2018: Lessons and Takeaways

2018 has been busy for the Clean Energy Trust team. We made four new investments, we hosted our first Co_Invest Cleantech event, we expanded our blog, we shifted to a rolling investment process, and we talked to a lot of startups and investors along the way.

As the year draws to a close, we wanted to share some of the lessons we learned along the way, and some takeaways to consider for entrepreneurs in cleantech and beyond.

Know Your Value

Successful startups either serve their customers better than incumbent competitors do or introduce some innovation that creates a new market. In both cases, a fast-paced and hectic environment can force upon founders tough situations that distract them from crafting and delivering on an underlying value proposition. We oftentimes come across great ideas that provide innovation, but lack substance in their selling point. It is important that founders keep both in mind as they grow their businesses, and as the new year approaches, we are on the lookout for startups that successfully maintain this balance.

Don’t Forget the Top of the Funnel

It’s easy to get caught up with closing deals and celebrating successes. In all aspects of business, the bottom of the funnel is when hard work comes to fruition, or when (at the very least) some sense of closure is achieved. Particularly in the early-stage venture world, it’s tempting to focus on term sheets and final negotiations over sourcing deals, but it’s important to remember that building a strong pipeline is necessary for future dealflow. As we have transitioned to a rolling investment process, we have redoubled our efforts to reach cleantech startups in the Midwest. Our work in helping Midwestern cleantech entrepreneurs scale their businesses is fundamentally dependent on their awareness of our program and our intake process for new applications. Interested? You can apply at this link.

The Power of the Phone

We get it. In an age of never-empty inboxes, who has time to make phone calls? It’s easier, faster, and quite frankly, more comfortable to quickly type out a few sentences and click “send”. But faster doesn’t always mean better. Some of our most powerful communication tools are best utilized verbally including sincerity, urgency, and excitement. In 2019, differentiate yourself and your message by picking up the phone and having a conversation. Your colleagues, investors, and clients will all thank you for it.

Track Your Sales Pipeline Religiously

Keeping track of our pipeline matters for any revenue-generating company, but it is especially critical for a startup that is transitioning from product development to early sales. Valuable insights are gained by systematically moving a lead through predefined stages of a sales pipeline, First and foremost, your pipeline is, of course, the best indicator of future sales. But closely tracking it can offer much more, such as:

• The typical duration of the sales cycle
• Percent of qualified leads that convert to each subsequent stage and eventually into sales
• Source(s) of leads with a higher or lower likelihood of conversion
• Reasons deals were won or lost

By understanding these metrics, a vision of the company’s future growth begins to materialize, but more importantly, a CEO is better equipped to shape that future growth. Once you have confidence in your pipeline metrics, you can use them to your advantage in many ways:

• “Right-size” your next funding round to complement your expected future contribution margin
• Validate your revenue projections when pitching investors (so much better than X% of the addressable market!)
• Set pipeline goals to better ensure you hit future revenue projections

Deciding How Quickly to Scale is Hard

For companies selling to utilities, we know the sales cycle in long… really, really long. One underappreciated side effect of this long sales cycle is that it can be really difficult to decide how quickly to scale. If you have a product that utilities are interested in, but you don’t know how fast they are going to move, it can be difficult to plan for the future. Should you raise additional money to hire more business development folks and be prepared for every opportunity as it comes up, at the risk of burning extra cash? Should you stay lean, and try to make opportunistic deals, knowing that you won’t have the bandwidth to engage with every high-value utility customer? It’s a difficult question to answer.

Clear, Tangible Milestones Go a Long Way Towards Communicating Your Vision

While a great vision of the future is necessary for any company, you have to also know what steps you need to achieve to get there. Without clear steps between where you are now and where you look to go, it becomes incredibly challenging for others to get on board. These milestones can be big and audacious, but they have to be clearly connected to the end goal and they must be tangible, so others can know when you hit them.

Raising Your Round Will Take Longer Than You Think

Oh, you’ve heard this one before? Yeah, so have we. Yet, it never seems to get old, and the lesson never seems to fully sink in. Why does this inevitable fact of startup life continue to surprise us? Three reasons:

1. Most investors steer clear of cleantech. After all, historically it’s underperformed compared to “tech” and pharma.
2. There aren’t a lot of early-stage investors in the Midwest, and the ones on the coasts tend to stay close to home.
3. Because of #1 and #2 above, you’re probably targeting strategics to cover your round. Am I right? Well guess what, strategics tend to lack urgency and have several extra layers of red tape to cut through before they can offer a term sheet, so expect them to take a few extra months.

We’ve said it before and we’ll say it again: allocate plenty of extra runway when raising your first institutional round — like 6–8 months. And if you prove us wrong and you have multiple term sheets after just a few weeks of pitching, well you’ll be in a much better negotiating position entering due diligence with 6 months of runway in the bank instead of 6 weeks.

A Leading Group of Investors in Clean Energy is… Oil Majors?

When we think about investors charting a path towards the clean energy transition, we don’t typically think of oil and gas companies. While investments in clean energy are still very small portions of overall capital investment, and some companies are moving much more slowly than others, numerous oil majors are active cleantech investors as well as they start to make a transition to being integrated energy companies. In the last year, companies made investments across the industry — in particular, European oil majors such as Total (Autogrid — energy data analytics, Ionic Materials battery storage, and SAFT — battery storage), and Shell (New Motion — electric vehicle charging, Sonnen — battery storage), have been active making equity investments; Equinor and BP have made moves in the renewable generation development space as well. Don’t write off investors who may not be traditional Sand Hill Road venture funds — they may be the ones most interested in the business you are building.

Thanks to the entire Clean Energy Trust team for their contributions to this post.