VC 101 for Nature Tech
By: Kate Rocchio
It’s time for the nature tech VC model to be demystified. Jahed Momand, co-founder and General Partner at Cerulean Ventures, sat down with Nature Tech Collective (NTC) for an intimate fireside dedicated to breaking down knowledge hurdles for current and would-be founders in the nature tech ecosystem.
“I feel like a lot of people enter [the VC space] trying to talk to venture capitalists, and I think it's a waste of their time…we have a very simple business model, and I think it should really be put out there so that you understand, when is a good idea for me to [engage]?”
The rationale Jahed gives for this position is that venture capitalists are not the ones closest to the core activities of knowledge gathering and innovation. Entrepreneurs are. Founders and entrepreneurs are the ones doing the work daily. That being said, Jahed provided a rough-and-ready checklist of things for nature tech entrepreneurs to consider before approaching venture capitalists for funding.
Is your product or service actually useful to the market?
Do you need investment from specific investors or funds?
How do these investors or funds you’re approaching operate and what is their thesis and investment focus?
The 411 on Venture Capital
Venture capital, in layman’s terms, works like this…
As an entrepreneur looking to scale your business, you might approach a venture capitalist. Due to the high-risk nature of their investments, they’re looking for a few things when evaluating your business model. The first is your industry. VCs prefer to invest in sectors with rapid, high growth potential. Do you occupy one of these landscapes?
In many cases, you may need to educate them that you occupy a fast-growing market and have the statistics to back up that claim. This may seem counterintuitive, but the rationale behind this is that if a venture capitalist is already aware of your industry, there’s a good chance all the other venture capitalists and entrepreneurs know too. This can mean that there will be heavy competition and innovation in the sector, or that the golden window for VC involvement has already passed. The Harvard Business Review visualizes the golden window of VC opportunity nicely, a rare occurrence in the very early stages of the market, but essential before market maturity and mass adoption.
The second thing you’ll be evaluated for? Return on investment potential. Jahed describes VC expectations as “borderline unrealistic demands for growth” due to the early stage, high-risk nature of the VC model. In an ideal world, VCs are looking for impact technology investments that, if made at its seed stage, can grow 200% a year for the next 3 years at a compound rate.* For the nature tech space, if you’re fortunate enough to secure investment, Jahed advises that it’s better to take less money on lower terms to manage the risk well for yourself and your investors. He reasons that for markets in murky stages (such as nature tech) this is about protecting yourself as well as your investors. Numerically, you can expect to receive (roughly) USD$4-5 million as a first-time founder, and $USD7-8 million as a serial entrepreneur with strong industry connections, or a solid business idea. In the EU market, you can expect to see these figures diminish by 25-50%.
The Path Semi-Trodden
There is no reliable roadmap to creating a successful startup. “There are as many effective strategies as there are successful startups” and every journey is unique. Oftentimes, the key lies with founders understanding their reason for creation, and having a business model that closely aligns with that passion. No matter the model, the industry, or the buyer persona, reasoning based on monetary gain, a desire to do the right thing, or gain prestige won’t cut it. Founders need to be fully committed, a little bit irrational enough to change their reality to fit their dreams, and amazing salespersons. They need to be intimately connected with their driving reason and be able to communicate that why to investors. As someone on the receiving end of countless pitches, Jahed shares that “if there is nothing there, we know it, we can feel it. You can’t fake that desire to change the world with a new venture or company.”
While there are thousands of different strategies leading to success, Jahed highlights a few key fundraising tips that are common among the most successful early-stage startups. Each of these tips revolves around a single point: keep the team small, personalized, and laser-focused.
This ethos begins with the head of leadership. The CEO should be the company anchor, responsible for pitching, fundraising, and outreach. Helping hands from co-founders are important, but the CEO needs to show their leadership potential and capability early on. Essentially, they need to prove why they’re the right person for the CEO title. In this same vein, it’s not a good idea to bring on a founders’ associate or Chief of Staff in the beginning stages, particularly if the company is in the pre-seed or seed stages. Most of their job will be focused on growth and outreach, which again, should fall under the CEO’s purview.
Even in the nature tech space, outreach is going to vary based on the product or service being offered, so we can’t get too specific with the advice when it comes to fundraising and outreach. However, the best models replicate the product sprint journey. Turn away from automated outreach, and focus on defining your target personas. Research the best outreach methods for your audience the same way you’ve designed your product or service, and then personalize it. There is no need to spend your time on fundraising firms or conversations with investors who are clearly not involved with your sector or growth stage. This is the hardest part, and why Jahed stressed the importance of connecting with your personal driver. Finding the right fit for a successful launch will take time and perseverance. If you are a true nature tech founder with the right kind of purpose, “that kind of raw belief will get you through all the no’s until you find the right investors who believe in you.”
*Disclaimer: This is not financial advice. The content written in this post is entirely for educational purposes.
Cerulean VC x NTC published a companion article on the bleeding edge of nature technology for nature tech startups.
The Nature Tech Collective is a non-profit member alliance, accelerator, and intelligence unit that is advancing the uptake of nature-based solutions to integrate nature protection into all sectors of society. If you’re interested in joining the Collective, fill out our introductory form. Our weekly firesides take place on Wednesdays from 12-12:45 EDT, and the sign-ups can be found on our LinkedIn.
