Fundraising

5 tips for scaling your green startup during a funding drought

Comment

Horizontal side view of a lonely yellow flower growing on dried cracked soil; fundraising for green startups downturn
Image Credits: flyparade (opens in a new window) / Getty Images

Priyanka Srinivas

Contributor

Priyanka Srinivas is the co-founder and CEO of Live Green Co, a Boston-based food tech startup that uses artificial intelligence to suggest plant-only alternatives for meat and artificial additives in food.

More posts from Priyanka Srinivas

When it rains, it pours. The dampened outlook for startup funding at the start of 2022 thanks to the pandemic’s lingering uncertainties has only worsened following a global market downturn and the war in Ukraine.

CB Insights forecasts a roughly 20% drop in total VC investments from Q1 to Q2, leaving ambitious young companies scrambling to fight for scraps.

This slump is a particularly unpleasant setback for entrepreneurs hoping to advance climate-focused principles and social change. It’s becoming increasingly difficult for green companies to raise money for large-scale innovative projects, mainly because most investors still associate “having an impact” with high risk.

More than ever, green startups now need to refine their strategies for raising VC money during the scaling stage, especially when they begin assessing their defining values vis-a-vis their finances. Whether it’s dedicated impact funds or value-based venture capital firms, funders tend to back companies that have demonstrated their ability to scale.

Here are five things green founders should remember when seeking VC funding at this moment.

When it becomes repeatable, you can scale it

Remember the point at which you raised your initial funding? You probably presented a minimum viable product and initial consumer research, and were backed for that.

But the investor climate has changed, and now your business must, too. The next phase isn’t about proving your concept or telling your inspiring founder story — it’s about growing your existing business, attracting new customers and customer segments, and entering new geographies.

All the while, you must show potential investors why they should commit their fiercely coveted money to your scaling efforts.

To scale, a startup needs to grow the most it can in the shortest amount of time with limited resources. But not every up-and-running startup is suitable or ready for scaling. Investors will want to see close evidence of your distribution channels, your product’s added value, and, most importantly, your technology.

The strongest sign of a company ready to scale is when it, very naturally, starts repeating what it has already achieved, only now with larger-impact outcomes.

If you’ve reached that stage, it means you have gained the knowledge and experience of how to do business. If your business activities have produced desired results and repeatable cycles — like developing a new product and distributing it through local markets — then you are ready to multiply.

Re-narrate your startup’s story

In addition to scalability, you will need to polish your presentation.

Before you pitch your company for a new round of funding, gather enough statistical evidence, interviews with advisory boards and stakeholders, media mentions and information to “reconstruct” your startup’s journey.

Looking back, what milestones can you identify? What were the key drivers of success? What transformed your business into what it is today?

This nostalgic look backward will help determine the arguments and product features that have driven your evolution. These are the details that attract investors.

Same but different: Value-based VCs vs. climate impact VCs

For a long time, experts have argued over how impact investors and value-based investors differ, and the lines are indeed blurring. That said, my experience has taught me that the type of investor makes a big difference.

Climate impact VC funds focus on mitigating and adapting to climate change. They often serve governments, organizations or philanthropists with substantial investment theses on the impact they’re looking to achieve.

When assessing startups, they use scientific metrics and official criteria for evaluating performance on sustainability goals, and they want to track, monitor and advise on your startup’s performance. They usually look for quantitative and qualitative data on greenhouse gas emissions, natural resource efficiency and biodiversity protection. Further, they will test you on how emissions reduction is central to your business strategy.

Value-oriented VCs also screen their portfolios based on specific criteria, but they don’t have an entire investment thesis based on climate change impact. Yes, they expect you to show your impact — including carbon emissions, social impact and the sustainability of your supply chain — but they focus first on business arguments.

Typical questions include:

  • Given current trends, how does your company’s business model solve sustainability problems in its industry?
  • To what extent is your solution unique, innovative and able to scale quickly and profitably?
  • What effect will your scaling efforts have on energy savings, water savings, etc.?

When pitching to value-based VCs, remember that a biotech startup has different needs than a fintech startup. Likewise, a company developing batteries for electric cars has different aspects to consider than a company focused on plant-based food alternatives.

But unlike a climate change investor, your value-oriented VC investor may not be an expert on all of these new industries. They might just be looking for a disruptive technology with great market share. Therefore, you must provide detailed information and help them research your sustainability with scientific materials and contacts. Easing their work will benefit you.

Reduce the VC due diligence workload

Most VCs will follow your development for a few months as part of their due diligence. At this point, both sides may work with a knowledgeable lawyer to navigate the negotiations. You will go through the typical sharing of board meetings, investor connections, intellectual property agreements, commercial contracts and the like.

As a green startup, you should also prepare for third-party sustainability audits. These audits will validate your sustainability claims during the process, such as carbon emissions, pollution monitoring and legal compliance. As a result, they involve a thorough analysis of all of your data. From product samples to policy papers and customer reviews, investors want to see it all. And why wouldn’t they? After all, they’re making sure you know your stuff.

My advice: Don’t worry if your investors identify risks because of changing regulations or missing certifications. The joint review during due diligence should set up an engagement plan that addresses any upcoming issues with regulators, and prepares all certificates and documents to present. In fact, identifying risks with your investor early can help you both to capitalize on key opportunities, such as tech expansion and patent development.

Due diligence is not about checking off boxes or completing time-consuming paperwork. Instead, this interaction is about creating long-lasting value for you, the portfolio company.

Identify your non-negotiables

Remember that due diligence is a two-way street. Use these months to get to know the core values of your potential investors.

Typically, you’ll also be negotiating your valuation. Check with a lawyer about potential dilution for follow-on rounds and simulate hypothetical scenarios. This will help you understand how much control — or how little — you have going forward.

Your due diligence should also involve tough questions and deciding how much dilution you can accept or how much decision-making power investors want. Consider: How do your investors respond? Are your negotiations objective and fair? Your gut feeling will help you sense what your future relationship with your investors might look like.

But don’t stop there. Contact a good 30% of the investors’ portfolio companies and research online and in-person to find out if they participate actively, hold back or are somewhere in the middle.

This is very important, because money is one thing, but if it’s not aligned with the value or vision of your green startup, there’s a high likelihood of (costly) conflict in the future. There are many ways to raise funding, but as an impact entrepreneur, you need people who believe in what you’re doing and support your impact with a financial vision.

Purpose is the motor; profitability is the fuel

My advice is to make your entire interaction and story about why your principles are the gateway to your profits.

In the current investment climate — given that incorrect stereotypes persist about impact companies being “risky” — green startups need to give 200%. Financial metrics are the first 100%, and impact metrics are the other half. This thinking will allow you to have the most significant impact on your vision and become a highly valued company in the future.

More TechCrunch

Featured Article

DEI backlash: Stay up-to-date on the latest legal and corporate challenges

It’s clear that this year will be a turning point for DEI.

4 hours ago
DEI backlash: Stay up-to-date on the latest legal and corporate challenges

The keynote will be focused on Apple’s software offerings and the developers that power them, including the latest versions of iOS, iPadOS, macOS, tvOS, visionOS and watchOS.

Watch Apple kick off WWDC 2024 right here

Hello and welcome back to TechCrunch Space. Unfortunately, Boeing’s Starliner launch was delayed yet again, this time due to issues with one of the three redundant computers used by United…

TechCrunch Space: China’s victory

The court ruling said that Fearless Fund’s Strivers Grant likely violates the Civil Rights Act of 1866, which bans the use of race in contracts.

An appeals court rules that VC Fearless Fund cannot issue grants to Black women, but the fight continues

Instagram Threads is rolling out the ability for users to signal which sort of posts they wanted to see more or less of by swiping.

You can now customize your For You feed on Threads using swipes

The Japanese billionaire who commissioned SpaceX for a private mission around the moon on a Starship rocket has abruptly canceled the project, citing ongoing uncertainties around when the launch vehicle…

Japanese billionaire pulls plug on private ‘dearMoon’ lunar Starship mission

Malicious actors are abusing generative AI music tools to create homophobic, racist, and propagandic songs — and publishing guides instructing others how to do so. According to ActiveFence, a service…

People are using AI music generators to create hateful songs

As WWDC 2024 nears, all sorts of rumors and leaks have emerged about what iOS 18 and its AI-powered apps and features have in store.

What to expect from Apple’s AI-powered iOS 18 at WWDC

Dallas is the second city that Cruise is easing its way back into after pulling its entire U.S. fleet late last year.

GM’s Cruise is testing robotaxis in Dallas again

Featured Article

After raising $100M, AI fintech LoanSnap is being sued, fined, evicted

The company has been sued by at least seven creditors, including Wells Fargo.

9 hours ago
After raising $100M, AI fintech LoanSnap is being sued, fined, evicted

Featured Article

Sonos Ace review: A high-priced contender

The Ace are a contender in a crowded market, but they’re still in search of that magic bullet to truly let them stand out from the pack.

9 hours ago
Sonos Ace review: A high-priced contender

The change would see Instagram becoming more like the free version of YouTube, which requires users to view ads before and in the middle of watching videos.

Instagram confirms test of ‘unskippable’ ads

Commerce platform Shopify has acquired Checkout Blocks, allowing Shopify Plus merchants to make no-code customizations in their checkout to enhance customer experience and potentially boost sales.  Checkout Blocks, which debuted…

Shopify acquires Checkout Blocks, a checkout customization app

After the Digital Markets Act (DMA) forced Apple to allow third-party app stores for iOS in Europe, several developers have launched alternative stores, like the AltStore and MacPaw’s Setapp (currently…

Aptoide launches its alternative iOS game store in the EU

Time is relentless and, right now, it’s no friend to procrastination-prone early-stage startup founders. The application window for Startup Battlefield 200 (SB 200) at TechCrunch Disrupt 2024 slams shut in…

One week left: Apply to TC Disrupt Startup Battlefield 200

Cloudera, the once high-flying Hadoop startup, raised $1 billion and went public in 2018 before being acquired by private equity for $5.3 billion in 2021. Today, the company announced that…

Cloudera acquires Verta to bring some AI chops to its data platform

The global spend management sector is experiencing a tailwind of sorts. North America is arguably the biggest market in this space, but spend management companies have seen demand rise across…

Spend management startup SiFi raises $10M to grow further in Saudi Arabia

Neural Concept lets designers model how components will perform before they can be manufactured.

Swiss startup Neural Concept raises $27M to cut EV design time to 18 months

The StrictlyVC roadtrip continues! Coming off of sold-out events in London, Los Angeles, and San Francisco, we’re heading to Washington, D.C. for a cozy-vc-packed, evening at the Woolly Mammoth Theatre…

Don’t miss StrictlyVC in DC next week

X will now allow users to post consensually produced NSFW content as long as it is prominently labeled as such.

X tweaks rules to formally allow adult content

Ashby consolidates existing talent acquisition tools and leans heavily on AI to automate the more repetitive steps in the recruitment pipeline.

Ashby injects recruiting with a dose of AI

Spotify has announced it’s hiking subscriptions for customers in the U.S., the second such price increase in the space of a year. The music-streaming giant reports that premium pricing will…

Spotify to increase premium pricing in the US to $11.99 per month

Monzo has announced its 2024 financial results, revealing its first full-year pre-tax profit. The company also confirmed that it’s in the early stages of expanding into the broader European market…

UK neobank Monzo reports first full (pre-tax) profit, prepares for EU expansion with Dublin hub

Featured Article

Inside Apple’s efforts to build a better recycling robot

Last week, TechCrunch paid a visit to Apple’s Austin, Texas, manufacturing facilities. Since 2013, the company has built its Mac Pro desktop about 20 minutes north of downtown. The 400,000-square-foot facility sits in a maze of industry parks, a quick trip south from the company’s in-progress corporate campus. In recent years, the capital city has…

18 hours ago
Inside Apple’s efforts to build a better recycling robot

Early attempts at making dedicated hardware to house artificial intelligence smarts have been criticized as, well, a bit rubbish. But here’s an AI gadget-in-the-making that’s all about rubbish, literally: Finnish…

Binit is bringing AI to trash

Temasek has previously invested in Lenskart, and this new funding follows a $500 million investment by the Abu Dhabi Investment Authority last year.

Temasek, Fidelity buy $200M stake in Lenskart at $5B valuation

Less than one year after its iOS launch, French startup ten ten has gone viral with a walkie talkie app that allows teens to send voice messages to their close…

French startup ten ten reinvents the walkie-talkie

Featured Article

Unicorn-rich VC Wesley Chan owes his success to a Craigslist job washing lab beakers

While all of Wesley Chan’s success has been well-documented over the years, his personal journey…not so much. Chan spoke to TechCrunch about the ways his life impacts how he invests in startups.

1 day ago
Unicorn-rich VC Wesley Chan owes his success to a Craigslist job washing lab beakers

Presumptive Republican presidential nominee Donald Trump now has an account on the short-form video app that he once tried to ban. Trump’s TikTok account, which launched on Saturday night, features…

Trump takes off on TikTok

With fewer than 400,000 inhabitants, Iceland receives more than its fair share of tourists — and of venture capital.

Iceland’s startup scene is all about making the most of the country’s resources