Getting Funded

When should a startup cleantech company use angel investors, venture capital, or government funding when seeking early stage funding? TCN’s recent special evening event focused on this topic, with over 100 entrepreneurs attending and a panel of speakers including Philip Guidice, the Commissioner of the Massachusetts Department of Energy Resources, David Kopans, co-founder and CFO of EnergyClimate Solutions , Dave Power, president of Power Strategy, and Bard Salmon, chairman of the board of Perillon Software.

General consensus among the panel was that that venture capital is not the best place to seek funding for clean technology. As summarized by Bard Salmon, CleanTech is the new “.com”, and most venture capitalists are looking at the industry as a new opportunity to have in their portfolio. There is a general lack of experience among venture capitalist groups regarding the cleantech industry. While there are some venture capital groups that do attempt to specialize in a specific aspect of cleantech, the panel generally seemed to advise against venture capital for early stage funding. As a general rule of thumb, Bard Salmon advises to seek venture capital only when the total money needed for the business is greater than $5 million dollars.

David Kopans suggested the following steps when considering angel funding for your firm:

• Invest as much as your own money as possible in the idea. Then turn to your parents, then college friends, then friends of friends who may be interested in your idea, and finally angel groups. Bootstrapping is essential to this strategy. By investing as much of yourself in your idea as you can in terms of time and money, you create credibility for potential investors.
• Cut your business into milestones. Outline specific value creation steps for you business, no matter how small, and decide who will fund your business at each milestone. This is especially helpful with angels who are worried about dilution of their ownership when you seek further funding. By outlining this beforehand, angel investors will know what to expect at each stage of your business.

As far as available government funding opportunities for cleantech companies, Philip Guidice, discussed that finding new energy sources is a high priority in Massachusetts as well as Washington right now. He cautions however that government funding should not be an entrepreneur’s main source when seeking funding. Working with the government will help more with credibility, testing, and market opportunities, as well as creating credibility for newly developing companies. One great resource is the Massachusetts Clean Energy Center that provides small amounts of funding to entrepreneurs by matching their current fundraising.

Any additional advice on cleantech early stage financing? Feel free to post your comments here.