How To Approach Pitching to Climate-Tech Investors

I recently got 4 climate-tech investors together for a Q&A event focused on pitch decks. The questions and the following discussions were interesting, and I learned many new things. It was an honor to have the following investors join me:

David McColl is the Founder of Shoreline Capital and a partner at Echelon Capital. Prior to venture, David led innovation projects for Enel Green Power and was a part of the founding team of several energy efficiency startups. He has a B.S. in Finance and an M.S. in Energy Engineering from Stanford University.

Jessica Eastling is a Senior Associate at Better Ventures, an early-stage venture firm in Oakland backing mission-driven founders. She previously worked at a venture-backed social enterprise, Zola Electric, expanding the company’s footprint of distributed solar in Sub-Saharan Africa. Prior to this she received her BS and MS in Earth Systems from Stanford.

Raymond Fung is an Associate at ArcTern Ventures, an early-stage cleantech + sustainability venture firm in Toronto (with offices in SF and Oslo). We invest in environment-positive start ups across NA and EU. Prior to ArcTern, Raymond was in Africa working at a YC-backed startup focused on sustainable coffee + cocoa and also at McKinsey for a few years. He has a BAsc degree in Nanotechnology Engineering from University of Waterloo, where he spent short stints conducting wind energy research, manufacturing next gen solar cells, and automotive engineering.

Ali Willet joined the Lime Rock New Energy team in 2019 as an Associate in the firm’s Westport office. Prior to joining Lime Rock, Ali was an analyst in Citi’s Global Power and Utilities Investment Banking Group, where she worked on mergers and acquisitions as well as debt and equity offering transactions. Ali is a graduate of Boston College (B.A.). Ali plays a critical role in the investigation and execution of Lime Rock New Energy’s investment opportunities.

Below are the gold nuggets from the discussion.

What do you care most about in a deck?

• Team, timing, and opportunity. The first two really need to be there before assessing the business model or the opportunities.
• On team, we want to see that there is a team that: 1) Has experience in the sector, 2) Knows how to execute, and 3) Has identified where the gaps in their skill set and their knowledge is, and has found the best world class advisor to fill each of those gaps.
• On the timing, it comes down to what megatrends they are riding.
• After walking away from a presentation, investors should be able to articulate what the company does.
• At a later stage, customer traction and unit economics matter.

How important is the story (why this founder is working on this problem)?

• Story is the most important thing. Being a good storyteller means getting investors interested and getting them just as excited as you are about your business.
• Founders should be able to answer the question: What was the moment where you said, I must go start this company? Essentially, getting at what the founder’s mission is.
• If you don’t have an awesome story where it just hits you and it’s a Eureka! moment, it’s totally okay too. In that case, be able to define the problem and communicate the fundamentals behind it.

How do you like to look at the financials, the economics, and even looking at the TAM?

• At the early stage, what is more important than the actual financials, is how the entrepreneurs are thinking about their financial projections.
• In terms of TAM, at the earliest stages, what is more important is being able to identify the gaps in the market.
• TAM, SAM, and SOM is a top-down approach to market sizing, which is interesting just to see how founders are slicing the market. However, a bottom-up approach to market sizing is more appropriate at the early stages of a startup. The most important piece is showing how you think about your business and the market.
• Ultimately, part of our work as investors is going to be understanding the market that you’re playing in and understanding how large it is and then what market share you’re going to capture.
• At Series A, we would expect a better sense on your pricing and your business model. Specifically, how your pricing changes, and/or how you look at your COGS and manufacturing as your company scales.
• At later stages, investors need to have a sense of financial projections. We’re looking for companies that are either positive EBITDA today, or have a one-year pathway to it.

How do you think about impact?

• It should be obvious that companies will have an impact. The metric itself might not be as important at the early stages because sometimes companies are pre-product, pre-revenue, and pre-impact. What we focus on most is the founder’s mission driven nature: Are they super, super passionate about this problem and will do anything to solve it? Is there a personal connection to the problem that they’re solving?
• For Series A stage startups, unit economics and product market fit should support and give context to the impact — really driving home the value proposition.
• At the late stage, we look for companies that have a clear impact (social or carbon).
• Making a big impact means addressing a big problem. If you can’t be economic, then you’re not going to be able to make a large impact. And if you’re not addressing something where there is impact, then there’s no problem there to pursue and chase those economics.

What are some pet peeves, whether it’s someone themselves or if it’s the deck?

• Too much text on the slide is a turn off.
• Slide decks that are too long — investors don’t have time to go through everything.
• Never use your time with an investor to show a video. Instead, send it to them afterwards.
• Not reading the audience. Instead, ask the investor (before the pitch): “What do you know about this space?” Or “Where do you want to start?” This leads to a fruitful conversation. Once investors have a conversation on the calendar, they have probably already looked the pitch deck multiple times, so they already know the majority of the content. Rather than having the founder talk through the deck, some would rather just dive in.
• Giving too long of answers to questions. The fix is to discuss between you and your co-founder who’s going to take what questions. And of course, if you have something important to add, go ahead. But just be careful and maybe time yourself when you’re practicing, to make sure you’re not going on for too long, which we know you have a lot to share, but you want to make sure that you leave the meeting answering all the questions that the investor might have, or at least enticing them enough that they want to ask you more. Make sure you know your roles ahead of time. Sometimes investors will ask a technical question to see how deep the technical co-founder can go on something. If the CEO is answering every question, that’s probably not going to look good.
• When companies talk about prospective financial returns in their pitch (this is a 15x, or 20x deal at the end). Even though that would be awesome, there are very few deals that have those kinds of returns. It’s helpful to lay out the deal, what it looks like, how much capital you’re looking to raise, how much capital has been raised historically, use of proceeds, etc, and then let the VCs figure out the math and how they’re going to underwrite their returns.

Is there a slide that could make or break a pitch deck?

• The flow of the pitch deck that can ultimately make or break it. There are some pitch decks just that aren’t put together very thoughtfully and it’s extremely hard to follow. Putting together a slide deck should be probably the simplest part of your business, make sure that you’re telling a cohesive story, and then putting the slides together in a way that makes sense.
• The team slide is big. We typically recommend refraining from filling your team page with advisors. The most important people on that page are the founders and the team. Feel free to include your advisors, but at the end of the day, you’re leading your company and you’re who we’re most interested in learning about.

What’s the best way to approach talking about the team?

• If you are the technical co-founder coming in to raise, be upfront how about how you’re thinking about the business model, the market dynamics, and key strategic hires. That’s the kind of thing an investor can add value beyond just the capital that they provide — investors tend to know a lot of people on the business side.
• At the pre-seed stages, it’s more important to have a technical person on the team, especially for a science or technology-based company. Business people are typically easier to add to the team.
• Talk about how the founders know each other and what the working relationship is like.
• If you have somebody that you’re talking to that’s the CEO of one of the big incumbents, or one of the one of the established companies in your space, that helps us understand that you know who to go to to ask questions.
• Keep in mind that we also think about coachability of the founders. When we invest, we’ll help you. We don’t expect you to know everything, but we would like you to keep an open mind to different ideas.

How can first-time founders better present themselves?

• There’s some element of founder-market-fit in the sense of, are you coming from the industry that you’re building something with? If not, what have you been able to accomplish, even being new to a space and showing, not telling?
• Anecdotally, one of our first-time founders didn’t have prior experience working in the industry. He had been doing his PhD for a few years and came to us and showed us, the 200 customer discoveries calls in this space he has done over the last two years while he was doing his PhD. He was also helping two companies in his spare time to understand this industry better. This person also got the CTO of the largest company in this space to be one of his advisors, as well as one of the top technical professors in this space.

This went out first to readers of Innovate Climate, a newsletter that highlights startups the the broader climate and sustainability ecosystem. Check it out and subscribe here.