These are tough times for cleantech startups in need of capital. In the 2010 cleantech venture tally recently put out by the Cleantech Group, despite their positive spin on it even they had to acknowledge that Q4 was a second straight down quarter -- only Q1 and Q2 made 2010 look good. Heading into 2011, while I do think there will be a bit of an upward trend, there's little reason to think VCs are going to start pouring significantly more capital into the sector anytime soon.
So what is a cleantech entrepreneur to do, just fold up shop? Some will be forced to do so. Others will turn to alternative sources of funding (grants, NRE from strategic partners, or non-VC funding like angels and family offices). But for those out there looking at raising venture capital in 2011, I thought I would offer some words of advice.
This is all just one investor's impression of what will work overall, based upon lots of calls and meetings per week with entrepreneurs seeking funding. This list might be inappropriate for the specific investor you're speaking with. It might just be flat out wrong. Take it for what it's worth, food for thought.
1. Be prepared to hold a lot more meetings and take more time than you usually would have to
I've never seen such healthy dealflow as I do in the market right now. To the point where I just can't keep up with it, which is pretty frustrating.
From the entrepreneur's perspective this simply means more meetings and more time to get the deal done. Expect it, and plan for it. Start the fundraising process early.
2. Pre-qualify your prospective investors before spending too much time with them
With so many cleantech investors themselves short of capital, many just simply aren't in the market for new deals. But they can't say as much. So I hear a lot of investors say they have room for "one or two more deals" in their current funds. Some mean it. Others are just saying it, so that they have the excuse to keep seeing dealflow -- they need to show LPs they're seeing interesting deals.
Ask them if they're out raising a new fund. Ask them not just if they have dry powder for new deals, but what and when was the last new deal they did out of their fund. When possible, create a sense of urgency, a sense that the deal is moving somewhat quickly -- not so quick that you drive investors away unnecessarily ("we're expecting term sheets in two weeks!") but enough where you shake out the investors who simply don't have the bandwidth or fund situation to move quickly ("we're looking to bring in term sheets in about a month"). Be proactive about scheduling the follow-on meetings with a good pace to the iterations. If there's an investor you like and they just can't deal with putting out a term sheet in that kind of time frame, or keep up with once a week meetings, be respectful and understanding about it, but you might need to consider them more as a syndicate partner for the eventual lead.
For more tips on how to raise venture capital for a cleantech startup: http://www.greentechmedia.com/cleantech-investing/post/how-to-raise-vent...