Question of the Week
With the rising price of gasoline, the rapidly expanding worldwide demand on energy resources, and Federal and state governments incentivizing business enterprise to explore alternative sources of energy and clean tech, what should I, as an owner of an expansion stage clean tech company do to position my company for venture capital?
Attracting venture capital is a complicated and often arduous task for any early stage company. Before exploring venture capital to expand your clean tech company, here are six important considerations:
1. Consider whether you have a financially viable technology that underlies your business model. Is the financial viability of your technology and business model closely correlated to the rising price of gasoline or other commodities? How dependent is the technology on governmental regulation, incentives or subsidies? For instance, if the underlying financial proposition of your business model is based on government subsidies, the long term viability of the company may be difficult to determine or may dampen its appeal.
2. Determine who has ownership or control of the underlying technology. Key to a venture capitalists' investment analysis will be whether or not you own or have exclusive right to the technology that is the foundation to your business model and the strength of your intellectual property. Is your technology patented? Is it a significant barrier to entry for competitors in the market place?
3. Establish strong management and a board of directors. Your company needs strong leaders experienced in growing a company in a rapidly changing marketplace with deep strategic and industry relationships. Venture capitalists, regardless of industry, are investing in management or the "jockey," not necessarily the technology or the "horse." They invest in proven management which has an identifiable technological solution that is rapidly scalable with the potential for wide market acceptance.
4. Have a viable sales or order pipeline. Venture capitalists will be looking for customers that have entered into supply orders or service orders and/or license agreements, depending on the business model. Mere projections of a bright future of increasing quarter over quarter revenues, while important, may be mere window dressing.
5. Have a strong understanding of your marketplace. If a venture capitalist is interested in your business, then they will undoubtedly know all the other players in your space and will expect that you know them as well. Who are your competitors? What are they doing? And more importantly, what aren't your competitors doing?
6. Hire seasoned outside advisors and consultants. It is important that your legal and accounting advisors have worked with early stage companies. Do they understand your technology and understand the important issues related to raising venture capital?
For more information, please contact Nicholas W. Robbins.
