(If not, then you may be questioning my politeness or my sanity.)
It goes something like this: “You have to kiss a lot of frogs before you find your handsome prince.”
Of course, this is the actual quote from the Brothers Grimm fairy tale, and refers to seeking true love. (But we’ll leave that topic for someone else’s blog post.)
In the world of finance, this perspective can refer to the lengthy, inefficient, and often frustrating process of finding the right investor in, or buyer of, your company or infrastructure project.
(But it does not require that the investor be handsome.)
So after banging our own heads against the wall to source investors, and after watching dozens of entrepreneurs do the same as we sat on the other side of the table (i.e., with the capital), here are a few tips we’ve collected for bringing in the right investor to finance your renewable energy venture.
1. Know thy investor
Investors are not a single monolith. And one size does not fit all.
They vary by risk tolerance, length of investment period, geographic preferences, sector focus, financial return expectations, cultural, ethics, partnership expectations, type of investment, and...uh...personality.
Consider some profiles of startup investors to avoid from Entrepreneur.com.
As an example, if you’re raising money in the solar sector, consider the wide gap between an early stage venture capital firm which might finance a solar technology company with expectations for 30% IRR vs. an infrastructure private equity firm which might finance a utility-scale solar project with expectations for 9% IRR.
Both are solar investors, but they one is from Mars and the other from Venus.
So, let me put on my professor hat briefly: Do your homework. Dig into the research. Don’t slack on it.
- In which companies have they invested in the past?
- How much capital have they invested?
- Have the recipients of their capital been happy to work with them as partners?
Your extra effort in this due diligence will help you separate the right investors from the wrong ones.
2. Work your network
This is common knowledge. But it is not common practice.
It’s critical to know where you and the potential investor have mutual professional or personal contacts.
This is about getting a foothold and building trust.
To help you establish rapport before and during your initial meetings, you might want to ask questions about or make reference to people and firms that you both know.
But beware: This can also backfire.
I once did this while talking to a CEO that was considering our help raising up to $90M for renewable energy infrastructure development and finance.
I referenced a well known industry leader that had worked with this CEO we were pitching. Oops. He had...um...a less than stellar opinion of this mutual contact. Long silence. Views 180 degrees apart. Yep, awkward.
Luckily, we still won the engagement.
So, make LinkedIn your best friend. Use those 2nd degree connections to make potential investors part of your own professional network.
3. Be systematic
Everybody knows somebody.
And so it goes with a company’s ambitions of raising capital to finance a renewable energy or energy efficiency venture via a few of their own relationships.
Often company executives have their list of five or ten potential investors, and they are excited to bring home the bacon. (Free range and organic, of course.)
But this is not enough.
Most timelines with potential investors take three or six months to play out and arrive at a yes or no decision.
So if you start with a few investor prospects and wait, say, four months to get their answer, you may have just set your company behind schedule by four months or more.
To some degree, this is a numbers game (i.e., in addition to finding the right investor fit).
Instead, a better approach, and the one we take, is to create lists with dozens of prospective investors, each vetted based on fit according to their past investments, current mandate, and other variables.
To do this, we use our own investor network plus databases like Preqin, with over 20,000 investor profiles and 380,000 financial industry contacts.
4. Create an organized data room
I have heard it said before that “Cleanliness is next to Godliness.”
(Are you hearing the voice your mother or grandmother right now? I sure am.)
Or perhaps this expression bears some relevance here: “How you do anything is how you do everything.”
Honestly, I’m not sure I agree with either of these nuggets of wisdom.
However, many investors will see a correlation between how organized your data room is and whether your company is a serious platform to be trusted with their capital.
These data rooms need clear organization, from easy-to-understand folder systems and clearly named files.
If this sounds boring to you, then don’t do it.
Instead, delegate to a team member who loves creating order from chaos, but is perhaps less equipped to work the magic you can with business development and strategic partnerships.
(SIDE NOTE: No one is great at everything. Play to your team’s strengths. To discover these, consider a simple test like the one at Strengthsfinder. We have used them and found a ton of insight.)
You also need completeness in your data room. No stones left unturned.
Are you missing a spreadsheet showing historical financials, a trusted third-party report discussing the broader market opportunity, or project-level pro formas for infrastructure assets?
If so, then that investor follow up after a great initial phone call might lead to a resounding thud as the likelihood of financing your business with that investor falls to zero.
Consider secure software-as-a-service platforms such as Box or Firmex to create your virtual data rooms.
5. Don’t overpromise
Here’s another overused cliche for you: “Underpromise and overdeliver.”
I very much agree with this one. But I often see the opposite play out when entrepreneurs talk a big game to investor prospects.
The reality is that investors will uncover the truth after they get deeper into due diligence. As such, it’s better to be straightforward from the beginning.
And not all due diligence questions can be easily answered with strong data-driven foundations. So, don’t be shy to say something like, “I don’t know the answer. But here are the three steps I’ll take by Friday to get you a good answer.”
You don’t need to know know everything. Instead, you just need to know where to get it or who can tell you the answer.
That means you need a great team, whether internal or external. Or perhaps a Brain Trust like we have at IronOak Energy with clean energy experts across the US.
6. Be pleasantly persistent.
At IronOak Energy, we pride ourselves on being persistent.
(Read: We’ve been called bulldogs in the past.)
And it’s best to balance that doggedness with the patience that investors require to do their homework and make informed investment decisions.
The point is this: Follow up matter. I mean, it really matters.
There are dozens of reasons that your first string of emails and phone calls to the investor did not get the investor’s attention: Travel, vacation, another deal closing, a sick kid, an ailing grandparent, internal strategy reviews, etc.
So, in the mission of funding your world-changing venture, be a heat-sinking missile on your best-match investor targets.
7. Share some beers.
Now don’t the wrong idea here.
I’m not talking about a case of beer, just one or two cold drafts of microbrew at the popular locally owned place near your investor’s office.
You are hoping to start a new multi-year relationship with another firm, but that firm is made up people, and those people want to actually like the folks with which they do business.
So, be likeable. Ask questions about their family and hobbies. Do it because you want to invest in the social capital required to build a strong partnership for a high-performing business.
And after you both contribute to a successful exit or profitable cash flow, then you can share bottles of champagne to celebrate.
In summary, raising capital is a lot of work.
It’s not just about a few phone calls to those investors who seemed interested. It takes a ton of time and can be a huge distraction from your core business.
That said, it is often required to survive and thrive as an organization.
It reminds me of a phrase I came to love while living in Japan: “仕方が無い.” Or, “sho ga nai” for short. It roughly means “there is no other way, so just do it.”
Said differently, just get ‘er done and worry about the details later.
The question is this: Who will do that work for you and find the right investor to place capital in your business?
P.S. If we can be helpful, drop us an email at info[@]ironoak.energy.
P.S.S. The theme of this blog post is a shout out to my late grandfather whose nickname was Froggy. He built a successful small business out of nothing in small-town Kentucky and ran it successfully for 60 years. An inspiration to all of us out here blazing our own trail as entrepreneurs...