3 keys to attracting investors that support your green startup
Entrepreneurs of green startups are especially excited when we reach the point where we can grow. It demonstrates that our initial idea has been well-received, our team is working together dynamically, and the company is receiving positive feedback from the media and the entrepreneurial community. These signals confirm you can start looking for capital or other financing and transform your startup into a company with exponential growth.
The hunt for venture capital, however, is no mean feat in today’s economic climate. This year, the markets experienced a slowdown of 20 percent. Unfortunately, the current investment winter is hitting startups advancing green and environmentally friendly practices as well.
With most deals going to high-emission companies, it’s time for green startups to think more strategically when building their investor relationships. I myself spent months looking for the best investment partner for my food tech startup — and it wasn’t easy. So, to help others strengthen their funding journey, I’ve put together three tips that can help green entrepreneurs attract venture capital.
1. Understand the difference between climate vs. value-based investors
Most green startups will think of climate investors when they want to scale their businesses. These investors seek to generate both a financial return and a positive, measurable environmental impact through their investments. Their funds have very prominently supported startups such as Global Thermostat and promote climate change mitigation and adaptation.
Looking at the fine print, you’ll quickly notice that it might not always be smart to put all your eggs into the baskets of those specialized investors. During my journey, I experienced little interest from climate investors and all the more excitement from conventional investors. Why? Because climate investors have pre-defined metrics and strict investment theses that don’t fit all companies and industries. Most of these investors meticulously measure carbon emissions, pollution, carbon reductions and overall impact on climate, thereby hunting for energy and renewable resource solutions first and foremost. As a result, many startups with a great green vision, but less of a climate focus, might seem marginal to them. Climate investors might also have little interest in consumer industries such as food, commerce or logistics.
If you’re keen on connecting with conventional investors, remember their main criteria is profitability. Your climate impact is a nice-to-have and crucial for investment decision-making, but without showing convincing business metrics — including go-to-market strategy, revenue predictability and marketing forecasts — you won’t draw conventional investor attention.
2. Diligently collect evidence that you can scale
Investors aren’t interested in keeping a business afloat. Their goal is to grow their capital by investing in your industry. So before turning to investors, collect enough evidence showing you can survive without investments. If that’s the case, you’re at the point where you can scale. Present yourself to investors with a concrete business plan on how to achieve this growth in a short time, and they will welcome you with open arms.
Before meeting investors, you need to put together all material, current market statistics, potential market outlooks and predictions. The more insights you have into your drivers of growth (for example, which area you need to scale to achieve desired outcomes), the better. Let’s say your goal is to expand your product portfolio geographically and enter a neighboring country’s consumer market. You’ll need to clearly define how many local experts you will hire, whether your technology is apt for an exponential sales increase or requires new engineering, and know about costs of market entry, as well as sales distribution abroad.
It might not always be smart to put all your eggs into the baskets of specialized investors.
I also advise you to not only learn about your business metrics but also to study and understand what investors are looking for when making an investment decision. Talk to their portfolio companies before meeting them and ask about their personalities, visions and how they’ve managed funding before. This will allow you to empathize with their goals and present the right arguments and numbers when pitching your startup.
Finally, regardless of whether an investor has an impact mandate: They’ll invest if it’s profitable. Remember, if your impact isn’t scalable, you not only won’t find investors, you also won’t have the impact you envisioned.
3. Explore the art of valuable networking in a hybrid world
Networking has always been key to connecting with investors but due to the pandemic, building personal connections isn’t as easy anymore. As much as the internet allows us to collect a broader range of contacts, these connections are often much looser when compared with personal ones.
As a result, you need to be strategic. Start with building an active LinkedIn community. This helps expand your network, receive advice on funding opportunities from other entrepreneurs, and strengthen your messaging about your purpose and business. In addition, because LinkedIn is a community network, I advise you to contribute to conversations, share and discuss opinions, and also start a conversation about important topics (both entrepreneurial and “green” topics). Many LinkedIn groups focus on green startups, innovation and sustainability, and your presence in those spaces will open new doors to funding opportunities.
When reaching out, building entrepreneurial contacts comes first. This allows you to learn from their business and funding paths, and follow them closely with their help. For example, when we received our initial funding, we had networked with all our investors through companies they had already been in contact with, and we already understood what the investors were looking for ahead of our first pitching session.
To do so, be upfront and ask your contacts: “Who is the next person you can introduce me to?” or “Who would be interested in hearing my story?” People love to build a network. They just need a little nudge in the right direction.
Now, even if you know 1,000 people, the key to winning them over as ambassadors is the quality of your relationship. Almost 100 percent of professionals believe that face-to-face meetings build stronger long-term relationships. So you need to try building a similar personal connection to face-to-face in a hybrid world.
How? I’ve watched many people build purely transactional relationships. Still, in my experience, the emotional aspects of networking — adding value with advice, interactions, information exchange, support to what they are doing, and engagement on multiple levels (professional, personal) — are essential to building lasting relationships.
Show that profit and purpose go hand in hand
The hunt for capital has undoubtedly become more complex. This doesn’t mean giving up, but instead multiplying your efforts. It will be much easier for green startups to look more broadly across the investor landscape. As more traditional investors seek to have an impact and expand their profit, green startups can take advantage of this opportunity. I can’t emphasize this enough: If you want to have a big impact on the world, the key is scaling your business. And this is where you must create synergies with traditional investors on the profitability of purpose.
[Want to learn more about entrepreneurs with innovative technologies, products and services across the climate tech landscape? Check out the VERGE 22 Startup Program, taking place in San Jose, CA, Oct. 25-27.]