Raising angel capital for your climate startup

For early stage climate startups, angel investors offer an appealing option for early-stage capitalization needs. These individuals will invest their own money to help get your business off the ground, often because they believe in your team’s ability to deliver on your mission, with relatively little traction. But what makes angels different from VCs? How can you build a fruitful relationship with these investors? And how do you make angels more comfortable with the risk that’s inherent to investing at such an early stage? 

Jim Huston is an angel investor focused on climate tech startups. We chatted with him to find out what sets angels apart, how to find them, and tips for handling their aversion to risk.

What is an angel investor? 

As opposed to high net worth individuals who invest through their family offices, angels invest as people, and tend to only write a few checks a year - typically between $5k and $100k, and most often $25k. Unlike people who invest through syndicates such as Climate Capital or Cool Climate Collective, angels typically have a direct relationship with founders.

Because they’re investing their personal capital rather than as a fund, different angels have different priorities when it comes to funding a startup. No two angels are alike. Unlike VCs - who have a responsibility to generate returns whether they have an impact lens or not - angels’ motivations can include factors beyond simply making money. They might invest because they want to have a hands-on role in the business, or they want to help build the local economy, or they want to contribute to moonshot ideas in climate. They might be willing to take on greater risk or accept lower returns if it means catalyzing these other impacts. But maybe not - some climate angels like to invest in climate, but at the end of the day they are really focused on financial return. 

When should you engage angels?

Because of the smaller funding amount they offer, seeking out angel investment usually makes sense for your first (or second) round of outside funding - pre-Seed through Seed. You might also consider engaging them at later stages if they can provide some significant, non-monetary value alongside the check - for example, if they used to work at one of your biggest target customers and can open doors for you. In some cases, you may also consider reaching out to Angels if you have a round that is led by a VC or family office but you still have a tranche to fill.

Where can you find angel investors?

1. Angel groups
Pitching individual angels can be a slog, so to save time, go to angel groups. There are two major climate-specific angel groups in the US - E8 Angels and CEVG - but away from climate there’s hundreds more across the country, from region-specific groups to those which focus on a sector like fintech or SaaS. Pitching a group is more similar to pitching a VC - success is harder to come by, but if you do, you can secure up to $500k or even $1m in one go, sometimes with a single entry on the cap table. To learn more about Angel Groups, check out our Insight with Jordan Schwartz of E8 Angels here.

2. Put yourself out there
Angels will often be present at events like conferences and meetups - sometimes representing a group, and sometimes in an individual capacity. So in many cases, engaging them calls for old school tactics: show up, be seen, and make connections. The downside with this type of networking is that while you might get a lot of exposure to angels, you might struggle to move things forward with any one person. On the other hand, these same events can also attract VCs and non-investors who can also help your company - policy types, elected officials, potential hires, etc. Another path is to go through an accelerator, as these programs have strong relationships with angels that you’ll be encouraged to leverage, and they often have a demo day where lots of angels attend. 

3. Talk to other founders
Your peers will be able to introduce you to angels who they’ve raised money from, as well as those they’re simply friendly with, and a referral will be invaluable for helping you break through the noise. Plus, if you have any institutional investors, ask them if they have LPs who also write angel checks. This works both ways - there’ll be a lot of angels who are also LPs in climate funds you’ll want to target.

Tips for handling prospective angels

1. Approach it like a VC fundraise
Don’t fall into the trap of thinking angels are an especially unique type of investor and your climate impact alone will seal the deal - like anyone else, they’ll want to know they’re investing in a scaleable (and eventually profitable) business. Assume that they’re going to be as knowledgeable and discerning as VCs, and prepare accordingly. That means having a watertight data room, and not letting any of their questions catch you off guard. 

Consider including a Q&A in your data room with detailed answers to the top 20 questions you expect to get asked, with the caveat that you don’t yet know everything and these are subject to change. Just showing that you’re thinking things through will carry a lot of weight with angels.

2. Get to know individually each angel
Compared to other investors, the relationship you’ll have with an angel is often more personal. For it to be fruitful, you’ll need to take the time to understand what drives them and what their expectations are around your company’s trajectory. Angels that have worked as financial executives in big companies, for instance, might have trouble understanding that startups are fundamentally different entities to what they’re used to. Keep in mind that the legwork involved in building this relationship with an angel will be time-intensive. 

Don’t put an angel on your board
Outside of exceptional circumstances - say they’re the ex-CEO of your biggest target customer or channel partner, plus they’re writing you a huge check - don’t put an angel on your board. Board observer seats can be OK, but treat Board Director positions like rare gems. If you do put an angel on the Board, it should be term limited and you should set the expectation that when a future round of financing happens they may be asked to leave when the Board inevitably gets restructured.

4. Learn to say no
Don’t be afraid to push back with angels - you have more power to say no than you do with VCs. Set expectations upfront about what you’re willing and unwilling to do for the limited check size they’re offering. Investors tend to react positively to founders who are assertive - it shows you’re capable and have a backbone.For example, customer references are precious, so guard them carefully. If you let every angel who comes along speak to them, you run the risk that a customer will hear something that scares them off. Or that the customer will eventually stop taking reference calls at a time when you really need them for your venture round. Only let an angel speak directly to a customer if they say their investment is dependent on it, do it as a final step and only if everything else is positive for the angel investor, and only if it’s a material sum - otherwise, they can get what they need from another investor who’s already done so. 

You may also need to say “no” when you sense the angel investor is stringing you along.  While VCs are sometimes guilty of this, the “long maybe” is more prevalent with angels, particularly individual angels. Angels are sometimes very cautious about actually writing the check, and so they want to get every box checked and question answered.  And often they never do write the check.  This is less of a problem with angel groups where, even if their process seems long, they have a group reputation to maintain and typically have more experienced angel investors.  

Jim Huston is an active climate angel investor having invested in 19 climate startups since early 2021. Jim has been in the venture industry since 1995 first with Intel Capital, then Blueprint Ventures, and was co-founder of Portland Seed Fund. Jim has been in multiple angel groups including E8 Angels, Oregon Angel Fund, and Bend Venture Conference.