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Episode 68: Navigate Webinar #1 – Clean Energy Start Ups

This week’s episode is in collaboration with NECEC or the Northeast Clean Energy Council’s first Navigate Program webinar. Navigate is a program that leverages the connections and power of NECEC to provide resources and support to clean energy startups.

Host, Jon Powers discusses with three panelists; Matthew Nordan, Managing Director of Prime Impact Fund, Marnie LaVigne, CEO of Launch NY, and Hudson Gilmer, CEO of LineVision. These leaders in the industry discuss venture capital, fundraising, and entrepreneurship within the clean energy sector, and answer a series of questions.

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Full transcript:

Jon Powers:

Welcome to Experts Only Podcast, sponsored by Clean Capital. You can learn more at cleancapital.com. I’m your host Jon Powers. Each week we explore the inner section of energy, innovation, and finance with leaders across the industry. Thank you so much for joining us.

Jon Powers:

Welcome back to Experts Only Podcast, I’m your host Jon Powers, and today we have a different episode. In collaboration with the Northeast Clean Energy Council, we had the first Navigate webinar on entrepreneurship. On this episode, we talk with a group of three panelists about fundraising, entrepreneurship, and venture capital all surrounding clean energy. I hope you just enjoy the conversation, and as always you can get more episodes at cleancapital.com.

Catarina Madeira:

Hello everybody and welcome to the first webinar of this year’s Navigate webinar series from the Northeast Clean Energy Council and Navigate, an NECEC innovation program. My name is Catarina Madeira, and I run Navigate. Today we are starting our fourth series, and I am very happy to share that this time the Webinar is brought to you in cooperation with CleanCapital, an industry leading clean energy investment platform. And that we have with us Jon Powers, Clean Capital co-founder and President moderating the session.

Catarina Madeira:

This series, and in fact Navigate have the invaluable support from our sponsors, such as the state agency NYSERDA, who works to advance energy innovation, technology, and investment in New York State. Thank you so much for your support. And before passing the word to Jon, I’d like to kindly remind you to stay on mute software to avoid any sound problems. If you have questions during the conversation, or at the end, please use the Q&A feature. And I’d like to advise you as well that you’ll receive a very short survey at the end because your feedback does matter to us and our funders.

Catarina Madeira:

And last but not least, we’ll be Tweeting throughout the Webinar, so Tweet with us using the handle CleanCapital_, and the hashtag NECEC live. And now without further ado, it is my pleasure to hand over the webinar to you Jon. The floor is yours.

Jon Powers:

Thank you Catarina. I’d like to thank Navigate and the New England Clean Energy Council for hosting us today. This webinar is being recorded, as actually part of a podcast called Experts Only. You can get episodes of Experts Only at Clean Capital’s website, cleancapital.com. And we focus on the intersection of energy, innovation, and finance. But this conversation is unique, we’re really going to focus on, because we have such a great panel, the opportunities and experience that they have for folks looking out to raise money, because fundraising is part of an entrepreneur’s daily life. Today’s start ups ecosystems funding sources can be public, they can be private, corporate BCs, venture capital. Understanding that space, and understanding how to approach it is critical to the lifeblood of your company.

Jon Powers:

And we’re going to talk through some of the best practices in this space. How to think about it, and how to approach it. We have an incredible panel today, and I’ll introduce them all here in a moment. If you are our first question. But as you think about questions throughout the episode, please go ahead and put them into the question tool in the webinar, and I’ll try to get to as many as I can throughout the conversation. So our panel today, we have three amazing speakers. We have Matthew Nordan, who’s the managing director for Prime Impact Fund. Marnie LaVigne, who is the head of Launch NY. And Hudson Gilmer who is the CEO of LineVision.

Jon Powers:

So I’m going to start off in this first round of questions and talk to each individual and have them give a little background on themselves as we’re talking about what they bring to this conversation. And I’m going to start off with you Matthew. Matthew, you’re the managing director of Prime Impact Fund, and you have a really dynamic background both as an investor, you serve on many boards in the clean tech space. First, how did you get interested in venture capital, and then what brought your career into clean tech?

 Matthew Nordan:

Yes, it’s funny, I never thought I would be a venture investor. I thought that VCs were a little lower on the authenticity and vulnerability scale than I might want to be. But I ran this company called Lux Research that was the largest tech analyst firm focused on energy and environment. It was eventually acquired by a private equity firm. And with my hat on as a leader of analysts, I saw a large amount of venture money coming into energy and environment in the mid 2000s. And I got looked to as the source of advice around what might be coming around the corner, and I found myself recruited by some DC firms.

Matthew Nordan:

I went to one called Venrock, that’s arguably the oldest venture capital firm. Originally the venture arm of the Rockefeller family in the 1930s, and initial investor in companies ranging from Apple, to Intel, to 3Comp. And I had an interesting Tale of Two Cities experience with the firm. Colleagues and I built a portfolio of nine energy tech companies over one and a half fund cycles, about five years. And on one hand that portfolio did extraordinarily well. My personal biggest hit was Nest, the smart thermostat company that Google acquired for 3.2 billion dollars less than a year and a half after we invested.

Matthew Nordan:

I had another company reach a similar level of evaluation—

Jon Powers:

I almost took a job there a day before they closed.

Matthew Nordan:

Oh really? Okay.

Jon Powers:

It’s a long story, we’ll talk about it some other time.

Matthew Nordan:

I had another company reach a similar level called Lucid Motors. That is a Tesla Challenger focused on the Asian market, that took a control investment from the Saudi Public Investment Firm. They got it all into that multi billion dollar club. Interesting point is that a luxury EV focused on the Asian market means all the cool stuff is in the back. Because if you’re in China and you own the car, you have a driver. So the cockpit experience is less important to you than the rear seat experience. But I was also really frustrated, because what I wanted to do was to fund true breakthroughs of climate. Companies that could be historically significant and planetarily impactful.

Matthew Nordan:

As meaningful today in innovation as the steam engine was in the 19th century or the photovoltaic in the 20th. At their earliest stages when these are really conceptual companies that are at risk of dying on the vine. And I found that that was really hard to do and for very good reasons. Conventional venture, and even angel investors have risk-reward profiles that just discourage them a bit from taking these early stage risks in a field that doesn’t have the kind of exit model that say biotech does. So a few years ago, I guess 2014, a brilliant woman named Sarah Carney, who is in MIT, had a vision for how to do this differently by tapping capital that was inherently structurally more risk tolerant and patient, from investors who want to build really big, and important, and enduring companies, that care about the endpoint that they achieve.

Matthew Nordan:

In this case net greenhouse gas emissions. And we started Prime to do that. We started out investing in companies through syndication without a fund. We did that for three years, from 2015 through 18. And backed 10 businesses with about 24 million dollars, all seed stage. Largest investment was five million. Smallest was 500K. With 54 different impact investors participating. And a couple of years ago we started our first proper fund, Prime Impact Fund, 50 million dollar seed vehicle, we’re eight investments into a portfolio that will probably be around 15. And our criteria are ones that are probably very aligned with people on this call.

Matthew Nordan:

Gigaton scale greenhouse gas emissions, appropriateness for our unique color of capital, and a clear path to get to self sufficiency and scale after our capital.

Jon Powers:

Interesting. More to come on Prime and what you guys are doing. Next I want to go to Marnie LaVigne from Launch NY. Marnie, who is here in Buffalo with me. The center of the universe. You have a PhD in neuroscience. How did you go from that to founding a venture organization like Launch NY?

Marnie LaVigne:

I had a journey like all of us. Great to hear Matthew first. Actually I was a neuroscience undergrad at University of Rochester and then went the route of clinical psychology for my doctoral work. And it was really in that doctoral experience that I’m traveling that road that many of our communities are trying to help others travel. Which is yes, I’m in an academic program, but the reality is what I’m doing is bringing credible innovation solutions that change people’s lives to the world if we can get those investments out of the lab. So that’s really how I got started on my entrepreneurial journey. As we took the behavioral science work that I was doing with various medical patient populations. We were working with all the way from people trying to stop smoking, to people trying to manage their asthma, their COPD, whatever the case.

Marnie LaVigne:

So I did a lot of work at that time trying to bring our product actually to the market. And so started businesses and what can normally consider flyover territory in upstate New York, particularly in Rochester. So I had the great fortune of being with a team, and that’s a lot of what we’re trying to do today. So this was all, dare I say, back in the 90s. When you could go public. So I actually went public with two different health IT companies. One actually based out of New York City ultimately. Back in the 90s and it’s a wild ride. Those IPOs were fast and furious at the time. One was part of the dot com boom and bust. So I was doing the road warrior thing in building those companies.

Marnie LaVigne:

And I was doing more the product side. But I had a terrific team of people who knew how to raise those dollars. What I realized was that I really wanted to get off the road and be back in upstate New York. And that we had incredible innovation but we really had very little runway to take those innovations to the marketplace from our hometowns, Buffalo, Rochester, Syracuse. So much like Matthew said, the option for inventions and inventors, they’re dying on the vine, or they’re leaving town. So really from a bit more of an academic end, economic development standpoint, I started on the journey at University of Buffalo, after I came back upstate from my wild .com ride, and realized life was very different.

Marnie LaVigne:

A lot of risk aversion in these communities. So Launch NY really was spawned because of the need to help inventions get to the marketplace and create economic impact, jobs and wealth in upstate New York. So Launch NY we conceived of it not just out of our own heads, but really looking at neighboring states like Pennsylvania and Ohio with incredible what they call venture development organizations. In 2012 we launched our organization called Launch NY, we’re actually a private nonprofit. And we are mostly privately funded, but we were able to start providing free mentoring. And now as of 2018 we have the most active seed fund in New York state.

Marnie LaVigne:

Funding companies typically up to four times per month. And that started in 16. But now what we’ve seen is we had a steady stream of companies. We’ve served over 1,100. Our portfolio now in a little over three years has about 56, 57 companies. We frankly are investing so quickly, it’s a little hard to keep up. But I have a team of mentors that helps us keep track and not only prepare these companies for what we’ll be talking about today in terms of pitching. But actually doing the portfolio management.

Marnie LaVigne:

So our goal is obviously to see these products reach the market. We are a clean tech incubator through New York State’s Energy Research and Development Authority. And so we have an incredible group of companies from informatics product, to renewables. It’s really amazing, but I personally have been driven by the fact that I love this region, I want innovation to make a difference in everyone’s life, and in our environment. And Launch NY is here to really help when the companies are in the sand box.

Jon Powers:

To add just additional color for some of the great stuff Marnie is doing, being here in Buffalo and witnessing some of the resurgence of the area because of the ecosystem that’s been developed by Launch NY, 42 North, and some of the other initiatives here that have public backing, but also a lot of private capital moving here for the first time in decades are really creating a new resurgence. One of the reasons I moved home. Next I’m going to go to our third panelist, Hudson Gilmer, who’s the CEO of Line Vision. Hudson brings a unique perspective to this conversation. The first two speakers have the money, Hudson actually went out and needed to get funding launching a company.

Jon Powers:

First of all Hudson, could you step back and talk about your career leading up to starting Line Vision?

Hudson Gilmer:

Sure, thanks Jon, happy to do that. I think there’s a theme developing here, where these are not linear paths, and I’m no exception. I actually started my career in the telecom industry. And was with AT&T, and over time helped AT&T start businesses in Canada. The first competitive telecom company in Canada, actually just around the corner from where you guys are, up in Toronto. And then was part of a team that created the first pan-European telecom joint venture in Amsterdam. But I’d always been fascinated by energy, and really took a conscious decision to say, “I want to go back to school full time. I want to do my MBA and focus that time on making the transition into the energy industry.”

Hudson Gilmer:

Was very lucky to be at MIT-Sloan during the early years of the energy club, where Ernie Moniz who went on to be Obama’s Secretary of Energy, was our faculty chair. Just a really rich time to be there and learn the industry. One of the classes I took was called, “E-Lab,” where we worked with the local startup, in this case Internock, pre IPO. Many of you may be familiar with they’re a leader in demand response, and subsequently sold to MLX. And that business model really stuck with me, of being able to leverage analytics and data. Meter data in their case, basically to create a virtual peaking power plant, and create a much more cost efficient solution to traditional hardware type solutions in the energy space.

Hudson Gilmer:

I went on from there to join a start up called ENVOPower, which was the first company to really create predictive analytics for wholesale energy market participants. We build fundamental models to forecast regional energy prices for places like PGIM, and New England ISO, and sell to traders. I was successful in really ramping up revenues there. We sold that business within about 18 months to a company called Genscape, who also is primarily focused on serving market participants, but had some really cool sensor technologies which allowed those traders to, “Spy on the grid,” and see which power plants are running, and which ones unexpectedly trip offline.

Hudson Gilmer:

And we had a great business, and it continues to be a great business. But at a certain point about five years ago, I really felt like rather than just providing data to traders to help them make more money capitalizing on the inefficiencies of the grid, I wanted to solve the inefficiency of the grid. So, that was really where Line Vision was born. We incubated that business for about three years within Genscape. Our mission and our focus is on using non contact sensors and analytics to monitor transmission lines. Monitor overhead lines.

Hudson Gilmer:

And it allows us to do three important things. One is we can unlock up to 40 percent additional capacity on existing lines. So essentially we can build transmission using sensors and analytics at a unit cost of less than five percent of the cost of building the old way. The second thing, and that’s important of course because it allows us to remove what is arguably the biggest barrier towards greater renewable penetration in places like upstate New York where you’re seeing more and more wind connected to the grid, and a lot of wind driven congestion and curtailment.

Hudson Gilmer:

The second thing that we can do is detect anomalies and alert utilities to situations that may represent risks to either the reliability of the grid, or to public safety. And you only have to think about the wild fires and PG&Es bankruptcy. Which is arguably a direct result of unmonitored grid and the problems that resulted there. And then the third thing we can do with that same hardware package, the same sensor technology is monitor aging equipment. Monitor the condition of aging assets. So we took that business, we spun it out from Genscape almost two years ago to the day. We have since done three investment rounds.

Hudson Gilmer:

First a seed round in May of 2018. And a follow on series A, and fortunately back in December we raised a convertible note obviously pre COVID. And I’m happy to get into details, share the scars, and all the mistakes we made along the way.

Jon Powers:

Yeah, Hudson that’s great. And I’m going to put just the Clean Capital story out here as well. And I’ll try to put this into some of my questions a little bit. But I also come from the position you do Hudson, I was on the policy side, I served as President Obama’s Chief of Sustainability Officer before helping to launch Clean Capital. We saw a need to bring more efficient capital into the clean energy market, and launched the Clean tech platform to help us acquire. We now have 180 megawatts. But we went through the experience of a seed round, a series A, we received a convertible note from Block Rock. We’ve taken all different steps of funding as we’ve grown here over the last four years. And it’s been a fascinating ride.

Jon Powers:

For much of the audience, we’ve been in your seats trying to figure out how to approach and make these asks. And I want to use that to talk about the first question. And for folks that are putting in questions, we’ll come back to those in a little bit. We’ve got a couple of rounds here then we’ll address those. First question is for Marnie. This round will really focus on what’s the right time for a startup to approach investors. And Marnie you work with a variety of companies at different scales. How do you coach those companies on when they should start approaching investors?

Marnie LaVigne:

This question is so important to think about because most investors will tell you, you often get one shot. First impressions are lasting impressions. So we balance the need to practice getting in front of investors. Your elevator pitch, all the way to a full pitch deck. To really preparing. What Launch does, and again, we’ve incorporated best practice models from around the country and really around the globe, using business model canvas. Our mentors, we use a one on one method of interacting with companies. I know there are some terrific programs that many of the listeners today might be involved with, like I-Corps, that the National Science Foundation offers. But we think a combination of accelerator programs that are intensive preparation for doing a pitch is very important.

Marnie LaVigne:

But we also think that getting exposure to seeing what a pitch looks like, looking at the materials, and working with a mentor one on one. So your journey can travel as quickly or slowly as it’s going to travel. For us we use business model canvas as the basis, and then the pitch deck itself we really are working our companies towards that endpoint of, “You are pitch ready.” I do think that you have to have your story straight. You need to know what your business model is. Most of the investors will want to hear about how you have qualified your market, obviously. I do think that while we use really efficient tools, like business model canvas, and a standard pitch deck of less than 25, there is a lot that goes into it.

Marnie LaVigne:

And so I certainly encourage our companies to take the time and practice with a friendly audience who will not hold you to that first pitch, because you know it will not be perfect.

Jon Powers:

It’s good feedback. And Mat you’ve seen hundreds of pitches I imagine now in the clean tech space, and even prior to the clean tech space. When you’re looking at companies that are coming through the door, what criteria are you looking for? Let’s start off at the seeds basically. When a company is coming in and they’re either sending their deck ahead of time, or coming in and making the pitch live, in your head, are there certain boxes that you’re checking? Key criteria of what they’re bringing to you?

Matthew Nordan:

Yes. Let me give some context on the numbers. The short story is we’re looking for extraordinary people. Where we are confident that, “Man, that woman, that man’s going to push out the dome of the universe.” It may not be sure it’s this venture. It may be their second or their third thing. But a person we want to be in the business of, and I think that’s pretty common with seed stage investors. The math’s tough, right? We have a universe of companies that we’ve tracked since the inception of the fund two years ago, that’s about 4,500. It turns over by about 2,000 a year. Of proto-companies through series B, and energy, waste, and water.

Matthew Nordan:

That’s our starting number. We take on average of about five pitches a week. So let’s call that 250. So there’s a 10X decrease from companies whose materials we look at, or we’re aware of, or somebody’s recommended them to us. To the entrepreneurs we talk to. We have an investment advisory committee that’s good—

Jon Powers:

Can I ask you a question? In that phase that you’re screening before you get to those five a week, if I’m pitching Prime, how long should I expect the screening process to be?

Matthew Nordan:

Pretty quick. Someone sends us a deck, or we become aware of something from one of our pipeline partners through Greentown Labs, or Cyclotron Road, or Activate, or something like that. There’s a pretty exercise for our investment criteria of giga-ton scale climate impact, and is it appropriate stage wise? If there’s evidence of a real hard tech advance, that happens pretty quickly. There are lots and lots of companies. The vast majority of them you look at that are really interesting and really compelling, it’s not a great match for us. I’ll get a for example, a company that’s optimizing power electronics for a lower power draw on a phone like this one could be really interesting, and to get to market really quickly. But it may not address a big enough envelope of missions to be relevant for our mission.

Matthew Nordan:

It may be relevant to other people’s missions. So anyway, 250 a year pitches, we have an investment advisory committee that’s a good indicator of whether we’re excited about something. Typically, four or five companies go in front of that quarterly. So now we’ve had another 10X decrease. From maybe 250 pitches to maybe 20, 25. And we make around five investments a year. So maybe a one out of five of those.

Matthew Nordan:

The challenge is the seed stage investor that it’s hard to communicate to people is that you can’t assess a business by its plan. Because even great companies pivot, usually multiple times. And every pitch has the same financial projections at the end of it going nicely upward on a hockey stick. Which almost never happens. So prima facie evaluating the plan is theater. It’s useful theater. It’s a mechanism by which you can get to know the entrepreneur and understand how they respond to challenge, and how they think through problems. But the actual content of the plan I think a savvy seed stage investor doesn’t pay a lot of attention to.

Matthew Nordan:

What you’re looking for, and it’s so hard to describe, because it’s like the Supreme Court’s judgment on whether content meets community standards or not. It’s “I know it when I see it.” Is that you’re looking for this extraordinary spark, and if you’re an early stage investor we’ve made eight investments in our fund. Six out of eight of those CEOs, their first job was CEO. Before that they were a grad student or a post doc. So how do you show that you’re this extraordinary person when you’re popping out of a lab?

Matthew Nordan:

The analogy I think of actually comes from wildlife. If you’ve ever been to the African savanna. And you see gazelles. They’re herd animals and there’s usually this behavior where there’s this circling happening because nobody wants to be at the edge of the herd. Because if you’re at the edge, you get picked off by a predator. But there’s this weird thing that happens. Where if you go out and observe this big pack of animals like this, you’ll see a small number of them, usually two or three, deliberately go off from the edge of the herd and do a behavior called, “Stotting,” where they jump up and down. And it correlates that they actually do this more often when they are down wind of the lions.

Matthew Nordan:

And the idea is that biologically, that’s an un-fakable signal. What they’re doing is going around saying, “I am so fast, and so quick, that I will jump up and down to give you a head start. It gives you absolutely no incentive to try to catch me. It’s a losing game.” I think entrepreneurs that are really compelling find someway to stott. And how they do it differs. Sometimes it’s some extraordinary technical achievement that’s written up in nature, and is punching above their weight and beyond what you would expect of someone at this stage of their lives. That’s the extraordinary thing.

Matthew Nordan:

Sometimes it’s the advisor that is onboard who is the industry luminary who should know better, and has put his or her name behind this venture. Sometimes it’s the Angel investor, who’s a check writer, who came in way before you would expect anyone would. It confers credibility. But there’s some element that makes something just stand apart from the mass, and show you that you’re in the presence of greatness.

Jon Powers:

Just a followup question. You mentioned in there a couple of your feeder groups. Greentown labs, the folks at California, Cycloton Road. If I’m an emerging company really wanting to get in front of a firm like Prime, what are the best avenues to get my initial deck your way?

Matthew Nordan:

We do look and programmatically, I think it’s rare among investors at our stage, if all the companies that come out of these what we call pipeline partners. We have 80 of them. And it’s really every incubator, accelerator, business plan competition, University Entrepreneurship Center, and they send us structured information about their companies at least annually. So we see those. But just the sheer power of that mass and a small team, if there are thousands of companies to look at, and then you’ve got these two 10X down selections, the things that we’re really excited about, I think it’s true as it is anything else in life.

Matthew Nordan:

If you’re trying to get into the job, or reach the customer, whatever else, there’s nothing that is both more effective and demonstrates your power as an entrepreneur, than some kind of warm intro. And one of the things we’re really sensitive to, if you look in our portfolio three out of our eight entrepreneurs are women, and or people of color who are generally underrepresented at venture. And there’s a bad aspect to pattern matching, and an old boy’s network that is really unhelpful. And we’re sensitive to that. There’re some cases where people may not be in an entrepreneurial center. They may be in the Midwest. Or in some other place that just doesn’t benefit from the automatic network that you get in the Valley or the Bay. And we try to proactively reach out to these places.

Matthew Nordan:

But there is real information content in whether a CEO is able to wrangle their way into you. It’s predictive of their ability to recruit people that are a few steps beyond what they might deserve. Or land customers that are a few steps earlier than they might be able to prove. There’s real data there.

Jon Powers:

Right, interesting. Hudson, so I wanted you to talk a little bit about, I’d love to hear about your experience when you first approached investors. When did you know you were ready? And what were those first sets of meetings like?

Hudson Gilmer:

We had a bit of a unique situation in that we were a spin out and not a startup. And so we had gone to the former parent company and said, “Hey, because we’re serving utilities, we think this is a fundamentally different market. We think it has to be a separate company.” And the old adage, “Be careful what you wish for” certainly held here because the former parent company said, “Okay fine. You have until X date, and either you’re going to have funding raised, or we’re cutting off the business.” So that dictated our timetable.

Jon Powers:

Kick you out of the nest?

Hudson Gilmer:

Exactly. Which sometimes you need. But I guess what I would say as more of a general comment is, I think in this world there is way too much focus on the pitch and on the pitch deck. And there’s almost a presumption that an entrepreneur should be working on their pitch deck when in fact in many cases they really need to be making sure that they have the boxes checked that investors like Matt are looking for. And so I would encourage, to your question, of when is the timing right? That you find mentors, you find coaches who really are not helping you coach through your presentation, through your pitch. But through the question of, “Do you have the right team? Do you have a technology that’s really differentiated? Are you solving a real problem in a big market? And do you have a business model that is sustainable?”

Hudson Gilmer:

And really identify if the answers to any of those are not an emphatic yes, you’re not ready. And buy yourself a little more time to answer those questions before you move forward.

Jon Powers:

When we did our first raise, we spent a lot of time having conversations where we didn’t ask for money, just to find, and we tweaked our business model so much in those early conversations, and that advice we got from mentors in the industry, that when we finally did go out, we were much more baked, and ready to go to get it done.

Hudson Gilmer:

Yeah. And so we were kicked out of the nest, and I’ll be honest, those first meetings were pretty ugly. And it’s partly because I certainly didn’t have the pedigree of talking to VCs. We also had this awkward situation where the former parent company felt like they wanted to be involved and have some ownership in the process. And I look back at those old pitch decks and I’m quite horrified. I remember actually coming to Matthew, who’s a friend, and asking him for advice. And he looked, and he said, “We don’t look and smell like what VCs. They have a quite rigid sense of what they’re looking for and what the cap table ought to look like.”

Hudson Gilmer:

And we were this foreign object that just did not fit. And so it was some painful lumps that we took there. But I also just will echo Marnie’s point—

Jon Powers:

Can I ask you a question, did you adjust after that? Did you adjust from that conversation?

Hudson Gilmer:

Well we did, absolutely. We ended up just totally recalibrating and saying, “Okay, initially we thought we were VC material, series A material.” And we realized that we really needed to do a seed route first and lay the foundation. And that ended up being a much more productive path to go down.

Jon Powers:

That’s interesting. I feel like we had a similar experience. We spent a lot of time in the clean tech space originally trying to raise our series A. And it was a challenge to get over a bump of what people understanding what we were doing. But when we took our model to the fintech community, that just saw clean energy as a new asset, the meetings were dramatically different. We were educating them on solar, they got what we were doing on fintech. And it was just, “Here’s why this asset class is important and valuable to you.” That’s where we ended up raising our series A from mostly.

Jon Powers:

So I want to get to the questions that people have provided here in a second. I’ve got one more set for the panel, then we’ll open it up. And really focusing on after getting that first meeting, or in that first meeting. I want to talk a little bit about the mechanics of those meetings so people can be ready. Matthew for you, what does a successful pitch look like from the investor’s side? What are you looking in that first pitch? Can you tell those folks that are practice, or those folks that are coming in pretty cool.

Matthew Nordan:

It’s interesting. I would boldface underline and italicize Hudson’s points that an amateur set of slides that have a real innovation, and an extraordinary techno-economic analysis, and indications, and customer demands, go much much further with our team than the super polished presentation of something that’s half-baked. And we do actually see a significant amount of the latter. One of the downsides of pitch culture, of this post combinator age of startups is that there is a template, and there’s a template that is pretty easy to follow. And there are a lot of service providers that can make something walk like a duck and quack like a duck, but it may be a gazelle.

Matthew Nordan:

So what’s success? I think success is defined really by at least one person on our team, and usually had all of us leaning forward. And there is a lower bar to pass. If ideas are not well thought out and well communicated, regardless whether they look polished or not, that’s a huge red flag. But I think what we really respond to is folks who are showing up and teaching us something about the nature of a problem to be solved. Why past attempts have not been successful, why this attempt meets a customer need, or hits a figure of merit, or passes a techno-economic bar in a way that other things have not. It’s not again, the specifics of the plan. When anyone shows us a gantt chart, or a series of revenue projections, that’s important maybe to have.

Matthew Nordan:

It’s a good idea to know what the going in expectations are. But we’re not evaluating that. We’re evaluating the rigor and depth of the thinking. To give you an example, there’s a company we’re looking at now, it’s an ag-tech company, I won’t go into details, but why is it compelling? It’s crazy seed stage. Directly out of a University more or less, but what’s compelling is that they deeply have thought through techno-economics and what it would take, in this case, individual farmers to adopt their technology. And that doesn’t just mean why it’s good. It means somebody’s got to maintain this thing, and keep putting in new tanks of XYZ every X months. Who does that?

Matthew Nordan:

Is it on a maintenance schedule that’s similar to something else that’s on the farm? How will you insure this? Where does this physical space for this asset go? Does someone put it by the barn? Do they put it where the tractors are? That’s very well thought out, deeply informed, aha’s that we would normally be asking the questions, here someone’s preempting them. And the combination of that and in this case some early customer indication, they’ve been able to convince a grower in Southern California to take a gamble on this. And you know the reason’s for that? Who knows. Maybe that person is someone’s hairdresser’s uncle’s best friend. We don’t know.

Matthew Nordan:

But the fact that they’ve found a way to do it, is itself prima facie evidence that these people are doers. That they can make things happen. And that’s why we’re moving forward. In contrast, there’s one that I see right in front of me, that’s a pitch my colleagues are going to take next week, where my associate Michael Campus just sent around the slides, and man it looks amazingly beautiful, it’s crazy well designed, clearly a graphic designer was here, and it looks like yet another attempt without much differentiation. In this case it’s in wind, to get wind farmers to adopt something that will cause changes to turbines and therefore impact their bankability and their insurability. And it doesn’t address those questions.

Matthew Nordan:

It seems to dodge them. So all the gloss in the world there is not detracting from the fact that many, the rigor of the thinking is just not well articulated here.

Jon Powers:

Got it. That’s interesting. We’ve got such great questions coming, I’m going to jump ahead a little bit. But I’m going to Marnie put this one first towards you, because of your role with Launch NY. And we’ve got a really interesting question about, how do accelerators such as clean tech open benefit start up companies?

Marnie LaVigne:

I think an intensive experience where you’re working in a very methodical way through what essentially ends up being a business model campus rubric is really powerful. So we tend to find that our newest, our youngest, most inexperienced, no matter what age entrepreneurs do very well going into an intensive experience like that. Because many times if they’ve not been through another round of a startup, they don’t realize everything we’ve been talking about here today. And so they tend to focus on one aspect of the business or another. Particularly in the clean tech arena we see that a lot of people are driven by the social impact, environmental impact, and they haven’t thought through all these operational issues.

Marnie LaVigne:

They just see that the goal itself is what’s most important. So what we tend to do is try to see if we can match companies up with those experiences, and then have side by side the actual one on one mentorship as well. And we see that as companies progress, normally what happens is we start with companies who have one to two, maybe three founders, who generally really do not have substantial background in starting a business. Particularly in more sophisticated areas like clean tech. So we need to help them carry the water while they’re the ones in charge, while they haven’t really gotten anyone else to lug their baby, so to speak.

Marnie LaVigne:

And then as they go upstream, what we’re doing right now, we have a particular hardware software company where we’re helping them with board development. And we’re bringing into the fold individuals who have experience in name brand recognition. They usually start facing difficult decisions at that time, about, “Do I give some equity to this person? Does this person actually invest in the company?” But accelerators can often be a wonderful place to meet those individuals. And now many of our companies even when based in Western New York, they will go to the East Coast, they will go out to Colorado to actually be part of an incubator. And we really promote that.

Marnie LaVigne:

I will admit, it’s difficult if you’re home with a family and you have a responsibility to that to be able to take three months to go do that. But I would argue that your network development is really powerful in addition to the intense focus on have you really evaluated your market opportunity? Have you really built out that operational model? All of that is very powerful.

Jon Powers:

I’m going to go next to Matthew, then Hudson in two separate questions. And Matthew this is a pretty one on one question, but I think it would be good to highlight. Can you just quickly explain the difference between seed and series A?

Matthew Nordan:

It’s a moving target. Think about it in politics. In that far left at one point might be center left in another timeframe. Typically I think the distinction is not that significant. And often there are two million dollar series A rounds, and there are 10 million dollar seed rounds. What does that tell you? I think the difference line is that a seed usually has a lot more uncertainty. That could be team is incomplete, that could be technology only demonstrated a bench level, not anything more than that. It could be that there hasn’t been any customer engagement at all, it’s a purely tactical team. Some or all of those things.

Matthew Nordan:

I think in a series A we’ve got a full featured plan. There aren’t holes. And when we invest in a seed round, which is what most of our investments are, a big component of that seed is figuring out what are the milestones to achieve that would enable the series A. And usually our CEOs that we back are very rigorous and deliberate about this themselves. But we try to help them do that to really enumerate and start every board meeting with, “Here are the four things that we have to do to reach a value inflection milestone where we can raise the series A from an outside lead at a higher valuation. Here’s how we do it.”

Jon Powers:

Right. That’s interesting. And a B is basically taking that proof of concept now and scaling it, adding fuel to the fire.

Matthew Nordan:

I think the difference between an A and a B is even more arbitrary than the difference between the seed and an A. But yeah. I think the real distinction comes from when you graduate to a different class of investor. The people who don’t call themselves venture capital but call them growth equity. What’s the difference between that? I would think about, I don’t know, what’s a good one? Uber, right? Where Uber is a seed when it’s an idea. Whereas a series A, when there’s a clear plan and the goal is to make it work in New York. And the series B is when, “Yes, it works in New York, now we just want to throw fuel on the fire to make it work in Chicago and LA, and Shanghai, and Amsterdam.” That’s the progression I think of that.

Jon Powers:

That’s great. Now Hudson interesting question came in about, can you speak maybe from your experience or maybe more broadly here. What’s needed at the seed stage for a hardware, or a hardware integrated company so they can demonstrate customer demand, really when you’re thinking the chicken before the egg situation. It’s hard to really build the customer demand, or the customer solution when you’re still trying to build the hardware up. So from your experience what was needed… A little bit different because you’re rolling out of a broader company, but how do you overcome that?

Hudson Gilmer:

I think you touched on it. We were able to do a lot of the de-risking of the technology and development of the technology while we were incubating the business within the former company. So we didn’t really need the seed funding for that. Maybe just quickly back to the seed, series A distinction. I think to build on that. The type of investor and level of sophistication I think is more important than what you call it. So there’s a lot of seeds where it’s Angels and friends and family, who I think the big distinction is as soon as you bring on institutional money, the level of diligence that’s required is another level. That to me is more important.

Hudson Gilmer:

But back to your question, when I look, we worked out of Greentown Labs, and there are a lot of hardware companies there who…

Jon Powers:

Did you come out of Greentown Labs?

Hudson Gilmer:

We’re still headquartered in Greentown. Not physically. And it’s a tremendous resource and community. But a lot of companies will seek grant funding for those initial hardware prototype developments, and there are plenty of paths for that in order for them to get to a point where they can make the ask, rather than using seed funding for that.

Jon Powers:

And I’ll ask Marnie and Matthew if there’s anything they want to weigh in on that specific question. It’s definitely one of the challenges in clean tech, right? Or folks who want to spin out of what they think is a great hardware, but have yet to prove it. So any insights?

Marnie LaVigne:

I would just continue to say that anybody listening in on this pursuing a non-diluted grant funding is crucial. And what we’re seeing during COVID is a lot of our companies who were able to get those kind of dollars particularly where it may be supporting some of the hardware development as well as the software. They’re able to continue their work at this time, which is crucial. So I think you have to be more creative and nimble. And I know certainly we’ve looked at Prime, as our companies are going downstream with significant capital expenditures, who even want’s so support that?

Marnie LaVigne:

Once you move from the grants that can help you do that, who else is going to assist? We provide what I call small but mighty dollars. It’s typically convertible debt note. So I do think that seed stage really proves the grit of these entrepreneurs. And so there’s some great combination of, “I am going to keep pursuing this, and I’m going to be coachable. And I will find Prime at the right time.” But having groups like Launch NY that can help you with all the touch points. I just think it’s very complex, and we do have a number of investors who want nothing to do with the hardware play.

Jon Powers:

Marnie can you, going back to the one on one sake here, can you just explain what a convertible note is for folks?

Marnie LaVigne:

Sure. A convertible debt note essentially is debt but it’s anticipating that it will convert to equity. So we have had to play a lot of different games with this from the standpoint that, where is that showing up on your balance sheet? And how is it being treated? At this point typically a Launch NY debt note is going to look like this. We’re generally in our first investment in a company, we’re providing up to $50,000 as that convertible debt note. Which essentially says you have generally speaking 24 months maturity. We really don’t want you paying this back to us. What we want is for you in that timeframe to move into a series A. So you move into a priced round. In that priced round, our $50,000 plus what is typically six to eight percent interest rate, will convert into that equity position.

Marnie LaVigne:

We generally also do have a 20 percent discount as well at that time. And we often will have, most times we’ll have a market cap. So that we’re essentially getting the value of coming in very early. At the same time I would tell you our whole goal of using a convertible debt note is we don’t want to spend a ton of time deciding what you’re worth, when you don’t even have the MVP, the minimum viable product typically. So, that really has become very helpful. We are seeing interesting movement into these safe instruments and kiss instruments. But we find for our marketplace that the convertible debt note is the most friendly today for the investors who might come in alongside with us.

Marnie LaVigne:

We have significant co-investment about 15XR dollars. It’s friendly generally speaking to the company, and it works very well for the downstream investment round.

Jon Powers:

Great. A couple other questions, some quick ones I’ll address. Some folks have asked if this is being recorded to share with others. This is being recorded as part of an Experts Only Podcast, so you can get that at cleancaptial.com, or through NECEC will also be pushing out the recording I think once it’s up and ready. I think I’ll double down that you’re point is a great conversation and we’ve got some really good questions continuing to come in. A quick one for you Matthew, someone asked based on some of your earlier comments, how willing are seed or series A investors willing to look at for instance an executive summary doc, versus slides? Just going to mechanics for a second.

Matthew Nordan:

It always depends. And one of the challenges, and I’m sure Hudson will be rolling his eyes at this one, of getting feedback on pitches is that if you ask 10 people, you’ll get 10 incompatible idiosyncrasies of the things they want to see. So I don’t think there’s a great answer. I’ll tell you that personally in our team, we can’t stand exec summaries. People send a one page teaser, and A, it’s like, “Words, words, paragraphs!” And then secondly it’s like, “What’s the intent?” Why send a page, if I’m interested, I’m going to want to know a lot more. So we tend to look for decks as the first point of contact, and things like one page teasers are useless.

Matthew Nordan:

I’m sure if we polled a dozen seed stage investors, half of them would tell you the opposite.

Jon Powers:

So they’re saying what if it’s a three to five pager, instead of one pager? Is it still too many words?

Matthew Nordan:

Oh God! Now it’s a fly deck and longer! So please, no!

Jon Powers:

That’s great, good feedback.

Marnie LaVigne:

I’ll agree on that one. If you’re going into an executive summary, one, two pages max. Because of the volume we handle, I actually like the executive summary. You don’t worry about the fact that it’s huge attachments. And so for us it is efficient. We do tell every company, “You need to have an executive summary.” We require it to apply to our fund. And you need to have a pitch deck, and you really need to have multiple pitch decks. Depending on your audience.

Jon Powers:

When I was in the military someone had taught me really early emailing lesson that emailing multiple steps up the chain of command to a multiple star individual and they said, “Short and sweet. Because no one that is that busy has time to read it, read a novel.” So keep it short and sweet, and targeted. I want to go back, we’ve had a lot of amazing questions coming in, we’ve got some limited time. I do want to talk for a second, we’ve talked a lot about that first pitch. Getting in the door, having that first pitch. But that is only the beginning. You’re going to have dozens, if you’re lucky, with lots of nos, and you’ll get a couple of yeses.

Jon Powers:

But let’s talk for a second about that next stage. What should an entrepreneur expect when they walk out of a meeting with, “We’d like to learn more.” What’s the next step? I’m going to start off with Matthew, and then Hudson I’d like to hear about your experience in prepping for that.

Matthew Nordan:

In most cases, unless you’re pitching to an Angel, people don’t make decisions unilaterally. They’re part of a partnership, they’re part of a group. And I think even with Angels. There may be an investment committee of the sales. I think often, what’s happening in the first meeting, you were getting one person interested, and you are giving them the bullet pointed data points they’re going to use to get other people interested. The second meeting is the first person that you met with has spent some social capital by getting their colleagues to now come and spend some more time with you, at least one other.

Matthew Nordan:

That’s usually an indicator that there’s real interest. Now your goal is to convince that person and to present more and surprise to the upside than what was there beforehand. Again it’s one of those things that becomes ritualized, but there’s actually data in doing the ritual well. Good entrepreneurs will have news flow ready there for the second, and the third, and the fourth meetings. They show up in the second thing, and it’s “Hey, last week, this good thing just happened.” And they show up a month later, and diligence say, “Hey, you know that thing where we were looking for that LOI? Well these people found it.”

Matthew Nordan:

So some of that stuff may be pretty big. You know what? It’s not bad. That person is going to have to use those same skills with perspective employees, with perspective customers, with perspective partners. They are demonstrating them before you, not a bad thing. But I would think the difference is in the first meeting you’re convincing one person, the second people you’re convincing more than one person.

Jon Powers:

And in those followup meetings, I think the people are sometimes looking for more depth to the business plan, maybe financials. That maybe if you’re in grad school then idea you’ve never done that before, right? Or if you’d have been in government before, you maybe have never flushed out an entire business plan before. Hudson, for you, what was that experience like? Getting ready for that level of diligence that I assume you had a series of investors looking into you after that initial meeting.

Hudson Gilmer:

I think certainly it was a learning process for me, and for us. And one thing that I would encourage is for entrepreneurs to think of this as not a binary, “They like my idea, they don’t like my idea.” But think of it as a journey. Think of it as a treasure hunt. Where even the nos that you get contain really valuable clues to the next step. So you should come out of every meeting which may not be a fit for a particular investor, with a series of questions about, “Okay, if it doesn’t fit for you, who would you recommend that I talk to?” And ask them to make those introductions that gets you one step closer to the investor who it is a fit for.

Hudson Gilmer:

And I guess the other thing that I would say is, just in terms of the followup, I totally agree with Matthew. You want to show momentum. You want to show that that forward progress. But you also want to really listen carefully to the feedback that you’re getting and be responsive to it. So in our case, we had a product that was more or less proven. We had some demonstration of adoption. Our market size was way too small. And one of our investors actually CEV, Clean Energy Ventures, said that to us. They said, “We like what you’re doing, but you’ve got to think bigger.”

Hudson Gilmer:

And initially it’s your baby, and you don’t like any criticism of your baby. So the initial response is, “No, no. We’ve studied this.” But we really went back to the drawing board and for us, we realized one model of the market size is using our technology almost like a bandaid on a handful of highly congested lines. Which has a certain market size implication. But what we then realized, low cost sensors, if we look at the broader trends, these should be on every high voltage line above a certain threshold. And we call it our metal plan. Which stands for monitor every transmission line. And realized that there’s an incredibly positive cost benefit ratio for deploying it system wide.

Hudson Gilmer:

And that of course increased our market size legitimately by about five X, and we were able to go back to CEV and say, “Hey, we really took to heart your input, and they said ‘We love it, and where do we sign?'” I’m oversimplifying a little bit.

Jon Powers:

If you’re not ready to be humbled through this process, and take your beatings in some of these meetings and be willing to adjust, you probably shouldn’t be out having these conversations. So many great questions coming in. I apologize we don’t have time to get to all of them. We have a limited window here to close. And I wanted to ask a final closing round. We’ll start off with Marnie and go around the horn. If you had any final key piece of advice for the entrepreneurs listening today, what would you tell them?

Marnie LaVigne:

I think that all the advice that you’ve given so far is spot on. Coachability, be prepared to be resilient, show true grit, and that’s how you will succeed. But also be prepared, so one final note to follow up on this what happens next, there will be due diligence. And each investor will come up with a different flavor. You need to be able to respond typically within 48 hours if you want to show you’re serious. So I would just really encourage you to set your own digital dockroom, as we call it. And we train a lot of our entrepreneurs just to be ready for that. Update the information.

Marnie LaVigne:

Matthew loves the “Hey,” I just did a call like this yesterday where they said, “Here’s the latest thing since I talked to you one week ago.” Super powerful, update your materials, be ready, and grow thick skin.

Jon Powers:

That’s great. Thanks Marnie. Matt, I’ll ask you the same question.

Matthew Nordan:

I think the key thing to remember about all of this is that it’s largely psychological. Marnie and I have one thing in common I didn’t know until her intro and we both studied neuroscience. People behave differently when they think they’re at the top of the pecking order or the bottom of the pecking order. There are well done experiments where you have the captain of the football team now be at the bottom of the dominance hierarchy, and he acts like it. And vice versa.

Matthew Nordan:

And I think one of the things that can be challenging, it was for me, when a much younger and significantly less gray haired Matthew was raising venture money for Lux Research in the mid 2000s, I though that venture investors were magical, super heroes from outer space, capable of things I was not. And I walked into those meetings very differential. And at every turn that illusion was shattered. And I realized fragile humans are all the world can hold. And that there was as much uncertainty and insecurity on the other side of the table, just about different things.

Matthew Nordan:

And the minute that I realized that and started thinking about those meetings, it’s just two smart people having a conversation with an information asymmetry between them. But not a smarter, dumber, faster, slower dynamic. That’s different. I think you begin to approach those things with much more confidence and that shows. That’s a big predictor of fundraising success.

Jon Powers:

That’s great feedback. And Hudson, how about yourself? Having gone through this experience, any advice for the entrepreneurs?

Hudson Gilmer:

Well if I can do it, anybody can. Seriously, we made a ton of mistakes and somehow managed to get through the process. The other note of encouragement I would just say is, I know it can be daunting to think of the COVID crisis that we’re all in right now, and maybe a temporary chilling effect, but I think this is illustrating the need for the solutions that clean tech entrepreneurs out there are working on to solve the much bigger problem of climate change, climate resilience, and there’s a ton of money out there that is hungry for moving out of oil and gas, and moving into the solutions that you guys are working on.

Hudson Gilmer:

So stay at it. Develop a thick skin. And success.

Jon Powers:

Yeah, that’s amazing. I always tell folks be ready for the rollercoaster. Because you’re going to have the most amazing day of your life, and the worse day of your life, probably all at the same time sometimes. And be ready for that rollercoaster as you ride it.

Jon Powers:

Thanks to everyone for the amazing conversation. I want to thank the New England Clean Energy Council, and Navigate for helping to put this on. As always you can get more Experts Only Podcasts at cleancapital.com. We’re always looking for interesting thoughts, so please feel free to send them our way. And thanks to everyone who joined, and the phenomenal questions that came in. I appreciate your time today.

Jon Powers:

Thanks for listening in today’s conversation. Find more episodes on cleancapital.com, iTunes, or wherever you get your podcasts. If you like what you hear, be sure to subscribe and leave us a five star review. We look forward to continuing our conversation on energy, innovation, and finance with you.