This one’s going to be a little heavy on cheesy analogies, but bear with me. Sometimes that’s the best way to get the point across when talking about venture capital advice.
So, you’re a diligent founder and have done all the research on how to get the VC funding you need to get your concept and company off the ground. You might have even hired a coach to help you put your pitch deck together and do a lot of presentation role play. You even got a jacket that fits and a pair of shiny dress shoes. Now that you’re on the brink of getting that capital in your bank account, here’s some venture capital advice from an old VC hand — one that’s had a fair amount of success, but more importantly, a fair share of failures. And that’s how I’ve learned what not to do.
Sports analogy here: you dance with the one that brought you.
Except when you’re growing a company.
Did Doug Collins hesitate to put a rookie Michael Jordan in his starting lineup? Did the Bulls think twice about replacing Collins with Phil Jackson? Nope.
As your company matures, the hard reality is that your original team will not be up to the task of moving forward. The chances that your original engineer, the guy who actually built your concept model, will be your VP of Engineering when you’ve got a couple of hundred engineers on staff are relatively non-existent. Different phases of company development require different skills from your team, and you can’t let loyalty cloud your vision. Besides, your original engineer should have enough stock options to go back to his lab and tinker to his heart’s content.
Set Up Base Camp
People who train to climb Mount Everest are in it for the long haul, just like you are at this stage of growth. One of the fundamentals of that trek is setting up a base camp that’s as streamlined as possible.
Bring only what you need to run a lean and mean machine.
Raise just enough money and hire just enough people to get you to that first level of base camp, then stop and assess the best route up the mountain — i.e., rewrite and fine-tune your business plan. Your options change as you make that proverbial ascent. So after every round of funding, you should add only what’s necessary to move forward. Your VC becomes your guide, leading you through those down rounds and up to the summit.
The base camp approach lets you evaluate your progress as you go along, ensuring that your product will fit market demands at every stage of development.
Taking the Long View
Energy entrepreneurs aren’t like tech wunderkinds. As of yet, nobody has figured out a way to capture ocean currents in their dorm rooms. Because of that (and because energy isn’t sexy), founders in the energy sector are up against a harder wall than the guy with the hot new social app. Sure, your product can be a game-changer in that space, but the time to market (and to profit) exceeds the industry standard of 7.5 years. Think more in terms of a decade or so, which is longer than the life span of many VC funds.
Clean energy is nibbling at the heels of the behemoths. Think about how few real energy giants there are. These sleeping giants are slow to embrace innovation in general, so you must build your reputation before you approach them with your product or concept. You’ve got to prove that you’re in it for the long haul.
The point is that energy is not a fly by night technology, and your investors are looking for a profitable long term exit. These guys think in terms of decades, not months, so adjust your view to match theirs.
Pitch for the Stage You’re In
One of the advantages of the base camp strategy is that you aren’t building beyond your capacity and burning through cash with wild expenditures. And since you’re being prudent with your money and really thinking through what your needs are for subsequent funding rounds, you’re aware of the fact that you’re in a different place than you were in the seed round.
There are three fundamental stages for funding, and each has different characteristics.
The initial seed stage is all about your team: who are they? What’s their pedigree in the industry? What does your overall team look like? Remember, this is your first base camp — you’ve got plenty of time to stop and look up later.
The hallmark of the venture stage is that you’ve got some sort of working model to go along with the team you’ve built, but you aren’t ready for prime time yet. It’s a balance of the two. The big question looms over everything: is there an actual market for your product? Make sure your pitch deck reflects where you are as a company today, not last year or five years down the road.
Late-stage rounds focus on the growth of the company — your product is at market, and building out sales and rolling out for expansion. At this point, all the focus is on the financials — can your product reach enough customers to sell at a profit? — so your pitch should revolve around that.
Money Isn’t Real Until It’s in Your Account
So act accordingly.
You’d be surprised at the number of VC funds out there whose MO is to find great opportunities and THEN go to their partners to raise the money they’ve promised YOU. This can be tricky for founders since you’ve probably agreed to a non-compete in the term sheet. The easy way around this is to not agree to stop fundraising until the money comes through. If that’s a non-starter for your VC, it might be a good idea to keep pitching other funds.
The moral of the story is not to count your chickens. Most VCs are on the up and up, but there are those few who aren’t. Don’t spend any of that promised money until it’s in your possession.
Founders, Consider the Source of Your Venture Capital Advice
Nice coming from me, right? I’ve got pages and pages of venture capital advice for founders, and I’ve had my own share of failures. But the fact that I write about my failures makes me a different animal in clean energy startups; most VC funds who bomb don’t ever admit it. According to Charlie O’Donnell, founder and partner at Brooklyn Bridge Ventures, one of the problems within the VC startup community is that:
We sugar coat everything and we’re so super supportive of each other, we never hold each other to a high standard-making the difference between real success and mediocrity nearly indistinguishable.
I’ve found that putting my failures out there helps pinpoint where things went wrong, and if I’m smart, I learn how to do it better next time. I have had a number of successes, and I am bullish on the future. I believe we are on the cusp of an energy revolution, and I am here for that.
Be Strategic When Choosing Investors
Even in your early stages of fundraising, choose your investors wisely. Just because somebody is throwing a lot of cash your way does not mean taking it is a good idea. Why not? Because there are strings attached — that investor’s price for the money is probably a seat on your board, and they’ll be there for years. There is more to the relationship than investor/founder, and your values and goals need to line up with the VC. Get to know potential investors away from the conference table when everybody has their “let’s make a deal” game face on. Listen to their venture capital advice and how they handle problems. It’s worth the time it takes to have multiple meetings to gauge the mettle of your potential investors. Are they willing to help you out before you agree to the deal?
This is easier when you get to late stages, but it’s most worth it early on.
A Good Cultural Fit Isn’t Necessarily the Best Investor
We like to hire people like us — having the same cultural viewpoint helps build a great team.
Or does it?
What about opposing opinions and thoughts? What about diversity? In a startup environment, you really need a good balance of like-minded and differing philosophies. You’re the founder, and it’s your job to set the tone that defines the characteristics of your corporate culture. Identify the attitude you’re looking for at the start, and look for investors with that. Diverse backgrounds can share the same attitude, and that’s what you’re looking for. I will write a future narrative on culture, core values, and what really matters (vs. the hype you hear about inside of the ivory towers).
Polish Your Presentation Skills
If you can’t articulate your vision, then even the best idea on the planet is going to get a pass from investors. You have just a few minutes to sell potential VCs on your product or concept. You’ve got to hone your presentation skills and pitch deck so they’re hooked right away. Your coach should work with you so that you can make a winning pitch — skills like listening, asking questions, and going negative are key. Some sales training could be in order before you hit up a VC. This will help you with the initial pitch (which is really about yourself), fundraising, and customer acquisition.
And one skill that never goes bad is listening and keeping up with the industry. Founders, start learning about how VC deal terms are changing. VCs, let us know what else can make or break a startup on its journey up the mountain.
This article was originally published February 11, 2021 on KirkCoburn.