CleanTech is a rapidly growing sector within the startup world with Beauhurst reporting that between 2020 and 2021 in the UK alone, over £945M was raised by CleanTech companies. Within this rapidly growing ecosystem, entrepreneurs see the chance not only to build innovative and profitable businesses, but also to change the world for the better. However, all too often, they get the fundamentals wrong at the earliest stages.
Below are five areas on which nascent CleanTech startups hoping to receive VC backing need to focus their attention:
The business behind the science
Right market, right solution, right team
Many of the most exciting startups are developed by academically brilliant people with significant technical and scientific expertise which they are bringing to bear within their chosen climate vertical. However, academic founders should remember that while they are recognised for their drive and technical expertise, they can’t do it all alone.
Scientific backgrounds are often paired with a lack of commercial experience. This is obviously to be expected, it would be very difficult to work on your MBA and your PHD at the same time. Founders are often (and rightly) protective of their product and try to keep their circle small but developing an MVP and commercialising it are two very different things. Founders should be prepared to onboard a team that can commercialise their product and take it to market. Business builders who want to see rapid expansion in the early years of their startup need to delegate business management and go-to-market plans to those with expertise in these fields.
When looking to raise, startups should remember that their product is only half the assessment made by those considering backing them. The rest is based on their commercial plan, a well-structured team and a willingness to be transparent and collaborative with investors.
The right team, whether it’s internal management or external advisors, is crucial. You need to be agile in your resourcing and recognise where key hires need to be made. If your product has been largely completed then is it necessary for the R&D and technical team to hold senior executive roles? Or would it be better to have commercially experienced personnel driving forward sales and business development. A good team, in my mind, is the best way to ensure that a great idea makes it to market and has the impact it should.
Data is everything
Advertise green credentials alongside or above financials, but keep them realistic
When approaching a potential impact investor remember that a compelling financial story is only part of the picture. If the VC is truly a sustainability specialist, then they will want to analyse potential climate impact as well as return, so don’t forget to demonstrate this upfront.
Speaking as the CTO of a climate-focused venture fund, I always like to see a demonstration of the potential carbon saving, avoidance or sequestration (depending on the project) within the opening slides of a presentation. It is also appreciated when startups can demonstrate an understanding of whether their impact is direct or indirect and can be honest about it.
Personally, one of my great frustrations is a pitch deck that inflates impact in an effort to look more sustainable. Remember if you are pitching to an impact investor, they will have detailed sectoral knowledge and be able to spot where your claims are implausible or in some cases, greenwashing.
Culture can make or break your startup
Even if you’re a ClimateTech startup, you can’t ignore the ‘s’ and the ‘g’
Many CleanTech startups seem to think that because the E in ESG is inherent in their business, they can ignore the S and the G altogether, but who wants to invest in a CleanTech business reliant on a toxic work culture? The companies that we, and I’m sure other impact-focussed VCs, invest in must demonstrate robust ESG practices across the board. Startups on both sides of the Atlantic all too often hit the headlines for the wrong reasons, be that eye-watering levels of employee churn or accusations of inappropriate workplace behaviour. In order to ensure that companies have the best possible working environments, we recommend using an ESG reporting tool to report on a variety of ESG metrics. Elbow Beach uses ESGgen’s platform to ensure we are held to the same high standards as the rest of the industry. This accountable and strategic focus on ESG should not only ensure the resilience of your business, but also enhance attractiveness to potential customers and top-level talent.