The Startup Playbook No. 14

Plan to Raise, Raise to Plan

Let’s start with a truism of life: things take longer than you expect. That is definitely the case when it comes to raising capital for your climate tech startup.

I recognize the climate tech ecosystem is different than it was 5 years ago. It is more mature, with more investors, more capital, and more willing customers looking to buy climate technology, all of which may lead you to believe fundraising can be quick and easy.

In the words of the great Lee Corso, “not so fast, my friend!” Because you know what else there is more of? Climate tech startups!

More climate tech startups mean more competition for those investment dollars. And more competition means those competitors (i.e., you, the startup founder!) sure better have a plan for how they are going to win.

Fundraising plans are overlooked by many founders, but they shouldn’t be. Not only does raising capital take a long time, but it is also really hard. A strong fundraising plan won’t make it easy, but it will make it less hard.

So, let’s get planning! Without further ado, I give you my Top 25 considerations when building your plan for raising capital:

  1. Incorporate as a C-Corporation in Delaware.
    I know this seems like a simple place to start, but it is amazing how many folks we see that don’t have their corporate ducks in a row.

  2. Hire your lawyer and understand how you’re going to be charged for the closing.
    This is a big one. Not only do you need reputable counsel (i.e., not your uncle who is an estate planning attorney), but you also need to understand how much the legal fees for raising capital are going to cost. The legal fees shock a lot of folks, so have an honest conversation with your counsel early on.  
  3. Identify the total capital raise.
    Not the kinda-sorta amount. Know the amount you are seeking to raise. Specificity will raise confidence.
  4. Define your use of funds and your milestone plan.
    Know exactly how you’re going to spend the capital you raise (i.e., your financial model). Be able to clearly articulate how those expenditures will allow you to achieve the technical and/or commercial milestones you have identified as critical. Explain how those milestones will result in the valuation of your company dramatically increasing.
  5. Assemble your Data Room.
    We covered this one in detail in a previous Startup Playbook post, but it bears repeating. Do not half-ass this one.
  6. Prepare your pitch materials—and your pitch!
    Have your pitch deck, techno-economic analysis (don’t confuse this with your financial model), and product demo ready to go. Practice your pitch so you have it down cold. Practice for in-person meetings, for Zoom meetings, and for the phone call you have with an investor who is wandering the beach at their summer home. And prepare some boilerplate emails, too, which you can personalize for rapid delivery of pitch materials.
  7. Create a Pro Forma Cap Table.
    In fact, create a few versions, which lay out how ownership of the company could look after you raise money.
  8. Map out your board strategy.
    We covered this one in another blog post. If you don’t plan your board, someone else will.
  9. Get your bank account and wiring instructions.
    Covered this one, too. Please folks, don’t be that founder that secures an investor and doesn’t have a company bank account to which the investor can wire funds.
  10. Make sure your background is clean.
    Not spotless, but clean. You need to survive a background check.
  11. Understand the type of capital you’re aiming to raise.
    Are you raising equity (i.e., selling shares of your company) or debt (i.e., taking a loan)? And, if equity, is it a priced round or a convertible instrument (SAFE, convertible note)? If it is a priced round, are you offering common stock or a preferred security? Nailing these items down early will dictate your strategy once you head to market.  
  12. Determine your deadline.
    When do you need to raise capital by? If you don’t raise capital by that date, what happens? Do you and your co-founders go without pay? Or do you personally invest more money? Do you lay off team members? Moth ball the business? Proceed with confidence that you will raise capital (you have no choice) and understand what will happen if you don’t.  
  13. Create a realistic valuation range for your business.
    Another example where if you don’t create it, someone else will. I’m not saying you will raise money at your preferred valuation but have a strong starting point and use that as a tool when negotiating with investors.
  14. Don’t have an NDA.
    Because you’re not going to use one.
  15. Do have a CRM.
    Or some tool to keep track of all the investors you have connected with and action items for each investor. Could be Excel—if you are insanely diligent about keeping it up to date.
  16. Understand the types of investors you need to find.
    Investors come in all shapes and sizes. Recognize the investors by sector, stage, and positioning (are they leading a round or following).
  17. Select how you intend to close the round.
    A rolling close is great because it allows you to get money in the bank and build momentum. Rolling closes work better with a convertible note or SAFE. A single close can be a great rallying point to herd all investors to act around a specifically defined closing date. But if you pick a single closing date, make sure you can bring all the investors together by that date. More importantly, make sure they can close in time, as investors have all sorts of different internal procedures for how they fund investments.
  18. Build your marketing plan.
    You can’t complete steps 1 through 17 and expect the investors to roll in. And let me be clear: cold emails are not going to cut it (they can be part of your marketing plan, but not the centerpiece of it). You must market yourself and your company. Identify the events, accelerators, incubators, fellowships, and competitions you can join and/or in which you can participate to spread the word about your company. Find those super connectors that could introduce you to many folks and befriend them. Use your university connections, former work colleagues, and friends in high places to expand your network. Constantly ask yourself: how am I getting my company’s name out there?
  19. Always be selling.
    With a good marketing plan, you should be building a list of investor contacts and receiving some warm introductions. Once you establish a contact with an investor, you must have a cadence of follow ups. Investors are hearing from a lot of startups, sometimes too many. You need to be able to get and keep their attention, which means you’re always selling. Just be careful that selling doesn’t turn into stalking. No one loves a founder who won’t leave you alone.
  20. Build your hot lead list and understand their capacity.
    Know exactly with whom you’re dealing. For example, if a fund is one of your hot leads, is the fund making its first investment (more eager to invest) or its last (pickier)? If you’re working with individual investors, can these individuals write big checks (six and seven figures no problem and with repetition) or little checks ($10k or $25k, which is great, but leaves you a long way from the finish line if you are raising $1M+).  
  21. Understand their time to close.  
    Are you working with an individual who can make a quick investment decision on their own? Or are you working with an investment firm or fund which must go to investment committee? If so, how often does that investment committee meet? What must the lead investors present to the investment committee? A deal memo, a technical analysis, a peer review, or all of the above? It is really important that you understand how long it will take for investors to get through the closing process and get to funding, because you need to manage your existing cash and manage all the other investors you’re aiming to herd to close, especially if you’re targeting a singular closing date (note–you can always legally establish a closing date followed by a closing window within which other investors can close).
  22. Gut check.
    This is hard. Really hard. And you’ve got to be on your toes selling your vision every single day. Yes, you need to push. But recognize when you may be pushing too hard and/or experiencing diminishing returns. Make sure you’ve built a small community of supporters who you can lean on for advice and camaraderie. And lean on them when you need to. You can’t exhaust yourself in this process because no one wants to invest in a tired, run down founder. And you don’t want to be that person.
  23. Get a first “YES”.
    Damn, that feels good. Now, don’t wait too long to close them. If you’re doing a rolling close, then get their documents signed and get their money in the bank ASAP. Now, you can let other investors know they won’t be the first money in. If you’re building a syndicate of investors for a single close, then do everything you can to keep your first commit engaged and on board. Be mindful if your fundraising schedule crosses a calendar year, as early commits may want to see updated financials for the year you just completed or an updated financial forecast for the new year.
  24. Land a lead investor.  
    Negotiate the terms with them. Give, but don’t give too much, and then use the lead term sheet to align follow-on investors. Go back to other investors with whom you spoke and let them know you now have a lead. Create FOMO and take advantage of it. Try to stay true to the terms of the lead investor’s term sheet and don’t negotiate too many side letter agreements with other investors. Recognize that investors talk with one another, so be careful as you maximize your FOMO!
  25. Close it!
    Get that money in the bank! Don’t count it until it is in the bank. Make sure everyone gets a closing packet and a post-closing cap table. Recognize your new board and investor group. Create strong and immediate expectations for when and how they will receive updates, whether those updates are legally required (i.e., information rights) or best practice (i.e., monthly email updates to investors). Take a deep breath and a quick moment to celebrate. Now the real work begins.

Even when incorporating all these items into a thoughtful plan, it is still up to you to execute with proficiency until the capital is raised. Work like hell, make your own luck, and close that financing so you can share your own fundraising wisdom with others some day!

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