Generally

In the next five years there will be more private and institutional money for clean technologies. Estimates by companies like New Energy Finance and Greentech Media suggest annual growth of over 50%. Some of this money will be raised by new funds looking for opportunities in the sector, other monies will be re-purposed to follow the clean technology opportunity.

That will not necessarily make the raising of money any easier for clean technology and especial technologies that are in the parlance of fund managers “pre-revenue”.
Given that background what should companies do to position themselves better to raise monies from these funds? What steps should they take and what are the milestones they need to be aware of to get money in?

The first thing any company should remember is that raising money for clean technology is no different to raising money for any other venture, except as a concept because of long lead times it might be harder. All investors draw their funds from broadly the same group of people. Investors compete for those funds like anyone else and they are answerable to their sources of funds like anyone else. Clean technology should not see itself as a special case even if its moment may be coming.

The second reminder is that ultimately investors want to see a business from the technology, it needs to be more than an idea and the context in which that business can operate needs to be well understood.

With those comments in mind what should you understand and have in place to successfully raise money?

For simplicity the main points are put under separate headings:

All businesses exist because there is an easily understood market for their products. Without a market there is no revenue therefore no money. Clean technology is no different and very often it is the market, and the market trends which will set the context for the investment. Any company needs to ensure it has a very clear understanding of its potential market, its size, what will drive it and what will drive revenue from its technology. Equally, a thorough knowledge of barriers to entry should be understood, including key issues like distribution and adoption rates and any understanding should include some type of competitive analysis.

Investors always assess the market first. If they don’t buy the market opportunity, they don’t buy the investment opportunity. In that case it can make for a short meeting with them.

The size or scale of the opportunity is always something that attracts capital.
When raising money make sure you understand it and the role your product has in it. It is always best not to exaggerate, better the investor gets excited and does that for you, and hold back some good news. This helps iron out bumps that always comes later in the investment/ due diligence process

In any business the management team is everything because ideas are easier than implementation. The management team needs to have several levels. It needs to have the technical expertise to develop the technology, the legal expertise to protect it and the organisational and marketing skills to sell it, grow it and collect the revenues. It needs to have skills that can realise value created. Always these are different skills and too often management teams lack some of these skills or have the wrong person in the wrong place. It is hard to say, but true, that there are very few creators or inventors that go on to be good managers.

Getting the right people and putting them in the right place and at the right time makes raising money a lot easier.
On management issues don’t carry luggage: if someone doesn’t fit best to fix it.

Often it is better to describe a technology as a product. The product needs to have a market, and it also needs to work and in working, be capable of generating revenue.
In any technology, value is most often created by establishing and registering your intellectual property. That gives your product the legal protection it needs to succeed. Legal protection is a milestone for investors, it is also time consuming and in the context of an early stage deployment of funds relatively expensive. Other milestones can be successful trials of the technology, regulatory approval and first contracts to purchase the technology. Ensure your product has a market, that means knowing the key drivers that will create and sustain the product and know also what needs to be done to successfully deploy it. Legal protection is part of that process and making it work, is of course, the other.

Milestones are important to investors because they help measure value. You need to know your milestones and understand the impact they might have on value. Also you should understand what milestones each investor is looking for. A very common mistake in presentations to investors by technology companies is that too little time is spent on milestones and too much time is spent talking about the technology.
Greater detail on technology is for the investors’ technical due diligence, not a presentation: there are very few exceptions to this.

Companies should think of milestones as price points. Investors do.

Investors invest to put their money in and get it out. Exit and the timing of exit is very important and management should have a clear view if not against dates, then certainly against milestones.

Different types of exits suit different types of investors. The best exit for an investor is always a trade sale, it then gets all its money out. If you have more than one investor remember that investors have different exit criteria so you would do well to get those agreed between all of you in advance.

It is always better to exceed expectations on exit, a little like budgets

Investors are all different and not every investor suits the management team, the opportunity or the product. 'Any money' is too often not good money. Always think of the investor relationship as a marriage: it is easier to get into than get out of - so it is important to choose well. You should diligence your investors in the same way they diligence you. Do you like their management team? Do they have experience with your kind of investment and is that experience the relevant experience? Do they have the capacity to keeping funding? Do they understand risk and the up and down ride a clean technology company might take? Can you provide the returns they seek? If the answer to one of these questions is no, the chances are you shouldn’t take them in. Investors need to work to your temperament, not their own.

All advisers are expensive but they can be a very good thing. You should use them but only when you have your house in order and you are certain with what you want. Different advisers are good for a business at different stages of development. Early stage investment is gritty and that is a characteristic you want in your adviser. He must be a bit of a doer, not just an adviser.

At this stage advisers are a little like teachers, they need to do more than what they are paid for. Like investors, choose carefully, avoid friends and avoid giving equity for fees, it blurs your relationship with the adviser. Learn how to instruct advisers, especially those that charge by the hour and learn to agree fees in advance. Many early stage companies look to intermediaries, like business angels, who “have done it” to help them with advisers. This is often a good idea.

Finally always keep advisers independent, you generally get better advice that way.

Write the presentations for investors, not for any other audience. Too often, presentations have the information the company wants in it, not what investors want to see. Keep presentations fairly short and put detail, especially technical detail in appendices. Most investors glaze over this material. In a presentation, investors want to know most about: market; management; product; marketing; competitive advantage; valuation; exit; expected return; and risks. As you can see, don’t dwell on the technology but the opportunity, why your team can do it and why if they invest, there will be handsome returns.

Finally, don’t be lazy, do some homework on your prospective investor and tailor your presentation to his criteria and needs. In that context, also understand a little about where he has invested, why and whether he did well or not.

Due diligence is a necessary evil but grit your teeth and do it properly. If you are raising money always be due diligence ready. Get your due diligence materials in order before you approach investors and let them know early about gaps in due diligence. This saves time and often disclosure can turn a negative into a positive. Always keep due diligence material up to date and if you are using third party sources to support due diligence, use the household names as sources or the best of breed from your sector. Avoid sources you might have to explain.

Direct the due diligence if you can and have a presence in the due diligence room if time allows. This hastens a process and you also learn a lot about your investor.

This is an art form and not many people are good at it. It is a messy business and can be very time consuming. Very often it is best to get help to do this from an investment bank or an accountant that is able to do that kind of work.

The transaction process brings together a series of threads that when woven results in the investee company receiving funds and in return placing its securities with the investor. The due diligence is one of those threads (being technical, legal, financial, taxation and commercial) other threads are legal documentation, the business plan, incentive schemes and investment/ shareholder agreements. There is a lot to do and the work results in a lot of fees.

Managing this process greatly reduces the time spent raising money and the fees from advisers who help put it together.

Raising money is about meeting other people’s expectations, not your own. Knowledge is one of your best weapons. Knowledge of your technology/ product, market potential and people on one hand and, more importantly knowledge of the investment environment, investors, expected returns and the investment process on the other.

This means when raising money, move beyond the experience and passion of the inventive and creative process and make sure you bring in the skills and expertise that allows you to execute the strategy, not just for the technology but for the process that will give the investor his exit. After all he is there to make money, not necessarily to save the planet.