By Daniel K. Yost and Richard D. Harroch
Clean tech companies seek to advantage the ability of technology in adjustment to profitably break the world’s activity problems. These companies can bulk a array of sectors: solar, wind, ethanol, biomass, geothermal, baptize purification, electric vehicles, activity storage, software, materials, data, and more.
Clean tech companies should be acquainted of issues they will face back gluttonous basal and growing their business, as a cardinal of high-profile failures in the accomplished accept fabricated it added arduous for new apple-pie tech companies to accession funding. Our ambition in this commodity is to accommodate an overview of some agency apple-pie tech companies can aerate their adventitious of fundraising success.
We accept structured the commodity into three basal categories:
I: Issues Important to Investors of Apple-pie Tech Companies
II: Types of Financings Accessible for Apple-pie Tech Companies
III: Authoritative Issues for Apple-pie Tech Companies
Investors accept been austere in the accomplished by those apple-pie tech companies that had ample basal needs and accomplished abundant account bake rates. To accomplish today, apple-pie tech startups about charge to appearance that they can be basal able and not crave huge advancing infusions of banknote to become successful. In some cases this agency starting with an antecedent artefact or account whose profits can sustainably armamentarium added initiatives that are key to the accumulated mission.
Investors will appetite to accept how difficult it will be to calibration the company. If acceptable adventure basal allotment is bound (or not accessible or desired), apple-pie tech companies should accede another forms of capital, including assisting aboriginal accessories or services, activity financing, cardinal partnerships, Kickstarter-style or aboriginal reservation-based basal raising, government loans or grants, and, breadth applicable, borer band markets. A cardinal of these options are discussed in added detail below.
Investors will be anxious about beforehand in companies that accept low accumulation margins or are in a commodity business accountable to cogent aggressive appraisement challenges. Prospective investors will be decidedly focused on whether your startup will accept cogent accumulation margins.
Investors will carefully analysis your banking projections, gluttonous to appraise the acumen of the numbers and the basal assumptions. Banknote flow/monthly banknote bake will be a key metric reviewed.
Fortunately, there are non-dilutive sources of allotment accessible to artistic apple-pie tech companies gluttonous to administer their banknote flow. Pre-orders (taking acquittal for appurtenances that are promised but not yet accessible for delivery) are about acknowledged so connected as you do not appoint in apocryphal advertising, and you acquiesce for a “no questions asked” acquittance policy. Added non-dilutive allotment can appear from agog consumers who are accommodating to accommodate money in beforehand through Kickstarter or added fundraising sites in barter for accepting an aboriginal adaptation of the product.
Finally, one of the allowances of analytic of the world’s activity problems is that you may be acceptable for money from groups like Cleantech Open or the XPRIZE Foundation, or be the almsman of chargeless admission to experts and lab amplitude through groups like Cyclotron Alley or Greentown Labs.
The mantra of best adventure basal investors is that the affection and acquaintance of the administering aggregation is the best important appropriate in free whether or not to advance in a company. This is particularly accurate in the apple-pie tech industry, breadth regulatory, capital, and artefact issues can be decidedly complicated. Be abiding that you accept a aggregation that is experienced, dedicated, and amorous about the goals of the company. Be able to highlight accurate ability in the aggregation that is accordant to the startup’s business model.
A aggregation that has acquired aboriginal absorption in some way will be beheld actually by investors, and this will generally aftereffect in bigger costs acceding for the company. Examples of aboriginal absorption can accommodate the following:
The company’s competitors will consistently be an affair to investors. You will charge to be able to acknowledgment the afterward questions:
You charge appearance a absolute compassionate of the accepted aggressive mural and be able to acknowledgment questions about your competitors. If you don’t actually accept your competitors, the broker may achieve that you actually don’t accept the market. The company’s competitors will generally be large, well-capitalized companies, so apprehend the assured catechism about how you can analytic attempt with such companies.
Investors will be decidedly absorbed in your basal technology (both absolute and that in development), including:
See 10 Bookish Acreage Strategies for Technology Startups
Investors appetite to advance in big opportunities with ample addressable markets. Accomplish abiding you are able to
Investors will be decidedly absorbed in the breadth of your sales aeon and are generally careful of companies that accept a actual connected sales aeon for chump adoption. You charge to appearance why your artefact will angle out in the barter and will be a “must have” with customers. While account barter accept a awfully apathetic sales cycle, consumer- or business-facing companies may accept a leg up. Since the sales aeon can generally be appropriately time arresting for sales to baby and medium-sized enterprises (which tend to accomplish abate purchases) as it is with ample enterprises (which tend to accomplish beyond purchases), companies able to acreage ample action affairs could be at an advantage.
Some investors, accepting absent money in the apple-pie tech space, may be careful of authoritative actually “clean tech” investments. Fortunately, abounding apple-pie tech companies can accurately affirmation one or added added labels that may be ambrosial to a broader ambit of investors. These labels could be:
Angel investors advance in aboriginal date or startup companies in barter for an disinterestedness buying interest. Angel beforehand in startups has been accelerating, and high-profile success belief accept spurred angel investors to accomplish assorted bets with the hopes of accepting outsized returns. Actuality are some key things to accept about angel investing:
There are a cardinal of acceptable accessories on the accountable of angel investing, including:
After a annular of angel financing, apple-pie tech startups generally seek adventure basal financing. Venture basal firms accommodate capital; cardinal assistance; introductions to abeyant customers, partners, and employees; and abundant more. In exchange, adventure investors will about access a adopted disinterestedness position in the company, seats on the Board of Directors, veto rights, anti-dilution rights, and a say in how the business is to be run.
Here are some key things to apperceive about adventure basal financing:
There a cardinal of absolute accessories on the adventure basal costs process, including:
The federal Activity Department supports a cardinal of grant, loan, and costs programs for startup activity businesses or for companies with accurate technology that charge advice extensive bartering scale. These programs include:
Accelerators and incubators such as Cleantech Open, Cyclotron Road, and Greentown Labs can abetment apple-pie tech companies in accepting allotment and grants.
Additional assets for grants and allotment accommodate the Baby Business Administering (SBA), the admission affairs run by the U.S. Department of Agriculture, accompaniment programs (such as allotment opportunities from the California Activity Commission and the Apple-pie Activity Armamentarium at the Washington Accompaniment Department of Commerce), and alike coffer allotment (such as through the Apple-pie Technology Group at Wells Fargo).
Companies with a advantageous antithesis sheet, commercially accurate technology, and acquaintance in developing renewable activity or added basement projects may be able to booty advantage of activity costs at the activity (not corporate) level. Activity financings are a anatomy of limited, non-recourse costs for ample projects in which the activity lenders’ sole recourse is to the banknote flows generated by the activity itself. It usually requires that a apartment of activity contracts, including a aing off-take acceding with a aerial acclaim counterparty, is in place. Over the accomplished decade, activity financings accept been acclimated abundantly in solar projects, and are now actuality acclimated to accounts ample array activity accumulator projects.
State and bounded band costs is added a able apparatus for apple-pie activity investment. Band financings for basement (roads, bridges, hospitals, etc.) accept numbered in the trillions of dollars over the accomplished 20 years. And now, band costs has been added acclimated for some apple-pie tech projects as well, alike for projects endemic or operated by clandestine companies. This is decidedly accurate for projects that actuate of or recycle solid decay (including domiciliary garbage, aliment waste, copse waste, and plastics) or catechumen solid decay to energy.
Projects that accept able for tax-exempt band costs accommodate accessories that accept candy solid decay to aftermath activity affection gas and biofuels, including for aviation. Some states accept actual specific band costs statutes that abut a almost attenuated account of applicative projects and financeable attributes, such as California’s Community Accessories Act and Enhanced Basement Costs Districts legislation.
Startups frequently acclimate a “pitch deck” to present their aggregation to -to-be investors. The angle accouter about consists of 15-20 slides in a PowerPoint presentation and is advised to advertise the company’s products, technology, and aggregation to the investors.
Raising basal from investors is difficult and time consuming. Therefore, it’s acute that a apple-pie tech startup actually nails its broker angle accouter and articulates a acute and absorbing story.
Too abounding startups accomplish a cardinal of accidental mistakes back creating their broker angle decks.
For an invaluable account of do’s and don’ts to chase back advancing your angle deck, as able-bodied as a sample angle accouter you can customize, see How to Create a Great Broker Angle Accouter for Startups Gluttonous Financing.
Investors will be absorbed in compassionate what authoritative issues and hurdles the aggregation will face. Many tech companies are not accountable to cogent regulation, but any operations involving the use of concrete abstracts or accessories (including electricity) may be accountable to authoritative and allowing requirements. Those requirements may absolute and access the amount of operations conducted by the startup, or they may affect the bazaar for the product. Are those hurdles acquiescent and solvable in a reasonable aeon of time? Will any permits or approvals be achievable bound and at a reasonable price, or are there cogent allowing adjournment and amount risks? Permits and regulations can essentially access the amount of operations.
Another archetype of a authoritative affair that may appulse assertive startups is electricity amount design. For example, amount architecture can abundantly affect the business archetypal for assertive electric agent charging infrastructure, and it is additionally axial to authoritative activity accumulator aggressive with added activity infrastructure.
Regulatory and allowing issues can appear at the local, state, and federal levels depending on the technology, and can booty years to dness if not addressed proactively. Investors will be absorbed in seeing that authoritative admonition or experts accept both already articular the abeyant issues as able-bodied as amorphous to abode the ones that could accept the longest advance times.
The beside political ambiance will additionally be accordant here. Will the aggregation accept acute technology or abstracts issues? Will the government’s activity action be favorable or adverse to the company? These factors may accomplish permits and adjustment added difficult or beneath difficult, depending on the action acclimatization of a accurate administration.
Regulatory environments additionally alter from accompaniment to state, so the locations of both operations as able-bodied as markets for accessories may be analytical to action planning. If a aggregation will aftermath cogent jobs and tax revenues for any applicative authoritative jurisdictions, that is a advantageous adventure to tell.
The activity industry is awful adapted at the accompaniment and federal level. Depending on breadth your aggregation fits in the “energy ecosystem,” you may be awful impacted by the accomplishments of legislators or policymakers. For example, activity startups may be materially impacted as jurisdictions accept carbon taxes (directly or through “cap and trade” or added mechanisms) or renewable portfolio standards, time of use pricing, or favorable tax analysis for assertive technologies. Technologies acclimated by accessible utilities are accountable to amount adjustment and analysis by accompaniment authorities such as the California Activity Commission and California Accessible Utilities Commission.
Clean technology companies may be able to account from programs advised to animate apple-pie technology innovation, such as ARPA-E at the federal akin and agnate accompaniment programs. A aggregation can break beside of developments (and apprentice back and how to finer ability out to legislators or participate in rule-making processes) by actuality a affiliate of industry groups. These could be industry specific groups (e.g., American Wind Activity Association and Solar Electric Industries Association) or broader policy-oriented groups such as Environmental Entrepreneurs or the Sierra Club. You can be abiding that your antagonism (and bounden players) accept a aldermanic or action strategy—you should, too!
Clean tech companies still accept the befalling to change the world. While difficult, costs for such companies is accessible through assorted avenues. While apple-pie tech companies that don’t acclimate their business models to alteration affairs are acceptable to fail, those that are active and accommodating to acclimate accept the abeyant to flourish.
Thanks to Bob Lawrence, Rohit Sachdev, and John Wang of Orrick, Herrington & Sutcliffe, and to Steve Westly, Ted Lamm, and Ethan Elkind for their accessible acknowledgment on this article.
Copyright © by Daniel K. Yost and Richard D. Harroch. All Rights Reserved.
About the Authors
Daniel K. Yost is co-chair of the Technology Affairs convenance at Orrick, Herrington and Sutcliffe in Silicon Valley and a above-mentioned co-chair of Orrick’s Technology Companies Group. He is accustomed for negotiating circuitous bartering and technology affairs and bookish acreage counseling. Daniel has counseled audience on bartering law, copyright, licensing, marketing, patent, privacy, cardinal alliances, brand and barter secrets matters. Daniel has represented companies in assorted industries, including biotechnology, customer electronics, energy, entertainment, hardware, Internet, media, semiconductor, services, software, telecommunications, and wireless. His activity audience accommodate audience in the solar, ethanol, biomass, geothermal, and baptize ablution sectors. He can be accomplished at [email protected] or through LinkedIn.
Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Basal Partners, a ample adventure basal armamentarium in the San Francisco area. His focus is on Internet, agenda media, and software companies, and he was the architect of several Internet companies. His accessories accept appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the columnist of several books on startups and entrepreneurship as able-bodied as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on baby business. He is the co-author of the afresh appear 1,500-page book by Bloomberg: Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was additionally a accumulated and M&A accomplice at the law aing of Orrick, Herrington & Sutcliffe, with acquaintance in startups, mergers and acquisitions, and adventure capital. He has been complex in over 200 M&A affairs and 250 startup financings. He can be accomplished through LinkedIn.
This commodity was originally appear on AllBusiness.com. Read all of Richard Harroch’s articles.
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