4 Hot (and Contrarian) Takes for Climate Entrepreneurs
Though it's great to have a ton of like-minded individuals all working towards solving the climate crisis, climatetech can sometimes feel like an echo chamber.
We sat down with Nate Williams, Co-founder & Managing Partner of Union Labs Ventures, to discuss his top four contrarian takes for startups at the intersection of climate, entrepreneurship, and capital. Nate is a seasoned entrepreneur and investor who not only brings deep Climate 1.0 experience but also held CXO roles leading on Sales, Marketing, and Business Development teams across 3 startups before transitioning to Venture Capital in 2017.
Take #1: Hire sales early
A common startup trope is that the CEO has to be the company’s best (and sometimes only) salesperson at the Pre-Seed and Seed stages. In reality, climatetech founders tend to come from highly technical backgrounds, and while many have real insight into their markets, sales requires a skill set of its own. There’s definitely responsibility for the founder/CEO to figure out the model for revenue generation– for example, and of course they should be Chief Evangelist in most of the early conversations with customers to better understand requirements to actually build their product. However, this doesn’t mean that they have to own sales.
Having a sales person on board early is crucial. While the founder/CEO is responsible for creating the vision, having a person to operationalize your story and close the sale can be extremely helpful. A director of sales can get you in front of more customers quicker. You’ll also get a valuable perspective within your company from someone who isn’t tied to product development. Delegating some aspects of sales and getting involved on a deal-by-deal basis if necessary is a much better recipe for success than trying to juggle everything at once and failing.
Take #2: Look further than climate-only VCs for funding
Climate-only VC firms are great in their own right and we are now seeing a recent trend of even more niche focuses for firms. However, many Climate firms often end up having a set of stakeholders/LPs that may limit their ability to look at the edges of “climate”. For some climate tech startups this can be enough, but for others, you’ll need more than what climate-only VCs typically provide. For example, you may need more specific expertise in a horizontal, like deep tech, to help you understand product development strategy involving hardware. If running a marketplace with financing risk; a FinTech investor could be helpful. If you're putting together a syndicate, my suggestion is to make it diverse.
Also, recognize that VC is not the only option– look into the non-dilutive finance universe for capital without having to give up equity. In general, companies should optimize for capital efficiency when they're able and fund operations that generate near-term revenue with less-expensive capital options like revenue-based financing, factoring, etc.
It’s important to have your vision for capital needs, de-risking, etc. set before you jump in– these will be part of the first discussions you have with investors and other financiers. Don’t get too caught up on the $$ cost of capital either; sometimes the cost is less obvious: it can be the time you’ve invested, the complexity of the deal, etc. There are plenty of opportunities to get creative with capital.
Take #3: Not all traction is created equal
When it comes to traction, revenue is what really counts. A lot of founders will frame traction in the context of press releases, partnerships, contracts, etc. Though the milestones before revenue (such as getting Letters of Interest) are certainly steps to getting there, know that most institutional investors will discount any traction outside of contracted revenue pretty significantly.
Additionally, making investors understand the context of your traction (outside of revenue) can be tricky due to common biases– for example, a company with LOIs with entities like a Google or Facebook, may get more attention from VCs than a startup with active contracts with Fortune1000 clients that are less well known. Even if the revenue is greater with the latter, the former is more likely to get interest from VCs.
So what can you do? When talking to investors, provide a strong narrative of your TAM/SAM to frame out your early traction. If you’re selling to insurance companies, for example, talk about who the big players are as well as who you currently have traction with. If you have ten customers who aren’t well known, but they have 5 year contracts with you and are leaders in their own markets, it’s a much more telling story then if you’re part of an accelerator program with a big name like Google.
We live in a world where signaling matters, so finding relatable or recognizable points to bring up with investors is important, but so is having humility. Be candid about your traction and customers– making up stories won’t serve you well.
Take #4: Don’t stay in stealth
Startups are (generally) in the business of creating a movement. There may be value in starting out quiet and small, but to grow and get any kind of real momentum, you need to get other people involved. Hiring talent and raising money, both key to scaling your business, are tough when you’re in “stealth”. Not to mention, the most common concern of losing some competitive advantage through publicity is generally unfounded. In fact, it’s very rare that a company will have enough technical moat that they need to stay stealth for fear of exposing core IP.
For some reason, there’s a notion that being “stealth” is cool. In reality, “stealth” doesn’t have value on its own, and can feel disingenuous if you’re out in the market selling your product. You may as well take advantage of being fully present and available to build credibility with future customers, partners, and potential employees. There are truly amazing opportunities that can stem from people simply being aware that you exist.
Nate Williams is a venture capital investor and a seasoned entrepreneur + angel investor/board advisor. He is the Co-Founder and Managing Partner of DeepTech seed fund Union Labs Ventures and formerly an Entrepreneur-in-Residence (EIR) at Kleiner Perkins focused on opportunities in Climate, PropTech, and Mobility. Nate's track record includes senior leadership experiences executing through startup, growth and turnaround stage culminating in successful exits for 4Home (to Motorola '10), Motorola Mobility (to Google '12), Motorola Home (to ARRIS '13) and August Home (to Assa Abloy '17).