Small companies, in general, must act quickly when an opportunity presents itself. Acting quickly, however, should not put the business at unnecessary risk. Our blogs on “Accelerating Growth and Impact” provide valuable insights for small but growing companies. This blog focuses on cleantech as an example, but the concepts apply to other sectors.
Why It Matters to Accelerate Investment
Cleantech companies dream of contributing to solving the world’s environmental problems. Early on, they must raise seed money to develop prototypes and explore proof of concept. Later, they need venture funding to scale up and take advantage of the opportunity – before a competitor does. Raising money can be slow and frustrating, but there are key actions that can simplify and accelerate the process.
Barriers and Risks for Small Business
Wrong investor. The major risk of moving too quickly is getting the wrong investor(s). The wrong investor may give bad advice, pressure the company to move too quickly, or create unnecessary stress. They may also have little to contribute other than money.
Smaller investment community for impact. The desire for both financial and impact rewards will naturally narrow the pool of potential investors. On the upside, these investors have a passion for solving real-world problems as they make money. Investors who have a strong belief in your vision can become true partners as you grow.
Accepting bad advice. A cleantech business needing additional funds may acquiesce to bad advice in order to receive the money. Sooner or later, this will destroy the soul of the business. Investors should share your vision and values, and be able to contribute expertise and connections.
Giving away too much equity. An aggressive investor may ask for too much equity early on. This will make it harder to raise additional funds later.
Strategy 1: Focus your efforts
Develop a focused plan for the next stage of your business. Identify a clear and realistic target market of a size that would be interesting to investors. Develop a strong understanding of your value proposition, with measurable benefits for your clients. Distill your plan into a simple, realistic, and easy-to-understand business model and presentation.
Identify potential investors who share your vision. Investors generally invest in businesses that meet specific criteria. These may include industry, problem-solved, size, and stage of the company. Identify investors whose criteria you meet – don’t waste your time trying to be all things to all investors.
Assign a full-time executive to seek investors. Seeking investment can become a full-time effort, particularly for later-stage investment. One senior team member should take on the role, including identifying prospects, pitching, follow-up, and tracking progress.
Strategy 2: Prepare early
The best way to accelerate investment is to be well-prepared beforehand!
Distill your story to the non-technical essentials. Focusing on non-technical essentials can be challenging for cleantech founders, who frequently come from a technology background. They’re excited about their technical discoveries and love to talk about them. Investors will be interested to hear about the technology – but only after they’re intrigued by the business opportunity and impact.
Absorb the financials and impact metrics. What assumptions are built into the financials? What scenarios might happen and how will you respond? How will you use the money you receive? What milestones do you expect? For cleantech, what measurable impact will your business generate?
Network for investors. Determine where your target investors hang out and get engaged. Identify prospective investors who might be a good fit and research them. Find ways to get on their radar and develop a relationship well before you reach out for investment.
Prepare for questions not covered in the pitch. Brainstorm additional questions that investors might ask. Practice your pitch with financial professionals and see what questions they ask. Prepare supporting slides (not part of the pitch deck) to cover some of the most common follow-up questions.
Strategy 3: 80% is (mostly) good enough
Be transparent with potential investors about gaps in your knowledge. Knowledge gaps should not be due to a lack of research! Investors understand that early-stage businesses evolve, and they rely on the management team to adjust and pivot. Admitting imperfect forecasting skills will help to develop trust. Identify key scenarios of the unknown, and how you might react.
Hire for key roles appropriate to your stage. Leadership team expectations differ based on the stage of your business. A best practice for early-stage tech businesses is to have a technical leader and a business leader. The key roles to fill depends on the type of business and may be reliant on additional investment.
Practice your pitch relentlessly – but not to perfection. There is a fine line between practicing your pitch enough – and too much. Your passion, confidence, and personality should shine through during the pitch. The material should be mastered, but a memorized pitch may come across as too robotic.
Strategy 4: Continuous improvement
Tweak the pitch. The pitch is at the center of the search for investors and should evolve as you give it. After each pitch, debrief and look for opportunities to improve. Where did the investor look confused or fidgety? Where did they look engaged? What piqued their interest? What was the response at the end of the pitch?
Evolve the business model. As you give your pitch, you will hear challenging questions. Consider what might be learned and determine whether you should evolve your business model. Be careful to evolve it for solid business reasons, and not because one investor wanted you to change!
Standardize. Look for opportunities to standardize repeatable elements of your investor outreach. Standardization cuts down on the amount of time to perform each task and allows you to repeat the task more frequently in a period of time. Use a CRM to track investors and save time.
Network for Investors. Notify the people in your personal network of your search for investors. Assess where you are receiving introductions and follow up on those threads.
First Steps to Accelerate Investment
These steps should be completed as part of early preparation – not when you’re desperate for more money!
1. Determine how much money you’ll need, and when you expect to need it.
2. Prepare a first draft of the pitch deck. Review and update it regularly. This can act as a North Star for keeping you focused.
3. Build an evergreen list of prospective investors and develop relationships with them.
Acknowledgment: I am thankful for insights provided by: Jim Jaffe, COO of Lionfleet.
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