Recently, CleanTech News has had the pleasure of speaking with a variety of industry leaders in both the venture capital, and green investment spaces. Drawing on these conversations, our Finance Editor Camy Sandford has complied a raising guide for budding entrepreneurs based on advice imparted by some of the best in the business.
When do I approach?
Beginning at the start of the investment process, many founding entrepreneurs struggle to determine the point at which they should start raising capital. Is my product developed enough? Is my team ready? Is the market where I want it to be?
These undoubtedly remain difficult questions, and this guide can by no means provide a universal answer.
However, in an interview with CleanTech News, Daniëlla Vellinga, Senior Investment Associate at the Rabo Food & Agri Innovation Fund, was quick to stress the importance of seeking investment in the early stages of development.
In fact, she encouraged entrepreneurs to take advantage of the time afforded to many in the wake of COVID-19 to do so, maximising start-up potential. Therefore, for entrepreneurs starting to explore their options, think about raising sooner rather than later.
Who do I approach?
For entrepreneurs who have made the decision to actively seek investment, across the board firms stress the importance of selective applications.
“They have loads of deals coming at them from a variety of sources. One of the reasons I feel that Greenbackers has been successful is because we’ve been very careful on how and when we approach investors and they appreciate it, so I would suggest founding entrepreneurs, whether they’re using an advisor or not, should do the same.”
“It’s always important to seek the right investors, and the right investor group – and I think now it’s even more important,” said Vellinga, echoing Hokin’s sentiments.
“Don’t send an automated email to 100 people, that’s not going to work. Try and get a warm introduction from someone you know and do your homework – make sure they’re the right fit.”
“Leverage your network, it’s much easier. Everyone knows that, but I think the reason it doesn’t happen as much as it should is because people are afraid to ask for introductions. So, be forward about asking for introductions, and if it’s not the right fit for one investor they will probably know a host of others who would be interested in the deal.”
“Above all, do your homework,” Hokin concluded, “especially on the investors before approaching, and surround yourselves with the best business and strategy advisors you can afford.”
What are VCs looking for?
When approaching investors, it’s also crucial to understand what they’re looking for in order for your pitch to have the highest chance of success. Although again this question has no conclusive answer, Barry Eggers, Founding Partner at Lightspeed, shed some light on his key criteria in a fireside chat with Plug and Play.
According to Eggers, the most important aspect he looks for in a potential opportunity is the team. An experienced team is the most valuable part of the company, as in venture capital “the company takes twists and turns, and the team is the one that has to navigate that.”
Crucial to this are individuals who have both EQ (emotional quotient) and IQ; who can communicate, collaborate and understand while also having a high level of intelligence.
Market opportunity is the second most important, representing an area Lightspeed devotes a lot of time to understanding as to be successful it has to be able to get grow overtime.
The product itself comes third, as it is the element that often pivots and changes the most, with the go-to-market strategy coming last, as it evolves after an understanding of the customer.
What should my Pitch Deck look like?
“I think a lot of content is moving towards video and audio, so at the very least I would suggest any pitch deck should have an audio recording,” Hokin said.
“This might be being driven by crowdfunding platforms which are very content-rich. I think a lot of lessons can be learnt from crowdfunders for larger raises.
I think ultimately, it’s about communicating many elements: what their value proposition actually is, the team, the addressable market, why the solution is going to work, how they know, how they validate, how they make or will make money. For investors, it’s all about understanding and mitigating risk so entrepreneurs need to be conversant with how the business plan will be risk managed and risk minimised.”
“Be ultra-transparent,” Durham said, emphasising the importance of an honest pitch. “Everyone likes to skew traction and write a narrative that serves them well, but be real about where you are in your journey. It’s just going to help your case in the long run because a serious investor is going to dig into the company, and will have questions which you can either address upfront, or make the investor address themselves.”
Advising female entrepreneurs specifically, Vellinga adds:
“What we see is that a lot of female entrepreneurs struggle to get funding, and there are several reasons you can think of as to why that happens – of which one is that there are a lot of investors that have male employees or male partners, and I think there is wide evidence that we are biased towards people who resemble ourselves.
I think female entrepreneurs aren’t as good at saying to the world what they accomplished – we’re always sort of modest in a way. I think it’s really important to show the world what you can do and what you can offer.”