Raising your First Institutional Capital — 4 Major Lessons from an Early-Stage Climate Investor

For climate entrepreneurs, there is a critical difference between knowing how money is raised and knowing how to raise money. To master the latter, founders must acquire a deep understanding of the day-in, day-out dynamics of tracking down capital, a particularly tall task in the variable and nascent world of climate tech.

As part of our “Raising your First Institutional Capital” series, Enduring Planet sat down with Dan Lichtenberg. Dan is an early-stage climate investor and the founder of Keiki Capital, a fund focused on startups in the decarbonization, adaptation, and climate fintech spaces (editor’s note: Keiki Capital is an investor in Enduring Planet). In a wide-ranging conversation, Dan offered insights on fundraising tactics, navigating a stalled raise, prioritizing your personal narrative, and alternatives to VC for early stage founders.

Incremental fundraising is your friend

Traditionally, founders are taught to expect a fundraise to last 3-6 months, with a discrete window and a “close”. However, entrepreneurs should not limit themselves to this model. Instead, with much of today’s pre-Seed and Seed investing done via SAFE, founders can pursue a more incremental approach: tiered fundraising with a rolling close.

How does this work in practice? Let’s say you’re looking to raise $2M (on a $6M post-money) to fund your first 18 months of operation. You’ve got your baller team, an awesome deck, a perfect data room, a model that goes 📈, but no traction otherwise. Instead of raising the entire $2M in one go, quickly raise $500K on a $4M post to get to a milestone (say MVP built), then another $500K on $6M post to get to a second milestone (first revenue), and then your last $1M on a post-money of $8M to close out your need. Assuming no complex discount terms in your SAFE, you get the same amount of $$ raised with a better average cap ($6.5M), and fewer wasted conversations with first-check investors who pass because of lack of traction. To top it off, this model creates more FOMO: the incremental increase in pricing with every tier encourages investors to participate early.

The power of personal narrative

Regardless of the source, to increase the likelihood of getting traction with an investor, climate entrepreneurs should think less about what they think investors want to hear, and more about what makes them unique as founders: their personal stories. A compelling narrative that connects a founder’s past, present, and future to the “why” behind the company that they are building can be a powerful signal for future success. This is especially true for very early-stage entrepreneurs who may lack a functional product or substantial market validation. In your earliest days, the commodity you’re selling is you; make the story count!

The stall (and what to do about it)

Sometimes even the most talented entrepreneurs encounter a stalled raise, where the wave of first and second meetings don’t convert to term sheets and the responses get more timid. This is where effective communication becomes absolutely crucial. Facing this scenario, it is imperative that a founder candidly communicate with prospective investors in real time. Climate entrepreneurs can make clear that they are committed to building honest and trustworthy relationships with their investors by:

• Diagnosing the problem
• Identifying incorrect assumptions and decisions
• Offering an innovative path forward

With this approach, investors can rest assured that they are not being fed a misleading, overly-positive spin. Additionally, by building in the open, climate entrepreneurs signal that they welcome advice and can comfortably seek help from committed and potential investors alike.

Critically, however, climate entrepreneurs must understand that this open-book strategy of communicating failure has its limits. If, at any point, a founder starts to express a lack of conviction in what they are building, they should expect investors to do the same. By exuding confidence and retaining a strong voice in both good and bad times, climate entrepreneurs can sidestep slowed momentum.

VC is not your only option, even on Day 1

As climate entrepreneurs embark on their journey, it’s important to recognize that the VC community is not the only validating source of funding. There is a growing array of non-dilutive capital, like grants or early-stage debt, which can allow founders to grow their companies without dilution, achieve key milestones, and position themselves well for future fundraising with VCs or otherwise. A great example is LACI Debt Fund, an ultra-early lender for climate entrepreneurs providing innovative financing for demonstration projects. As startups demonstrate traction, other credit instruments become available. For a full array, check out the Climate Capital Stack overview by the awesome CTVC team.

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Dan Lichtenberg has worn many hats across his career as a software engineer, fixed income trader, entrepreneur and venture fund manager. Dan founded Keiki Capital in 2017 to focus on accelerating climate solutions in decarbonization, climate adaptation and climate finance. Dan is a former New Yorker enjoying ample parallel parking opportunities in Southern California.