Cracking The Code: What VCs Seek In Climate Entrepreneurs
As a Founder starting-up in the nascent yet fast-growing climate industry, understanding the expectations of venture capitalists can be instrumental in helping you navigate the path to success. In this article, we will explore what venture capitalists are looking for in climate Founders, drawing insights from ‘The Voice of Gen-C’ podcast sessions by Climes with notable venture capitalist firms like Theia Ventures, Fireside Ventures, and Aureolis Ventures.
In a world grappling with the consequences of climate change, the role of venture capitalists in supporting sustainability-conscious startups has become increasingly crucial. Firms like Theia, Fireside and Aureolis are at the forefront of this movement with their focus on investing in what they refer to as “purpose-led brands” - those with a clear commitment to people and planet, along with profit.
A common theme highlighted in the podcast sessions with all three Venture Capitalist (VC) firms was the recognition that climate action is now not just limited to scientists or environmentalists alone. It is a critical issue that affects every sector of every society, making it vital for individuals from diverse backgrounds to contribute their skills and expertise.
“At Fireside Ventures, we view sustainability across multiple stakeholder environments - your customers, your suppliers, your community, your employees. We also consider how you can be more socially responsible in a way that would cover your suppliers or your customers or the community you are in.” - Vasudha Mathur, Associate at Fireside Ventures.
While addressing climate challenges is crucial, venture capitalists also emphasise the importance of a robust and scalable business model. Founders need to demonstrate a clear understanding of their target market, competitive landscape, revenue streams, and potential for long-term profitability. A viable and sustainable business model is essential for attracting investment and ensuring the company’'s long-term success.
“I think we have to be very discerning in choosing models which are practical for today's times and which have solutions which can scale but also manage the multi-level stakeholder engagement…If we were to put a couple of lenses on a fundamental business model or how a Founder is visualising the company being built - the vision is one thing because that's very important…(and) how that vision is broken down by the Founder into actually creating something that will have its own life” - Paula Mariwala, Founder, Aureolis Ventures.
The team behind the company is equally important. Venture Capitalists value teams that demonstrate resilience, adaptability, and a long-term commitment to tackling climate challenges. Significant emphasis is placed on the Founder’s awareness of the impact and scalability of their solution. Founders who possess a clear understanding of the potential of carbon neutrality and provide concrete metrics are particularly sought after. This understanding serves as a crucial benchmark for gauging the potential and thus, influencing the level of investment and engagement from VCs.
“Even the Founders that we're working with, we want them to be very much aware of the impact of their solution, how it can be scaled up, what is the version of a carbon footprint that they're predicting and forecasting in their metrics…and…I think the depth on that as well as - the depth on the technologies that they're trying to build, serve as a guiding metric or a guiding benchmark on how strongly we want to be involved with them as as investors.” - Priya Shah, Founder, Theia Ventures.
While VCs assess various aspects when considering investments, their own commitment to sustainability holds significant weight. It is crucial for them to lead by example and uphold sustainable practices themselves. This alignment between their investment decisions and their internal practices not only attracts environmentally conscious entrepreneurs but also enhances their reputation and credibility within the industry.
“We realised that as a fund even though we are only 25 employees, we still have an impact on the environment…and I think this was our way of signalling to the community (and) those around us that sustainability is extremely important to us and we as a fund want to show that we care - not just to tell our portfolio companies but to demonstrate (that) it comes from our own internal ethos” - Vasudha Mathur, Associate, Fireside Ventures.
Traditionally, both big and small businesses have had a greater incentive to stick to the status quo when it comes to sustainability. ‘Profit’ has always taken priority over ‘planet’. By choosing to reward and invest in founders and brands that do ‘good’, VC firms like Theia, Fireside and Aureolis are helping to turn that incentive structure on its head. In doing so, they make a powerful statement: prioritising sustainability and social impact can go hand in hand with building successful and profitable businesses.
Tune in to these Voice of Gen-C episodes for more fascinating insights from industry experts Priya Shah, Vasudha Mathur and Paula Mariwala in conversation with Climes Co-Founder, Anirudh Gupta.