Clean tech stems from the term ‘clean technologies’. As the name implies clean tech companies seek investment in environmentally friendly companies. They work on the philosophy of minimizing wastage of energy and degradation of the environment, whilst promoting productivity and efficiency of technology. The term clean tech is becoming increasingly popular in the business sector. However, such companies should be aware of the different issues they might face and in what ways they an increased investment and profits over time.
Here we will discuss the important issues that investors are interested in, the different types of financing available for clean tech companies and the regulatory issues cleantech companies might face.
Important Issues Investors Show Interest In
1: The capital efficiency of your company:
- 1 1: The capital efficiency of your company:
- 2 2: The management of your Anticipated Cash Flow:
- 3 3: Evidence of Early Market Traction:
- 4 4: Substantial Market Opportunity:
- 5 5: Broad appeal of the business beyond Clean Tech Investors:
- 6 6: Angel Financing for Startups
- 7 7: Venture Capital Financings for Startups:
- 8 8: Government Loans/Grants for Clean Tech Companies:
- 9 9: Project/Bond Financing for Clean Tech Companies:
- 10 10: Regulatory Issues Clean Tech Companies Might Face
The first keynote is that investors will only show interest in you if your company is capital efficient and does not require continuous supplies of cash to gain profit. This may also mean that the company should show an initial product whose profits can fund the various other initiatives. Investors will only show interest in companies who have higher profit margins and their products show competitive pricing.
However, if a tech company is in a startup stage then they can use alternatives such as government loans, reservation-based capital raising, and they should include profitable products, proper project financing, and strategic partnerships.
2: The management of your Anticipated Cash Flow:
Investors will also be interested in the anticipated profit and the cash flow per month. Investors may also cause dilution as a result of which there will be a reduction in the ownership percentage of the company as they can exercise their options. However, if you are looking to increase cash flow through non-dilutive funding (which does not require the sale of the company’s shares), such sources of funding are available. For example, you can also start pre-orders of your products beforehand and also create a refund policy.
3: Evidence of Early Market Traction:
Traction means that the company has a previous set of customers or users that basically shows investors that your products is making progress or is ‘going places’ and the chances of profit is high. Investors will show interest in companies that have high traction as this will result in better financing terms. Examples of traction include:
- Companies having feasible or viable products
- Companies having high-profile customers
- Companies offering strategic partnerships
- Evidence from customers or testimonials
- Companies that have been admitted into programs such as Cleantech Open, Cyclotron Road or Y-Combinator etc.
4: Substantial Market Opportunity:
Investors will show interest in companies that show big opportunities to make it to the market. Such companies should be able to define the market they will initiate their products in, show that the market has high dollar value, show that the company is in a position to have a large impact on the market and can capture a large part of the market, show that there are possibilities of your product to grow substantially in other markets too. Clean tech companies should also look for strategic partners in other industries through the market.
5: Broad appeal of the business beyond Clean Tech Investors:
Some investors actually face a loss of money when they invest in clean tech companies, so you have a better chance at gaining investors if you show various other labels your product can be involved with. This will give a greater appeal to invest in the company. The different labels your company can claim includes
- AI (Artificial Intelligence)
- IoT (Internet of Things)
- Supply Chain Management
- Consumer Products
- SaaS (Software as a Service)
Different Types of Financing Available for Clean Tech Companies
6: Angel Financing for Startups
An angel investor is an investor who provides capital for a business startup and in exchange gets an equity ownership or convertible debt. Here are some basic things you should know about angel investing:
- Typical angel investment can be of $25,000-$200,000 but can be higher too.
- Angel investors care about your management team and will show interest if you have a good quality management team. They also try to see the market opportunities.
- You can find angel investors online through investor networks (AngelList etc.), venture capitalists, attorneys and entrepreneurs, investment bankers and crowdfunding sites (Kickstarter, Indiegogo etc.)
- Angel investors have a higher chance of investing in the company if they are shown clearly elaborate pitch deck, a prototype of the product and evidences of previous market tractions, support as to why your product can prove to be successful in the market.
- Angel investors will most likely mot sign a non-disclosure agreement so do not waste time on this.
7: Venture Capital Financings for Startups:
After angel financing, clean tech companies may also look for venture capital financing. Venture capitalists may provide capital and strategic guidance may introduce new customers and employees etc. In return, they will gain an equity position in the company, seats on the board of directors, a say in the way the business works etc. Venture capitalists usually invest in specific industry sectors, or in specific stages of the company. Venture capitalists will also focus on the business valuation (the economic value of a business or company), however, it is negotiable under terms.
If a venture capitalist is interested it will submit a non-binding ‘term sheet’ for the investment terms. They will most likely insist on non-dilution protection. Venture investors will also see that they take part in the growth of the company. They may also request for vesting of shares based on employment. After the financing, investors will show an interest in the company’s actions and way of business and may also give suggestions to the company.
8: Government Loans/Grants for Clean Tech Companies:
The Federal Energy Department has a number of programs for granting loans to businesses that need help for getting their products sold at a commercial scale. These include
- Office of Science Funding Opportunities
- Fossil Energy Funding
- Loan Programs Office
- Funding Opportunities from the Office of Energy Efficiency and Renewable Energy
- Funding Opportunities from the Advanced Research Projects Agency-Energy
- Nuclear Energy Funding from the Office of Nuclear Energy
- Small Business Innovation Research and Small Business Technology Transfer programs
9: Project/Bond Financing for Clean Tech Companies:
Project and Bond Financing is usually more common in companies with commercially proven technology, experience in developing renewable energy or involved in infrastructure projects. Project Financings usually relies on the projects cash flow for repayment, with the projects assets, interests and rights held as secondary collateral. Bond financing, on the other hand, is long-term borrowing from state or local governments. Bond financing is becoming more and more popular especially for infrastructure, while it is now being used by clean tech companies too. Some states that take part in the bond financing include California’s Community Facilities Act and Enhanced Infrastructure Financing Districts legislation.
10: Regulatory Issues Clean Tech Companies Might Face
Investors will also show interest in the possible issues the company might face. This applies to the operations that take part in the company, specifically those involving physical materials and products. The costs of such operations may affect the market for the product. For example, the electricity rate design for products such as electric vehicles, rate design can affect the business model for the infrastructure of such electric vehicles. The rate design is integral for making energy storage competitive with other energy infrastructure. Permittivity and regulatory issues may also occur at local, federal and state level. Such problems should be properly addressed as soon as possible.