand your competition and be able to explain how and why your offering is unique. Commodity products don’t attract venture capital.
2. What problem are you solving?
If you can’t point to a problem that needs solving, you have a science project, not a company. Being unique and creative is not enough. Who are the people facing this problem? Is it a true pain point for them or a minor inconvenience? What’s preventing a solution?
3. Will people pay to solve the problem?
Unless the customer is motivated to solve the problem, there is no market for what you are offering. This is where urgency comes in. The more urgent the need, the more likely the customer will be inclined to pay to have their problem disappear. If you spell out the value your solution provides, you’ve also got a starting point for pricing.
4. Who is your customer?
Hint: it isn’t everyone, or even every company in the industry you’re targeting. The more precisely you can describe your ideal first customer, the better. Just picture one customer who needs your product and explain exactly how it will benefit them. Find more customers like them, and you have a promising business proposition.
5. What is your initial market and how large is it?
Although you may have grand visions of how your product can benefit a dozen separate industries or applications, this is not the time to indulge those fantasies. You need to pick one market and research it thoroughly. Understand the market size, the key players, and the growth potential.
6. What is a realistic ask from a funder?
You need to know how funding works to determine how much money to request and what to offer in return. Although philanthropic investors are sympathetic and want to help, they aren’t giving away handouts. They won’t fund a company unless they see a path to getting a reasonable return on investment (ROI). The funders aren’t being greedy — even philanthropies need to sufficient ROI to grow and fund more startups. How can you convince them that the risk/reward equation tips in their favor?
7. How will you survive the Valley of Death?
You need a long-term plan to bridge the so-called Valley of Death and translate your promising idea into a marketable product. How will you spend the money from this initial investment? How will you bring in your next round of money? At what point will revenue be able to offset expenses? Will you be returning in a year or two with another request to fund the same R&D projects or will your business have made progress that will attract additional funding?
All Details Make Jack a Dull Boy
One of the most discordant notes a startup can hit is D sharp, the “D” in this case standing for details, dull, and deadly.
When engineers and scientists communicate with each other, they typically default to how their invention works or what it does. And for other scientists and engineers, distinguishing details are the coin of the realm.
Not so with investors, especially in the cleantech sector. They are there because they want their money to do good while doing well. If you’ve hooked them on the business and environmental rationales, they’ll ask follow up questions or consult trusted scientists and engineers in their own circle to review your assumptions. Leave the equations at home along with your pocket protector.
Refine Your Pitch, Find Your Audience
Once you’ve formulated comprehensive answers to the questions above, you need to distill them down into tightly structured pitches.
Memorize three different pitches lasting two, five, and ten minutes. Why? Because like any showman, you have to be able to read your audience. You should be able to cover your main points in two minutes; the rest depends on the time you are allotted and the number of presentations an investor is asked to review at one sitting.
Over the years, I’ve reminded countless political candidates and cleantech founders that Lincoln’s Gettysburg Address was only 273 spoken words. Unless you are saying something more profound, why do you need more than that to communicate an idea?
Focus on the “why” behind your story and appeal to the mutual desire to solve an urgent need.
Research the Funders
How do you find potential funders?
Look for those with a track record of helping companies in your sector, be that transportation, construction, energy, food, water, or the circular economy. Hint: if the organization’s brand image resonates with you, that’s a good sign.
I’m particularly bullish on organizations that providing hands-on training to scientists and engineers on pitching a compelling business case to funders and connecting them with funding opportunities. Here are a few to consider.
Elemental Excelerator in Oakland, CA boasts a portfolio of over 100 companies. It welcomed its ninth cohort in October 2020, a group of 19 startups drawn from 800 applicants.
Greentown Labs in Boston calls itself the largest climate tech startup incubator in North America. It has raised over $1 billion in funding and supported over 280 startups with a survival rate of 88%. Instead of taking equity, the incubator charges monthly fees to members for lab and office space.
Clean Energy Trust in Chicago supports cleantech startups in the Midwest and has invested in 35 companies since 2014. Two-thirds of the companies in its portfolio are generating revenues.
Cleantech Open, headquartered in Los Angeles, is a cleantech accelerator with hubs in six regional locations throughout the US.
Cascadia CleanTech Accelerator, based in Seattle, offers a 15-week business accelerator program. Participants receive mentorship and access to funding opportunities.
Vertue Lab, based in Portland, OR, which works in conjunction with Washington’s CleanTech Alliance on the Cascadia CleanTech Accelerator, also runs a philanthropically supported climate impact fund.
Practice, Prepare, Repeat
You have a compelling story and solid data to back it up. You have researched funders and found one or more that are accepting pitches. One last piece of advice: persistence pays. I’ve never heard of a company founder making a single pitch who was then deluged with dollars.
The pitch is part of a process of building relationships and trust. Going back to the beginning of this piece, before an investor is going to blindly throw money on a risky bet that might not pay off for a decade, there will be plenty of probing on their part. Think of it like your annual visit to the doctor. Investors want to see your vitals over a period of time because one data point doesn’t tell a story.
So keep your cholesterol and blood sugar down, and exercise those pitch muscles every day.