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Impact investment for early-stage startups

November 12, 2021

the article was written by Bianca Ștefănescu

What do you do when you have a killer idea you know it’s going to impact millions? You start building a startup, right? The next obvious step is to raise money that can leverage your business and turn your idea into a product. How likely is it for early-stage startups to get investment for an impact business idea? 

We can easily agree that all startups need investment, and some more than others. Considering the current state of the world, we should focus mainly on solutions that are capable of solving the issues we face on a global scale. As soon as you can make it clear what your vision is, what the product or service will look like, and how you imagine it in the next few years, there comes the big question: How to get funded? 

While impact investors are interested in generating a positive change, let’s not forget that business is still business; regardless of the solution provided, you must consider measuring the success through clear KPIs and have a revenue stream in mind. When searching for impact investments, consider its the core characteristics

  • Intentionality, which refers to the actual intention of having a positive impact towards a cause;
  • Financial return, which might be the most important aspect some can forget. It’s the element that differentiates impact investors from philanthropists. 
  • The range of asset classes, which can include cash equivalents, fixed income, venture capital, and private equity. 
  • Impact measurement, which refers to the consistent effort of measuring and reporting the social and environmental impact after investment. 

As an early-stage startup, you should understand that there is a whole ecosystem around the concept of sustainable investments that encompasses more verticals, each working in a different way, addressing other sectors. The sustainable investing ecosystem consists of socially responsible investing (SRI), environmental, social, governance (ESG) risk factors, and impact investing. While SRI focuses on screening and exclusion of the investments in conflict with investors’ values, ESG refers to a framework for companies to measure their worth, considering the risks outside the financial aspects, which genuinely refer to social or environmental aspects. The second empowers companies to become sustainable. Our main topic of interest is impact investing, which is characterized by the direct relationship between the values of the investors and the use of capital. This is the reason why there are 2 different core elements regarding impact investment measurements (financial performance and societal impact). Although there is a difference between SRI, ESG, and impact investment, it doesn’t mean you won’t come across all of them in your entrepreneurial journey. 

What do investors say about impact investments in early-stage startups? 

The Climate Vertical gathered up 3 startup experts from USA, Netherlands & Sweden for a Fireside Chat and AMA session, on November 4th to discuss impact investments, types of investment for different stages, trends and tips from investors, with a focus on early-stage startups. 

We had the pleasure to welcome Paul Kallmes, a start-up mentor and VC fund adviser, IP consultant, University instructor and Bootcamp developer with nearly 20 years of experience in IP and technology licensing. Nino Subotic, the Head of Accelerator at Fast Track Malmo covers more areas of expertise from product development and funding to customer psychology, and Oscar Kneppers, entrepreneur, investor, speaker, founder of Emerce, Bright, Rockstart and currently building House of Origin. The open discussion has been moderated by Vlad Gliga, CEO & Co-founder Rubik Hub & The Climate Vertical. Now that you have an image of who’s sitting at the table, let’s just dive into the topic!

How can an early-stage startup spark the attention of an investor?

First things first. Before approaching an investor or a VC, consider the large number of people doing the same. Now that we can say geography is no longer an impediment, both the chances and risks are higher. As Vlad Gliga likes to put it, we went through an insightful journey with our guests. Our first stop, finding the impact investors. 

Early-stage startups reaching out to the right investors 

There is a nice saying of Nino Subotic I would like you to remember: if you want to attract investors, you have to be interesting; to be interesting, you’ve got to be interested. That’s not only poetic but a harsh truth about building your image in front of investors. Make sure you have a plan and a purpose in mind even before starting to craft your pitch deck. Ask yourself ‘what will I do after sending an email?’, ‘what do I expect from the other person?’, ‘what do I need to know about the investor or VC before approaching them?’. 

The more you network in general the more likely you are to find good connections. (Paul Kallmes) 

At some point you will have to look for investors that might not be in your niche. However, Nino suggests that the best way to reach your goal is to go from the bottom up. Group them in tiers, and as you move forward, refine your pitch until you get to the top investors you know will impact your business. This is a good exercise for you especially because You’ll have about 65 meetings before you get a seed investment, as Nino points out. 

Impact investment for early-stage startups. Are they real? 

Paul Kneppers, VC fund adviser, pinpoints that regardless of the purpose or positioning of a VC, they are all still looking for successful investment, which ultimately presumes a return of investment. Don’t lose hope, there are still investors truly impact oriented that can take higher risks but generally speaking, people invest in businesses. You need to understand the way business works at all levels, and be able to create a proper infrastructure to build a startup; otherwise, it’s just a story. However, approximately half of investors currently own responsible investments, and the same number are interested in converting their entire portfolio to sustainability. 

What are investors looking for in early-stage startups?

At this point of your evolution, the team can be the strength or the risk of a startup, but then the team is all you have at this stage as Paul Kallmes points out. For investors, it is equally important how you aggregate as a group and how you perceive the pressure as individuals, how strong you are, how relentless and adaptable you can be in building a startup. Once you get attached to your idea it’s crucial to be open to change, to understand that you don’t hold all the answers and a relationship with investors it’s a long ride. Strong connections between the two parts require support, communication, and transparency. 
The good news is that you don’t have to worry a lot about numbers, forecasting & evaluating your startup in this phase. Instead, try answering one question: is there any traction? Remember that traction comes in many forms (from sign-ups to shares on social media), as Paul suggests. In the beginning, you only sell a promise so it’s really important to collect any proof you can get from your audience.

Oscar notes that if you can sell it to one person, you can probably sell it to one billion. He also points out the importance of the market in understanding product-market fit, as most entrepreneurs focus on product development and tend to overlook what’s happening in the market, how it is changing. Not only should you consider the market as a reference in your development efforts, but be aware of its importance. No matter how good a product is, if there is no market for it, you can expect it to fade away quickly. So, take Paul’s advice: don’t neglect something because you think it’s not important. 

If you don’t have traction, you better have a good story!

In the early-stage, it is possible to lack the information investors are looking for, but you have the opportunity to define the traction, and educate your audience to look for what you believe it’s an important factor. Investors don’t search through specific KPIs at this point of evolution, so don’t waste time worrying about that and focus on understanding your market, the audience, developing your product, and harnessing the selling. 

In other words, master your topic! However, remain humble; there’s no way you can have all the information and it’s a lot better to show integrity than give a phoney answer. At the end of the day, you need to be confident with what you know and know what you don’t. 

What about the Pitch Deck? 

Paul claims that the pitch deck is not the point of the presentation, you are!  Its only purpose is to support what you’re saying about the startup, so one key aspect here would be to make it easy to follow by your audience and emphasize the important details that would back up your story. 

The most important information encompassed there, lies in 2 vital aspects: what are you doing and why should anyone care? In a more poetic perspective, Oscar would say that The magic happens in the story, and the connection you create in the first 15 minutes. So it all comes down to making a good first impression, and being able to support that afterward with solid arguments and facts that can prove your startup is worth the attention. 

There’s an interesting perspective that caught my attention. If you ask for money you get advice, if you ask for advice, you might get money as Nino Subotic noted. 

Wrap Up!

Instead of conclusions, I would highlight some important aspects stated along the way. All can be used to get impact investment for early-stage startups.

  • Impact investments rise up and the people behind this movement can help you achieve success as a sustainable startup. 
  • Impact investments measure both financial revenue and social impact.
  • Do your homework, know who sits in front of you, backup your story with facts.
  • Don’t lose interest after a couple of meetings; it’s a long and bumpy road for all startups
  • Don’t rely solely on the pitch deck.
  • Traction comes in many forms and you should consider this when asking for investment
  • Your team can be the most important aspect in this phase, but can also be the main risk. Take time to build the team capable of supporting you in this journey.
  • Ask for advice, be open, refine & go further! 

Being an entrepreneur these days can be hard, but it’s a lot more exciting than it used to be. I’d say it’s the best time to start building a sustainable startup and get support from impact investors. 

Together with the ecosystem, we inspire and accelerate teams to solve critical climate challenges.