7 Questions To Answer
I get to sit in on quite a few early-stage cleantech investor pitches, which means I get to learn three things:
- The American spirit of entrepreneurialism and creative genius are still alive and well;
- There are no shortage of ideas to solve climate change or create a more sustainable planet, and;
- Having a stroke of brilliance doesn't necessarily equate to a having a good business idea.
Because so many of these great ideas come from classically trained scientists and engineers, they view the process of courting capital as a Hegelian dialectic in which the investor will inevitably come to the same conclusion as the inventor as they see the truth unfold in front of them courtesy of well-rehearsed facts buttressed with analytical charts.
As it turns out, investors are an inherently curious group whose pulses quicken when they see a new idea. Unfortunately for the inventor, the investor's brain is conducting a different but well-disguised internal dialectic. As it turns out, the questions ping-ponging across their synapses are nearly identical to the process I go through as I try to distill a value proposition for a company.
My poker face isn't quite as good so here are the questions both investors and marketers want you to think through:
- What Problem Are You Solving? One of the hardest things for investors, I find, is recalibrating their gyroscope from his/her point of view to that of the audience. The reason the inventor is the inventor is that no one else came to the same conclusion before you did. That might get you a patent, but it doesn't mean anyone else will be able to see what you see. Unless your audience can understand the practical implications of the invention, it's going to stay just that: a design. If you want to build a business from your invention, you need to start from the audience's point of view, and the only reason they will care is if it's solving one of their problems. The invention itself is secondary.
- Is There A Need? One of the reasons the metric system never caught on in America is because we already had a system of weights and measures. There was no compelling rationale for Americans to change, and too bad if the rest of the world didn't like it. If we wouldn't have had a previous system of weights and measures, then the metric system would have filled a need.
- Is There A Market? The inventor of the wheelchair created it with an audience in mind--people carried from place to place because they couldn't walk and their caretakers. Before you pitch your idea, you need to be equally clear about your adopters.
- Why Are People Going To Change? Let's get right down to it: people generally are resistant to change, and they generally accept change only when it's convenient to do so or if it helps them financially. Can your invention answer one of these two calls?
- How Are You Different? Marketers lead with this one, but investors are usually not too far behind. If you've invented a new solar panel that looks like every other solar panel and works like every other solar panel, why would anyone choose to buy it instead of the better known incumbent brands?
- How Do You Prevent The Incumbent From Squashing You? If you have a water remediation technology and your competition is GE Water, a patent or two isn't going to save you. At best, they might want to buy you, but more likely they'll wait you out or come up with an alternative technology they can sell on the strength of their brand name.
- How Difficult Is It To Scale? You might be a world-class scientist, but that doesn't mean you know anything about building factories. One of the cleantech plays that always makes me nervous requires a startup to build multiple factories in multiple regions (usually to get the necessary feedstocks or inputs). That requires an entirely different skill set and requires intensive capital investment, not to mention a team of people with specific expertise.
One last piece of advice: if you want to get a second meeting, never answer one of the above questions with a version of, "Oh, that's easy!" because the people across the table have been through this process more than you. They know if it was that easy, nine out of ten startups wouldn't fail. When you diminish their question, it makes us all 100% positive you won't change that equation.