An angel investor’s perspective on investing in Cleantech start-ups
Author: Paul Howdle, Managing Consultant of Directional
Paul is the facilitator of the panel discussion on day two of the VCTCE2020 program titled Cleantech fast-tracking sustainable growth through impact investment
This article isn’t a general “how to pick tech start-up investments” but instead shares some of what I look for, having been on the management teams of several tech start-ups and scale-ups over the last 20 years. It then shares some thoughts on two criteria that I drill into – the tech and the team – in my specific focus area – cleantech – based on the teams that I’ve mentored, advised and invested in over the last five years through the accelerators run by EnergyLab, CSIRO and others.
First, some perspective on cleantech venture capital. Cleantech start-ups can find it tough to raise money. Venture capital (with a few notable exceptions) has come late to the sector, having focused on the fashionable darlings of tech start-ups – SaaS, fintech, AI, martech and blockchain.
By comparison to many of the darlings, Cleantech start-ups often involve commercialising innovative technology, with complex R&D, hardware as well as software, prototypes and pilot projects commonplace. All these aspects take time and relatively deep pockets before the technology starts to generate meaningful revenue, which scares off plenty of VCs who can only see the risks.
Don’t get me wrong, the risks are there. But the flip sides of these issues are, to me, some of the biggest positives.
If you’re developing world-leading thermal storage materials, for example, as one of my investments is, you’re unlikely to have your IP ripped off by a bunch of spotty teenagers working from their bedrooms in Shanghai. And if that technology has been many years in development, the barriers to entry for a competitor are pretty high.
Now to the team. There’s great potential for financial rewards, but investors need to be motivated by more than monetary gain alone. Investors need to understand the nature of Cleantech founders and share the vision and the passion that founders in the sector have – to use technology to benefit society and the environment.
We all look for founders with energy, passion, drive and determination, but it’s not always as easy to spot. Founders are often engineers and scientists who don’t come with showy sales skills and slick presentations. But scratch beneath the surface and you’ll often find founders have been working in their focus area for years, commonly not just in their jobs, but contributing to research or industry development. Why? Because they passionately believe their focus area is of benefit to society. That type of motivation breeds another level of determination and tenacity.