Your attitude to risk will inevitably shift as you build your climate hardware business, with each stage bringing heightened expectations from investors. From moving your technology out of the lab, to building your pipeline and attracting the right team members, it’s up to you to find ways to address these risks, and clearly articulate your progress to investors. So, what exactly are investors looking for from startups at each stage of this journey?

Nare Janvelyan is an investor with Voyager Ventures. We sat down with her to get the inside scoop on what investors want to see, from pre-seed all the way to Series A.  

Pre-seed

Science Risk
While your technology might be new, it should be completely scientifically de-risked – there should be no question that it actually works (or works poorly and requires optimization), albeit in a controlled lab environment. It might be prohibitively expensive, or might not work at scale, but it is at least possible to build. Your science doesn’t have to be peer reviewed, though of course this provides more validation. Some investors may have more appetite for risk at the pre-seed, such as a new idea that hasn’t been done before. However, you will have to show the foundations of the idea, and why it is conceiveable in commercial applications.

Tech risk
While science risk is generally unworkable for investors, they’re comfortable taking a certain amount of technical risk. Here, de-risking will involve optimizing the science – such as by improving the purity of a new polymer from 80% to 90%. For example, this could mean that individual pieces of your innovation have been made or work on their own, but haven’t been combined together yet into the full system. It could also mean that you can make a new material, but the properties haven’t been optimized to the requirements of customers yet. Or, it’s possible your product works for one use-case, but hasn’t been applied to others yet (usually done to expand your market).

Commercial risk
You should be talking to customers and carrying out surveys in order to understand what they’re expecting to see before they make a purchase. Make sure to gather some quotes and share their insights with investors in a digestible way. This research will shape what your product becomes – for instance, if your target customers are big industrial players, you’ll understand either how you can drop in, or the adjustments they’ll have to make in order to accommodate your project. 

Plus, note that when you’re talking to investors about your potential addressable market, make sure you’re talking about the right segment, and are transparent and honest – getting it wrong or inflating the numbers will totally discredit you.

De-risking yourself as a founder
Your background – and the backgrounds of any co-founders – are of huge importance to investors at this stage, as are your commercial capabilities. If you’re a technical founder without a commercial co-founder, you might consider bringing one on board. As long as you can approach the business from a commercial perspective, and understand the market dynamics at play – and effectively communicate your ability to do so to investors – this will often be enough to win their confidence. 

The key is showing you can think beyond the step-by-step scientific approach, and instead, you’re making every decision by working backwards from a revenue goal. It’s also important to prove you’ve developed your solution in response to a real problem, not that you’re trying to find a market for your technology that might not actually exist.

Between pre-seed and seed

Tech risk 
Between pre-Seed and Seed, you need to be laser-focused on de-risking your technology, but how you do so will depend on your specific solution. If you’re a chemical company, for instance, de-risking will involve producing the material at an increasingly larger scale – moving from gram to kilogram to ton. For a hardware product, you’ll have built a prototype and might have implemented it at a customer site, and will be working towards creating either a bigger prototype, or more of them. 

In any case, you should communicate to investors that you’re making further optimizations and steadily bringing down your costs. You’ll need to show data that highlights that what you’re building is consistently working well, and becoming progressively easier to manufacture. Investors will also want you to articulate what it’s going to take for the tech to scale. For instance, will you need to build your own equipment, or can you use what’s already out there? 

Seed

Commercial risk
At seed, your progress in terms of commercial de-risking will vary widely depending on your technology. However, you should be talking to customers and have a strong understanding of what’s driving each customer’s interest, what criteria they need you to meet, and what’s going to convert them to purchase. For example, a new material may satisfy a customer’s criteria and interest, but they may need a minimum quantity in order to purchase. 

But generally, investors will want to see a solid pipeline – and ideally, sales. Your customer conversations should be as concrete as possible, with LOIs showcasing the companies that are interested in working with you, and laying out the price and other factors that their purchases will depend on. If pricing hasn’t been discussed with a customer, you should assume it’ll be market price – so do a pricing analysis and show that you’re working towards being competitive. You should also perform a technical analysis that shows your real-world process, including how your costs will change as you evolve and can harness economies of scale. 

Growing your team
Investors will also be looking at who you’ve attracted to your team, whether that’s an experienced industry player or some strong commercial, BD-focused hires to build your pipeline.  The Seed stage is a key time to build out your people foundation to ensure that you can hit the ground running with commercialization once you raise your A.

Series A

Zero tech risk
On the tech side, you should be fully de-risked and ready to go to market – you’ve hit your optimization targets and meet all of your customers’ criteria. If you’re a chemical company, you should now be able to start selling in small amounts, while as a hardware company you’ll have built the generation you’ll be manufacturing and selling. For a demo plant, you’ll have the site selected, permitting in process, and the right team in place.

Going to market
All of the pieces should now be in place for your business to scale – all that’s missing is the cash. You should have completed a successful pilot or two with customers, who are now signing offtakes or purchasing. You’ll have a pipeline in place – with some customers wanting to purchase or in the process of negotiating contracts, some in advanced conversations, and some in early conversations. Ideally, you'll have signed on at least one big customer and have a plan in place for growing with them.

Nare Janvelyan is a graduate of UC Berkeley in Chemistry and earned her PhD in Chemical Physics from Harvard, where she researched metal-based nanomaterials for decarbonization of the chemical production industry. After her PhD, Nare joined the management consulting firm, Simon-Kucher, where she led teams developing go-to-market strategies for software and technology companies. She joined Voyager Ventures where her background in materials science and commercialization brings a unique vision for accelerating the success of category-defining climate tech companies.