To fight climate change, the world needs help from businesses. Yet getting a sustainability-focused start-up off the ground is just as challenging as ever. Competition for venture capital is notoriously high, and even for those lucky start-ups that manage to obtain funding, only about one in thirty will survive, says Y Combinator CEO Michael Seibel.
So how can you get the funding you need to launch your business and make an impact?
One way might be to look for an angel investor. Unlike venture capital firms, which draw money mostly from other people, angel investors put their own cash on the line to support a fledgling business. These wealthy, often highly motivated patrons can help get start-ups off the ground just as capably as VCs. We spoke to Patricia Bader-Johnston, the CEO of Silverbirch Associates and a sustainability-focused angel investor, about what company founders can do to make their businesses stand out.
“Your customer is also society and the planet.”
Insights: Are there any differences between pitching a sustainability-focused start-up and a normal start-up?
Bader-Johnston: Essentially, the process is the same. With any company, you need to see a customer and identify a problem. You then decide what your solution is going to be—that’s your big idea. The big difference for a sustainable enterprise is that your customer is also society and the planet.
So then you test your idea. You consult the experts. Does it pass all the stress tests? Is it something you could certify as sustainable? Does it achieve what it’s intended to? This goes beyond the intention of the product.
Let me give you an example. I was looking at a company recently interested in reducing food waste. They came up with the idea that you can prevent about the 40% of wasted food simply by putting a sticker on each piece of fruit. That sticker eliminates or reduces bacteria, mold, and fungus. Great! That’s wonderful.
But then you have to go a little bit further—the company, the idea, has to pass the look-around-the-corner test. So my first question to that company is, “Are your stickers made of plastic?” Are we suddenly going to have every piece of fruit sold in every department store with a little sticker full of microplastics? Are those bacteria-, mold-, and fungi-resistant solutions going to get into our water supply?
“This is how you differentiate between something sustainable and any old investment.”
Insights: Besides philanthropy, what pushes angels to favor sustainable start-ups?
Bader-Johnston: Actually, the insurance industry is leading on that. They’re doing risk calculations. Investors look very carefully at insurability and the long-term risk to the industry they’re investing in. And this is why you’re seeing a big exit in coal, for instance, or the automotive industry.
These are investor-driven decisions that are also driven by insurance claims—if there are likely to be mass class settlements descending on that industry within my lifetime, I’m going to think twice. A lot of investors, especially institutional investors, have stakeholders that are citizens like you and me who are going to read about their investments.
The beauty of impact investors is that sometimes they’re willing to lose money for a good idea. They may invest because it needs to be done. We’re seeing this more and more. They often have a lot of money, so there’s very little risk for them, really. Angel investors look at things that wouldn’t normally be thought of as commercially viable. You don’t always directly see the customer in these kinds of things, but if you think of the planet itself as the customer, then it makes sense. This is where you differentiate between something sustainable and any old investment that’s going to make a quick buck.
“Investors need to be able to look at the numbers and say, ‘This is a brilliant idea.’”
Insights: What important points should sustainability founders communicate in their pitch?
Bader-Johnston: You have to be able to funnel your big idea into a small idea investors can get their heads around. Know what your unique differentiated offer is, and be able to explain why it’s important. This is key for every kind of entrepreneurial venture, but particularly with impact investors. The narrative is very important in impact investing.
Then, of course, you have to have a strategy to roll it out. Having clearly defined goals and milestones is really, really critical. Be able to articulate your strategy and get an impact investor excited about the idea. On one hand, there are really no new ideas out there, so strategy is very important. On the other hand, there is new science with new ideas, and there are entrepreneurs looking for strategies to bring those ideas to market. But when you’re presenting a new, interesting idea, don’t oversell the technology.
I’ll give you an example. There’s a company in Singapore projecting that they’re going to have grow-your-own-meat-at-home kits available and commercialized within months. Very near term, you’ll be growing your own meat from STEM cells. That would impact all of us.
When you’re pitching the idea of a grow-your-own-meat-at-home kit, you don’t want to hammer at them with the technology and the science. You want to explain it briefly and then explain the outcomes, the potential, and the opportunities. It’s more about the strategy, how it’s going to take root, and how you’re going to change society.
That said, don’t lose sight of the metrics investors need. At the end of the day, they still need to be able to look at the numbers and say, “This is a brilliant idea.”
“Many of the problems we’re facing have solutions. They just require investment.”
Insights: Have you noticed any other interesting trends among sustainability start-ups?
Bader-Johnston: I think that we’re going to see more of a trend towards R&D in areas like using graphene carbon-based solutions for energy, storage, and computing technology. In India, they’ve just announced a new technology called black gold that alters the nanostructure of gold using graphene, increasing the absorption of solar rays exponentially. There’s also a new completely clear solar cell that you can literally embed into your windows. So we’re going to see a revolution in energy-generating building materials.
As for trends in food, obviously growing your own meat at home. Many ideas are bringing the production of food into urban centers and allowing a rewilding of former agricultural zones in order to create more forests, promote a healthier planet, and create habitats for wildlife.
The urbanization of food production is where new light technologies come into play—I just read about this amazing greenhouse company in France that grew huge volumes of asparagus indoors while producing 3.1 gigawatts of electricity at the same time. That’s staggering. An urban greenhouse will also be able to do all these things.
There are some really exciting things going on with atmospheric water generation, too. A company in Nagoya is mass producing a technology that produces up to 5,000 liters of water a day at 12% humidity in a system the size of a shipping container. Take that to Cape Town, and even a 48% humidity drought year allows for atmospheric water generation.
So many of the problems we’re facing today have solutions. They just require investment to get them out there and commercialize them.