Published on March 13th, 2008 | by Jeff McIntire-Strasburg6
Ecopreneurist: How to Approach a Venture Capital Firm with a Cleantech Business Idea
March 13th, 2008 by Jeff McIntire-Strasburg
Editor’s note: On Monday, Ecopreneurist’s lead writer Leah Edwards published this post on approaching venture capital firms with a cleantech business concept (with guidance from a member of one of the most influential VC firms in the world, Khosla Ventures). We figured a few of you out there are bouncing around business ideas, and might find this information useful, so we wanted to bring it to your attention.
First of all, don’t worry about the business plan.
I realize that sounds like crazy advice coming from a business consultant. However, I have seen too many entrepreneurs stalled or stressed when trying to write up a business plan when the plan really is not the critical issue. Many green business ventures that would be of interest to VC firms are in the cleantech, new materials, information technology, and life science spaces. If you are an ecopreneur with an idea in areas like these, your most important task is to explain the technology or science behind your idea and whether you have, or can get, the rights to the intellectual property.
Don’t spend your valuable time wordsmithing a long document. Just be able to say:
- why your idea works
- how it is different from an existing technology or product, or what is being developed by others
- how it will change the world, e.g., by dramatically changing a market or supply chain or by creating a new market or standards for how a market operates, etc.
This is not just my humble opinion. I spoke with Khosla Ventures’ newest operating partner Ford Tamer who explained that the firm is looking for leapfrog innovation—new technologies or new business models that can increase the size of a market by five-times or can drive costs down so significantly that entire new markets become available. He says, “We’re interested in ideas that can significantly affect the earth and can build big companies… We have no problem taking the risk if the risk is worth taking—for a huge benefit to society and the ability to be a major player.”
Tamer explained that while they have additional criteria for investing in a company, such as what he called “gene pool analysis,” i.e., the team members Khosla would be investing in, and the scalability of the company’s product or service (size of the potential market), Khosla Ventures is happy to help in those areas. With a stated mission that puts “venture assistance” and “strategic advice” before capital, Khosla Ventures’ partners will help to create the business plan, recruit key hires, develop key partnerships, brainstorm around major challenges, and more. As an example, Tamer has been to Europe, Asia, the Mid-West, and East-Coast on behalf of one portfolio company in the past few months.
I am sure that all VC firms do what they can to help their portfolio companies, but if you are a scientist or other innovator without a lot of business operating experience, you could benefit from looking for a VC firm that specializes in early-stage investments and that has a history of making introductions to key hires and partners.
And then there is that patience thing. As Tamer says, “Greentech will take a lot longer to [come to full value] than traditional tech.” You can probably only evaluate a VC firm’s long-term commitment to a technology or idea through conversation, but this is another point to discuss with other entrepreneurs funded by a particular VC firm.
Khosla Venures was founded by Vinod Khosla, who started Sun Microsystems and was later a general partner at Kleiner Perkins Caufield & Byers. In addition to investing in social ventures, Khosla has pledged 100% of his general partner profit from Khosla Ventures to microfinance, education, health, environment, and other causes.
When I first read the press release about Ford Tamer being hired to lead Khosla Veneture’s clean technology portfolio, I was confused (because I saw him as a large-firm technology specialist since he most recently held a senior position at Broadcom). Tamer explained that the group he led at Broadcom wasn’t always that big and that he grew it three-fold in five years, and, prior to that, he had either founded, or was an early member of, four technology companies. Oh, and he also has a PhD in material sciences. If you’re a cleantech entrepreneur, he’s going to have some experience to share!
I’m pleased that cleantech is hot and that many investors want to help build sustainable businesses and eco-focused companies. This post is part of a series on sources of capital for eco-entrepreneurs and green business finance.
If you are an investor that has advice or an entrepreneur with a personal perspective, we would love your comments.