Three investors whose organizations are active in the energy transition and have made major investments in Greentown Labs member companies joined the community in April to discuss venture capital, how it can offer strategic value to startups, and how entrepreneurs can seek this type of funding during the current economic downturn.
The panel featured Dan Goldman, co-founder and managing director at Clean Energy Ventures; Grant Allen, general partner at Schneider Electric, SE Ventures; and Shayle Kann, managing director at Energy Impact Partners.
Here are the top takeaways for startups:
How can founders gauge the strategic value of a potential investor?
Strategic value is a way for venture capitalists to differentiate themselves by offering connections to big corporations, helping develop a startup’s strategy, and much more, according to Kann. But he cautioned that startups should make sure potential investors have a plan to make good on their promises of strategic value.
“You should try to vet, ‘What exactly is the strategic value that this investor can deliver to me and to my company? What value will that hold for us? And do I think that they’ll deliver on it?’” he said. “The early conversations you have with an investor are mostly you convincing an investor that you’re a good investment. The further you get along, the more you can start to open up the questions of ‘Well, why are you a good investor for me?’”
Kann said the companies who ask his team these questions tend to end up getting the most strategic value out of their investments because they prompted Energy Impact Partners to think deeply about how to offer more than solely a financial benefit.
The panelists also recommend asking to speak with other CEOs from an investors’ portfolio to learn how they’ve gotten strategic value from the firm post-investment.
What does the current crisis mean for startups seeking investment?
Goldman underlined that investments are happening, but on an elongated timeline, and that there’s a large ecosystem of cleantech investors. Allen recommended framing your product as “Aspirin, not vitamins” during this time if possible, meaning it’s better to highlight an urgent need rather than offering a longer-term solution.
The panelists also suggested returning to investors who you’ve spoken with in the past—while live technology demos and face-to-face meetings are ground to a halt, an investment is more likely if the investor’s already familiar with your company.
“Go back to everyone you’ve ever talked to,” Kann advised.
The pervasive uncertainty surrounding this crisis is requiring startups to do more planning for different economic scenarios, which Kann said is productive and is something his firm always does when considering investing in a company. He recommended that startups plan out a bull case, base case, and bear case strategy and consider how their product “fits both into a shelter-in-place world and into a recession.”
For startups navigating this time and looking toward the future, Goldman endorsed “persistence and perseverance” and Kann highlighted the importance of grit.
“Don’t despair, there is light at the end of the tunnel—we don’t know quite how long that tunnel’s going to be, but I do see light,” Allen said. “I encourage startups to take advantage of this time. If your target market is heavily impacted, work on other verticals you could sell into. If you’re trying to deploy a business model that requires on-site commissioning, take this time to work on virtual commissioning and making that process of onboarding and piloting much shorter. I think you can be smart and not just say, ‘Oh my gosh, there’s now a wall in front of me,’ but look for creative ways around that wall. That will really benefit you in the long run, when we come out of this.”
The Investor Speaker Series is part of Greentown Labs’ commitment to support startups as they navigate the impacts of COVID-19. To learn more about these efforts, follow us on Twitter or check out our blog.