“Clean tech” may be on its way out as a cool investment opportunity. But startups in the sustainable technology sector offer the next wave of discoveries with potential for big returns.
There’s no question that the recession caused investors to pause and take a hard look at startups they want to support. There’s been a distinct, more favorable shift toward capital-efficient startups, or ones that show progress on very little cash.
Unfortunately for startups in the clean-tech space, that has meant smaller investments. According to the Cleantech Group, global VC investments in green technologies dipped to $1.07 billion in the first quarter of 2013, a drop from $2.14 billion during the same period in 2012.
But hope is not lost for those in clean tech. If you are an entrepreneur who wants to develop technologies that can change our world and lives – particularly in areas of sustainability and ecology – you need to be able to prove to investors that you will maximize returns.
Related: Here Is How to Get a VC's Attention
Based on my company's experience in its Series A round, here are specific questions investors are asking:
- Can the startup’s mission statement eventually support multiple revenue streams or potential for income?
- Is the company’s culture flexible enough to “pivot” while maintaining its vision to overcome tough obstacles such as regulatory requirements, competition and funding delays?
- Does the company’s product or solution offer enough of a cost savings that a customer would buy it when budgets are tight?
- Is the startup’s strategic direction unique enough to withstand competition?
For sustainability startups like mine that entered the market post-recession the investor scorecard rules have changed. For example, it’s no longer important to have company advisors that have name recognition. What’s more important is that the advisors offer domain expertise that can help scale the business, and that they are willing to help work through tough challenges – particularly if the goal is to disrupt.
It's also important that startups realize the purpose of pursuing a patent. A startup generally isn’t positioned to defend a patent and often lacks the ability to seek international protection by filing in every potential country it might operate in at some future date. The real purpose for a startup to hold a patent is to send a clear message to investors that an idea is valid and defendable. This helps to establish a basis of valuation for the company.
Realizing what the investor community now wants is key in getting the funding you need. For clean tech startups, now's the time to take the leap.