I hope you’ve heard this expression before.
(If not, then you may be questioning my politeness or my sanity.)
It goes something like this: “You have to kiss a lot of frogs before you find your handsome prince.”
Of course, this is the actual quote from the Brothers Grimm fairy tale, and refers to seeking true love. (But we’ll leave that topic for someone else’s blog post.)
In the world of finance, this perspective can refer to the lengthy, inefficient, and often frustrating process of finding the right investor in, or buyer of, your company or infrastructure project.
(But it does not require that the investor be handsome.)
So after banging our own heads against the wall to source investors, and after watching dozens of entrepreneurs do the same as we sat on the other side of the table (i.e., with the capital), here are a few tips we’ve collected for bringing in the right investor to finance your renewable energy venture.
1. Know thy investor
Investors are not a single monolith. And one size does not fit all.
They vary by risk tolerance, length of investment period, geographic preferences, sector focus, financial return expectations, cultural, ethics, partnership expectations, type of investment, and...uh...personality.
Consider some profiles of startup investors to avoid from Entrepreneur.com.
As an example, if you’re raising money in the solar sector, consider the wide gap between an early stage venture capital firm which might finance a solar technology company with expectations for 30% IRR vs. an infrastructure private equity firm which might finance a utility-scale solar project with expectations for 9% IRR.
Both are solar investors, but they one is from Mars and the other from Venus.
So, let me put on my professor hat briefly: Do your homework. Dig into the research. Don’t slack on it.
Your extra effort in this due diligence will help you separate the right investors from the wrong ones.
2. Work your network
This is common knowledge. But it is not common practice.
It’s critical to know where you and the potential investor have mutual professional or personal contacts.
This is about getting a foothold and building trust.
To help you establish rapport before and during your initial meetings, you might want to ask questions about or make reference to people and firms that you both know.
But beware: This can also backfire.
I once did this while talking to a CEO that was considering our help raising up to $90M for renewable energy infrastructure development and finance.
I referenced a well known industry leader that had worked with this CEO we were pitching. Oops. He had...um...a less than stellar opinion of this mutual contact. Long silence. Views 180 degrees apart. Yep, awkward.
Luckily, we still won the engagement.
So, make LinkedIn your best friend. Use those 2nd degree connections to make potential investors part of your own professional network.
3. Be systematic
Everybody knows somebody.
And so it goes with a company’s ambitions of raising capital to finance a renewable energy or energy efficiency venture via a few of their own relationships.
Often company executives have their list of five or ten potential investors, and they are excited to bring home the bacon. (Free range and organic, of course.)
But this is not enough.
Most timelines with potential investors take three or six months to play out and arrive at a yes or no decision.
So if you start with a few investor prospects and wait, say, four months to get their answer, you may have just set your company behind schedule by four months or more.
To some degree, this is a numbers game (i.e., in addition to finding the right investor fit).
Instead, a better approach, and the one we take, is to create lists with dozens of prospective investors, each vetted based on fit according to their past investments, current mandate, and other variables.
To do this, we use our own investor network plus databases like Preqin, with over 20,000 investor profiles and 380,000 financial industry contacts.
4. Create an organized data room
I have heard it said before that “Cleanliness is next to Godliness.”
(Are you hearing the voice your mother or grandmother right now? I sure am.)
Or perhaps this expression bears some relevance here: “How you do anything is how you do everything.”
Honestly, I’m not sure I agree with either of these nuggets of wisdom.
However, many investors will see a correlation between how organized your data room is and whether your company is a serious platform to be trusted with their capital.
These data rooms need clear organization, from easy-to-understand folder systems and clearly named files.
If this sounds boring to you, then don’t do it.
Instead, delegate to a team member who loves creating order from chaos, but is perhaps less equipped to work the magic you can with business development and strategic partnerships.
(SIDE NOTE: No one is great at everything. Play to your team’s strengths. To discover these, consider a simple test like the one at Strengthsfinder. We have used them and found a ton of insight.)
You also need completeness in your data room. No stones left unturned.
Are you missing a spreadsheet showing historical financials, a trusted third-party report discussing the broader market opportunity, or project-level pro formas for infrastructure assets?
If so, then that investor follow up after a great initial phone call might lead to a resounding thud as the likelihood of financing your business with that investor falls to zero.
Consider secure software-as-a-service platforms such as Box or Firmex to create your virtual data rooms.
5. Don’t overpromise
Here’s another overused cliche for you: “Underpromise and overdeliver.”
I very much agree with this one. But I often see the opposite play out when entrepreneurs talk a big game to investor prospects.
The reality is that investors will uncover the truth after they get deeper into due diligence. As such, it’s better to be straightforward from the beginning.
And not all due diligence questions can be easily answered with strong data-driven foundations. So, don’t be shy to say something like, “I don’t know the answer. But here are the three steps I’ll take by Friday to get you a good answer.”
You don’t need to know know everything. Instead, you just need to know where to get it or who can tell you the answer.
That means you need a great team, whether internal or external. Or perhaps a Brain Trust like we have at IronOak Energy Capital with clean energy experts across the US.
6. Be pleasantly persistent.
At IronOak Energy Capital, we pride ourselves on being persistent.
(Read: We’ve been called bulldogs in the past.)
And it’s best to balance that doggedness with the patience that investors require to do their homework and make informed investment decisions.
The point is this: Follow up matter. I mean, it really matters.
There are dozens of reasons that your first string of emails and phone calls to the investor did not get the investor’s attention: Travel, vacation, another deal closing, a sick kid, an ailing grandparent, internal strategy reviews, etc.
So, in the mission of funding your world-changing venture, be a heat-sinking missile on your best-match investor targets.
7. Share some beers.
Now don’t the wrong idea here.
I’m not talking about a case of beer, just one or two cold drafts of microbrew at the popular locally owned place near your investor’s office.
You are hoping to start a new multi-year relationship with another firm, but that firm is made up people, and those people want to actually like the folks with which they do business.
So, be likeable. Ask questions about their family and hobbies. Do it because you want to invest in the social capital required to build a strong partnership for a high-performing business.
And after you both contribute to a successful exit or profitable cash flow, then you can share bottles of champagne to celebrate.
In summary, raising capital is a lot of work.
It’s not just about a few phone calls to those investors who seemed interested. It takes a ton of time and can be a huge distraction from your core business.
That said, it is often required to survive and thrive as an organization.
It reminds me of a phrase I came to love while living in Japan: “仕方が無い.” Or, “sho ga nai” for short. It roughly means “there is no other way, so just do it.”
Said differently, just get ‘er done and worry about the details later.
The question is this: Who will do that work for you and find the right investor to place capital in your business?
P.S. If we can be helpful, drop us an email at info[@]ironoakenergy.capital.
P.S.S. The theme of this blog post is a shout out to my late grandfather whose nickname was Froggy. He built a successful small business out of nothing in small-town Kentucky and ran it successfully for 60 years. An inspiration to all of us out here blazing our own trail as entrepreneurs...
We’ve all been there before.
The big investor meeting has finally arrived.
But somehow we come out of it with a foot in our mouth, not with a deal in hand.
We have made missteps ourselves.
And we’ve seen many renewable energy entrepreneurs, project developers, and executives slip up when pitching to us and our investor partners, too.
Thankfully, there is hope.
“You will only fail to learn if you do not learn from failing.” - Stella Adler
In that spirit of reframing embarrassing missed opportunities when meeting with investors who could have changed the fate of your business…
...please do NOT DO these things the next time you’re pitching to an investor.
1. DO NOT create a slide deck longer than, say, 15 slides.
Investors, like you, are busy folks.
And as a former CEO and mentor is accustomed to saying, “A new bus comes by every 15 minutes.” The “bus” here refers to another deal in which they can invest.
You should assume that you have 15 minutes or so to convince the investor that your business is worth their time and capital. So, get to the point early in the meeting.
2. DO NOT squeeze your entire knowledge base into each slide.
I’m sure that are the expert on your business. And it should be clear that you’re passionate about it.
However, remember that white space is your friend. Super dense slides have the opposite effect on audience comprehension and retention.
Also consider adding a bordered text box on each slide with the main takeaway you want to stick in the investor’s mind.
3. DO NOT start the meeting before engaging in some pleasantries.
When I first began working in private equity, the leadership team would often spend one-fourth of the meeting on small talk. I was puzzled.
With my “get ‘er done,” Dr. Efficiency mentality, this seemed like a waste of time. Ah, the arrogance I had.
Those Southern pleasantries were of immense importance. They were about establishing rapport, mutual contacts, and areas of common interest inside and outside of the professional world.
What I learned is this…
Despite the investor vs. presenter mentality, these meetings are just another discussion between people. And people trust and like to do business with people they can relate to.
4. DO NOT talk about the investor’s business, as if you understand it better than they do.
To be clear, you should do your due diligence on the investor. You should definitely understand who they are and who they are not, what they can and cannot invest in, etc.
However, do not talk about their business based on their website (e.g., it could be outdated) or based on what you’ve heard second hand (e.g., there could be deal- or time-specific factors that make this market intelligence irrelevant to you).
5. DO NOT get into lots of technical details unless asked.
Most investors are not technical experts in your industry or about your product. For sure, they will need to become more fluent in the details, but not in your first meeting.
More importantly, you need to start big picture: Strengths of the industry and how you ride that wave, challenges in your sector and how you address them, the problem you’re solving for customers, the reason your business has an edge relative to competitors, and why you have the right team.
So, first hook them, assuming it is a fit regarding their investment criteria, available capital, and so forth.
Then, later reel them in with nitty gritty details, as required, to educate the investor on why you will succeed and deliver the appropriate return on their investment capital.
6. DO NOT refute feedback from the investor, as if they are uneducated newbies.
“Feedback is the breakfast of champions.”
This was a problem for me many years ago. Criticism was a threat. Ah, such a fragile little flower I was.
And when I first presented about the business logic of green building many years ago, an investment executive questioned a fundamental part of my thesis. In a room full of investment professionals, he had put me on my heels.
But his goal was not my explosive destruction. Instead, he wsa offering great feedback, and I needed to incorporate it in future meetings like this.
So, step out of your protective glass bubble.
Don’t get defensive. Instead, provide a counterpoint if need be, but emphasize that it is a good point, and you will give it more thought, discuss it with your team, or do some more research.
7. DO NOT go too blue sky with overly ambitious and far off projections.
I can’t tell you how many pitch presentations I have sat through where I thought:
“If those projections are correct, then I need to quit my job in finance and go work for this startup or project developer.”
So, avoid the borderline unbelievable projections for your business or for the market in which you’re operating. Even if you believe they are real.
And only rely on the most trusted data sources. Referencing something like www.ecodorks.info from 10 years ago as the basis for your strategy will not work.
Lastly, do not flash forward to what the world will look like 15 or 30 years from now. Investors care about what will happen mostly within the period of their investment with you.
This doesn’t make them callous, profit-driven robots.
This makes them good investors, often serving as fiduciaries to protect and generate returns for their investors (e.g., pension funds).
8. DO NOT show internal disagreement among your team.
No team is perfect alignment all the time.
(Obviously, you’re opinion is the only correct one though.)
But do not let any difference of opinion or lack of group confidence come across during your investor meeting.
One. Unified. Force.
9. DO NOT leave the meeting without asking for advice.
I received some great feedback before raising angel capital for one of my startups:
“If you want capital, then seek advice. If you want advice, then seek capital.”
This worked well for that raise. I went seeking advice, and never led with an ask for capital. But I raised the capital we needed.
Don’t get me wrong…
If you have done your due diligence on the investors, and you know that they are a good fit for your business, then you should include an “ask” slide in your meeting regarding capital needs.
But their advice can sometimes be more valuable than the capital they might or might not provide.
Said differently, intellectual capital or network capital can be as important or more important than investment capital in growing a successful business.
10. DO NOT show up late, or go over your allotted meeting time.
“If you’re on time, then you are late.”
Or so it is often said among military professionals.
Being on time for the beginning and end of your meeting is a sign of respect. And respect is the great foundation for an investor-entrepreneur relationship.
11. DO NOT delay on following up to your meeting.
Although Woody Allen suggests that showing up accounts for 80%+ of success, I have to disagree.
Following up is equally or more important.
And that’s partially true because most people are very bad at follow ups.
They might forget about it, or take a week to get back in touch.
Maybe they don’t say, “Thank you for your time.”
Or they don’t sufficiently respond to questions and criticisms raised in the investor meeting.
So, think about a detailed, respectful follow up within 1-2 days of your meeting.
OK, all done.
I hope that was as cathartic for you as it was for me.
Now you know about 11 things to NOT do. But how about the top tips for what you SHOULD do?
Look forward to more details in our next blog post.
(Oh yeah, a cliff hanger.)
By: Dr. Chris Wedding, Managing Partner
You may need investors. And they might need you.
But how do you know which investor is the right fit for your business?
Based on IronOak Energy Capital’s work in raising capital, sourcing investment opportunities, and conducting strategic analysis in clean energy sector, we have advised private equity, venture capital, and angel investors with experience investing in over 600 companies and projects.
From that experience, we know that the investment community is hunting for opportunities in the growing sector. But they are sometimes left unsatisfied.
And despite the best intentions, the process of developers and entrepreneurs finding the right investor is inefficient and frustrating.
We learned this the hard way through our own mistakes, and by having to tell so many innovators that the capital we represent was not the right fit for them.
We are eager to see this change. The advanced energy economy now exceeds $1.4T. And environmental challenges like climate change need solutions from the investment world.
Here are 10 questions that you could ask potential investors in your business.
1. What is the size of your current fund?
Bigger is not always better. Instead, it is best to seek the right amount of capital from the right investor. However, be wary of the size of investment you are seeking relative to the size of the investor’s fund. Concentration risk can be a limiting factor.
2. How much dry powder remains in the fund?
Investor websites are not always up to date. Always ask for the latest information. Here, dry powder refers to the amount of capital left to place from a fund. For investors in evergreen vehicles, this may refer to investment targets that have yet to be met for a given year.
3. What is the investment period for the fund?
Investment fund managers are typically required to make investments within the first 3-6 years of a fund’s inception. Even if capital remains, managers may only be allowed to make follow-on, not new investments. For evergreen investors such as family offices, this may not be a limitation.
4. Do you have discretion over investments?
You want to work with investment professionals that have the final say regarding an investment decision. Some fund managers have to obtain approval from their investors for every decision. This requires delay and uncertainty in the process.
5. Are you a financial or strategic investor?
Financial investors are typically passive and do not add incredible value to a company’s chance of success. However, strategic investors seek to provide strategic advice and important industry network benefits, on top of their capital investment. But they are not passive.
6. What is your cost of capital?
Sometimes the answer will be, “It depends on risk, team, etc.” However, you deserve an answer, even if it is just a range of Internal Rate of Return (IRR). Plus, many investors are more driven by Equity Multiple (total cash out vs. total cash invested), which is always correlated with a strong IRR.
7. How do you describe your risk tolerance?
Every investor is different. And you need to know the nuances. Angel and venture capital investors like risk and expect high returns. However, infrastructure investors and debt providers are more risk averse, but can often place much larger amounts of capital.
8. What is your typical hold period?
Outside investment capital is frequently needed to grow your business. However, that comes with expectations for an exit, the sale of the company. Some investors look for 3-year hold periods, while others aim for 20-30 years. Your time horizon needs to align with theirs, or you may feel the fire.
9. Can you provide references?
It is often assumed that only investors conduct due diligence on you and your company. But an investment is a partnership. And you should vet the capital providers, too. Ask around and talk to those who have worked with them in the past. Any red flags?
10. Why are you interested in investing in my company?
You should not seek to be just one more investment for a capital allocator. Make the investor tell you why you and your company are of unique interest to them. Why are they best positioned to help you succeed?
This is not the final list, of course. But it should raise your game in future investor meetings.
Our goal is to remind entrepreneurs, executives, and developers that without good investments, investors have no business.
Don’t go into investor meetings begging.
Instead, vet the investor while they also vet you. It could be the beginning of a fruitful, 3-10 year partnership. Or the opposite if you’re not careful.
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