Top 5 Things Cleantech Entrepreneurs Fail to Understand About Raising Capital

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David Gold

After decades of venture capital investment, growth and exit, the traditional focus areas of venture capital (such as IT, web and software) have developed strong entrepreneurial ecosystems. A high percentage of start-ups in these traditional areas come to market with one or more experienced entrepreneurs or with a strong and active network of investors/advisors who have “been there, done that.”   They know what it takes to raise capital and to build a great fast-growing business.  Cleantech companies, however, are much more likely to be led by first-time entrepreneurs who often struggle to create an ecosystem of experience people around them.

As a venture capitalist, I review hundreds of business plans each year and physically meet with roughly a hundred entrepreneurs seeking capital.  I have the advantage of doing this through the eyes of someone who has been on the other side of the table, having raised venture capital for my own start-up before becoming a VC.  And while there are certainly numerous exceptions, there are themes I see across cleantech start-ups that are not specific to their technology or market but which nonetheless impede their ability to raise capital.  Here is the top five…

Technology is necessary, but not sufficient.

Many cleantech entrepreneurs are engineers or scientists.  Although not the result of a formal survey, my perception is that many more have PhDs than what you find in internet start-ups.  I don’t know if it’s a symptom of having achieved such a lofty degree, but many seem to believe that their phenomenal technology and their outstanding technical skills alone should justify an investment in their company.  It isn’t.  Weak entrepreneurs can take the most game changing technology in the world and drive it into the ground.  Conversely, outstanding ones can take a good, but not great, technology and make a world-class business out of it (anyone heard of Microsoft?).  So… in scientific terms, having compelling technology is a necessary but not sufficient condition for entrepreneurial success.  Human capital must always precede venture capital.

Your 50-page business plan is a waste of time.

Will someone please tell all the college business professors that the traditional business plan is a dinosaur!  No VC has time to read such a tome.   Nothing ever turns out completely as expected, so writing a long document as if it will prescribe the future is silly.  And by the time you finish investing the time to create such a detailed document it is most assuredly out of date.

Conversely, too little time is invested into building a robust spreadsheet financial model.  Not a static five-year P&L – that is almost useless.  Rather, what an early stage company needs is a financial model that can be used to run “what-if” scenarios, e.g. “What if our margins are less?”  “What if it takes us a year longer to get to market?”   A tool like this accepts that the future is uncertain and that entrepreneurship is about taking risk.  As an entrepreneur, which would you rather have, a 50-page wish or a model of your potential risks?

The thought process that goes into fleshing out the basic elements of a business plan (e.g, market, competitive advantage, go-to-market strategy, financial model, etc.) is what is paramount.  Entrepreneurs that recognize this look at their business strategy and financial model as planning tools more than as fund-raising tools.  And they realize that communicating the results of that thinking must be done concisely.

Eisenhower once said, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” Start-up businesses are no different.

A real advisory board isn’t just a list of cool names.

Some cleantech entrepreneurs get advice along the way that they should form an advisory board:  Get some people with cool experience and ask them if you can slap their names in your business plan.   That’s not an advisory board – it’s just a list of cool names. 

 A real advisory board not only has relevant experience and business contacts but also is actively engaged in the business, albeit on a very limited basis.  They meet regularly with company leaders, have provided concrete material assistance to the company and they have a specific personal interest in the company.  Such personal interest can take many forms, such as a stock option, a direct investment, a future executive role, prior significant personal relationship with a founder or clear strategic interest for their current employer. 

 Volunteer advisors who have no economic, business or personal connection to the company are cute.  They are like the parsley on your breakfast plate – they make it look nice, but add little substance and… at least for this VC… leave a bad taste in my mouth!

25% gross margins and growth to $20M in seven years aren’t exciting

At the highest level, there are three types of start-up companies.  There are high-growth businesses with venture potential.  There are downright bad businesses.   And there are steady growth businesses, which are not “bad” businesses – they just aren’t great venture investments.  
Venture capital funds are mostly 10-year partnerships.  We need to target businesses that we believe can generate huge multiples (typically 10x or more) on our investment in less than that timeframe so we get both liquidity and sufficient returns to make up for those investments that aren’t as successful.  That means companies that can use our capital to drive extraordinary growth, unfair competitive advantages and healthy margins yielding an exit return far beyond a simple discounted cash flow analysis on the business.

My second cousins are billionaires.  They built one of the first mail-order office supply companies to a dominant leader in its industry over 40 years (you can read their story in this book).  They never raised a penny of equity capital.  It was a great steady growth business that made them extraordinarily wealthy. Steady growth businesses can lead to phenomenal personal wealth, but that doesn’t make them good venture capital investments.

Last, but by no means least…raising capital is a social sport.

Quick quiz:  What is the single most important element of raising venture capital?  Your pitch deck?  Your technology?  No, no… your management team’s experience, right?  Wrong… it’s your relationships with potential investors.  Who you know is often more important than what you know in business.

The classic fund-raising mode for most cleantech entrepreneurs is to send their business plan to lots of funds, pitch at various cleantech business plan events and then wait to see who pursues them.   They let the VCs drive the process.  Few look at this as the sales process that it is.  Don’t spam slews of potential investors.  Rather, identify the funds that should be your top targets based on the investment interest they describe on their website.  Pursue them like you should a prospective customer: qualify them, identify their hot buttons and always be closing on a time-bounded next step with them.  And, as all great sales people know, getting an introduction is infinitely better than a cold call.

does that mean that only entrepreneurs who already have VC relationships can get funded?  No, but that sure as heck helps a lot!  And in this day and age, if you can’t get an introduction to me or another VC, you then you aren’t a very good entrepreneur.  There are almost 500,000 people who know somebody who knows me on LinkedIn and can get you an introduction.  Many VCs are equally well-connected – it’s part of what we do.  So, which business summary do you think I take more seriously the one that comes in from our website without an introduction or the one referred to me by someone I know?

And with that, you now have as a perk for reading my blog, a free roadmap for increasing your odds of raising capital from me!

David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners (  This article was first published on his blog,



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