A sold-out crowd packed HQ Raleigh for the Research Triangle Cleantech Cluster's recent Growing Your Cleantech Venture event. They were hungry to hear what three premier venture capital experts had to say about the current landscape for securing investment and how companies can access it.
Capital for cleantech ventures has become increasingly tough to tap in the past five years.
Three top cleantech venture experts: Scott Henneberry, vice president for smart grid strategy at Schneider Electric in Raleigh, Julien Creuz, senior associate with Aster Capital in San Francisco, and Dave Kirkpatrick, managing director at SJF Ventures in Durham, shared their knowledge and insights on sources of venture financing available for growing companies and how they should approach securing the right type of investment in the current funding environment.
We reached out to three people who attended the event—venture experts in their own right—to find out what they found most valuable. Here are the key takeaways they said growing companies should know.
Consider all avenues of funding, not just traditional venture capital.
Philip Watson, RTI International innovation advisor and energy expert, found it valuable to hear speakers describe three distinctly different investment avenues: traditional venture capital (SJF), strategic venture capital (Aster) and corporate venturing (Schneider Electric).
"That was really useful because entrepreneurs typically think of financial VCs as the most obvious source of funding. But ultimately, I think strategic VCs and strategic partners are excellent sources of money for those entrepreneurs to work with," Watson said.
Corporate partners, for instance, offer more than capital. They offer validation, expertise, know-how, market intelligence and access to networks and markets.
"I ultimately think that partnerships between strategic and entrepreneurial companies could be a real differentiator for the region," he said. "A company, like Schneider Electric, really shows that."
Strategy consultant Jeff Cheek, formerly of Energate and now with Cisco Systems Inc., agreed that the meeting format was helpful even to early-stage companies in the audience that may not be ready for any of the three options speakers discussed.
"It's helpful for folks to understand the opportunities out there for startups, regardless of where you are," Cheek said. "It's something to keep in mind as you grow. There is great value in sharing experiences, learning together as we grow our companies."
Position your company within a 'hot' sector.
Larry Steffann, general manager of the Wireless Research Center of North Carolina, former vice president of product development for smart energy startup Consert (which moved from Raleigh to San Antonio in 2011 and was acquired by Toshiba in 2013) and a serial entrepreneur and mentor, fixed on remarks by Kirkpatrick.
The Durham, N.C.-based venture fund managing director reported that VC deal flow over the last decade peaked at 234 in 2008, but dropped to 141 for the first 11 months of 2013 because investors have not seen the returns they desire.
"Kirkpatrick said he was not using the word 'cleantech' per se," Steffann said. "Rather, he said you should lead your position as a 'connected home' device, or M2M [machine-to-machine] or energy-efficient device—the 'Internet of Things' in the energy space."
Smart home system maker Nest, for instance, positions itself in the connected home space. Waze and Tesla Motors position themselves within transportation.
"Kirkpatrick said he hasn't given up on the sector, but said you need to look at a different approach when looking at deals," Steffann said.
Take the long view when structuring a partnership.
Speakers offered both sides of the corporate partnership story—the advantages as well as potential downsides, Watson said.
On the upside, he said, "You can do this faster than selling to a company, and it enables both sides of the deal to get very comfortable with personalities, the concept and so on before they make a sell decision."
Keep in mind, however that the terms of your partnership deal will have consequences down the road.
"One thing a speaker pointed out was that too much exclusivity can be very damaging to a startup in terms of the relationships you can form with other companies in the future," Watson said. He recalled the words of a local colleague from a biotechnology startup that formed a partnership with a global corporation and was later acquired.
"The founder said they were very careful to give away the sausage and not the sausage maker," he said. "They ultimately were acquired by the company, but if they had given away too much initially, they would never have been able to pull off a sale."
IPO interest is rising.
"The best news I heard is that the appetite for IPOs is going up over previous years," Steffann said.
"For the last few years, the only opportunities for exit were acquisitions," he said. "So that is one of my takeaways. If you combine smart tech with clean technology benefits, there is a market value in that."
Early-stage companies must get creative about funding.
VCs are mostly looking at later-stage funding opportunities at the moment, leaving a gap for early-stage firms, speakers said.
"But there are lots of things you can do to get funding at an earlier stage," Watson said. "The speakers gave some good examples, like crowd funding, business plan competitions, [Small Business Innovation Research] and other grants for research funding, and bootstrap financing. There are ways to get funding, but entrepreneurs have to be creative."
Attend more cleantech gatherings.
"In sales, if you're not meeting new people, you're not moving forward," Cheek said. "It's the same in clean tech."
Cheek applauded the RTCC for hosting an event focused on such a key topic.
"There is a lot of value in connecting with people in the community, but you can't get all of those people in the room without a compelling topic," he said. "This was a great gathering of people in the community."