Hello, and welcome back to class.

So this is maybe my favorite part of this class.

Look, I like all the parts, but because this is where I spend most of my

time in my company, IronOak Energy and granted, our focus is just on

financing at renewable energy projects, infrastructure, and companies.

So here it's a broader discussion but

really again as I mentioned in other videos, this is the reason that

I moved from being an environmental scientist, an environmental manager.

And someone literally in the rain forests of Central America 20 years ago,

to working in finance, because there is great power in moving capital

in directions where you can create, yes, environmental or social benefits.

While also delivering market rate financial returns.

And sometimes better managing financial risks.

First, how much money do you need?

So hopefully, you've gone or you will go through the process of creating

a spreadsheet in order to understand how much the business needs, both for

external costs, so paying who knows, designers or

a whole host of other things, servers, branding, etc.

As well as the soft costs, let's say, to cover you.

To cover those ramen noodles that you'll be eating.

Stereotypical, of course, but your needs as well.

Sometimes investors will fund those, other times they won't.

Certainly the more money you're asking for there's the expectation of course that you

will use some of those capital to feed yourself.

So like of it its a small amount, in this case I'm drawing the lines based on

roughly what these would look like in the US.

Lots of variation by company, by sector, by region of the US still.

So these are all wrong of course but generally correct.

Less than $50,000 that's kind of your family and friends round as they call it.

Of course this also includes your own capital.

The next level up between 50,000 and a few hundred thousand dollars would be where

you're seeking outside Angel Investors.

These Angels are high net worth individuals.

They're investing on their own account personally.

They typically have to pass certain requirements which

state that they're either sophisticated and have a certain net worth and

or income level such that the loss of their Angel investment would not be

too detrimental to their financial petition.

Once you're over a few hundred thousand dollars,

you're talking about a venture capital raise.

Or look, if you're talking about, you know,

a project of some sort, an installation of some sort, an asset, a real asset.

Then maybe you are talking about private equity and

the numbers can be much, much larger.

Do you have market traction?

Do you have proof that you need in order to raise capital from outside groups?

So have you run pilot projects?

Do you have results from those partners on the pilot projects?

Do you have paying customers?

Of course that's the holy grail.

How many do you have?

Are they paying the price you want or

are they paying an introductory kind of price or discount if you will.

Do you have strategic partners or advisory board members with look big brands who

don't just apply those big brands to just any old startup unless they believe in it.

Which investor is best for you?

Don't just seek capital from wherever it might be available.

You do want cultural fit, beyond just the financial terms,

you're likely entering into a multi-year partnership.

The average angel investment is roughly four or five years.

Venture capital could be longer ditto for private equity.

Ancillary benefits might matter more so can the investor help you with

a network a certain channel to market that matters to the success of your start up.

Are they going to be engaged and offer helpful advice along the way or

are they passive investors?

Is there strategic alignment with other investments they have, other businesses

they have, such that they care more about the outcome of your success?

And finally, could they invest in future rounds of financing as your company grows?

It's nice to have one relationship that you can grow with versus having to prove

yourself and negotiate new terms with new investors.

Similarly points you really need to understand, your investor,

they are not all the right fit for your company or for you.

As you talk to them make the story in large part about them how you addressing

or managing their risks and what kinds of financial returns do they expect.

So here a study from a 2016 about angel returns

where the IRR the internal rate of return For

this project is roughly 22% and the equity multiple or

total cash out versus total cash in is roughly 2.5x.

How long can they wait to see the financial return?

Then the average for an Angel level investment 45 years certainly

could be shorter of could be longer regardless of the amount of capital or

type of investor in your startup.

Are they sophisticated in your sector?

Ideally they are, so they understand the risks and rewards, but

also add other strategic advice that can be helpful as well.

What if they lose their invested capital?

With a high net worth individual, maybe to be extra careful to make sure they pass

certain tests of net worth and income.

Lastly are they interested in none financial benefits as well.

So how do you get in front of these investors well it's not easy.

Working your network is a key part of the game it's nice to know someone who knows

someone who can be that connection between you and the investor.

So seek out those mutual connections.

LinkedIn, of course, or similar tools are very very helpful in this regard.

And consider ways to develop rapport,

things you have in common with them as well.

Whether it's geographies, where you've lived, or studied or what not.

Travel for fun even.

Places you went to school, hobbies you have, university studies, or

online groups that you both belong to.

These are starting points.

Much much more is required to get in the door.

Things like, I don't know, are you credible?

Accomplished?

Does your business have a strong pitch?

Which we'll talk about in the next slide.

So how do you make a great pitch?

Well, ideally, you don't want to be too long or you want to leave a lot of room

for questions and you want to ask the questions and a lot of time to be asked

questions as well, make it a conversation after your pitch.

Try and connect emotionally with a story or two.

Also convey your passion and determination.

By the way, I heard the founder of the Five Hour Energy drink,

by the way, he became a billionaire through this particular product.

Although, he was also a successful businessman before that product and

spent many years in

spiritual institutions let's say, I'm guessing ashrams and the like in India.

So very very cool individual.

But my point is he talked about the difference between kind of passion and

determination where determination is what you really want.

That if you get knocked down, you get back up again and again and again,

and again, etc.

Some collateral that you would need, a one-page PDF summary,

a paragraph summary, and then something like a 15 slide PowerPoint as well.

Depending on the use case, the type of conversation you'll

with the prospective investor about your opportunity.

Key conclusions.

You will likely need to raise outside capital to launch your business.

Relying on your own cash is risky and will result in slow progression.

Number two, remember investors need you just as you need them.

So please don't beg, right?

Now look it doesn't it's the right fit, you and

the investor but if there are no investments the investor does not exist.

Lastly, be honest about the risks.

That if you try to hide things they will come out and

the due diligence process and that will not be a good take for you.

Lastly, questions for you.

Number one, how much investment capital will you need for your business and for

your basic needs until cash flow is sufficient?

Create a spreadsheet and ask others for their opinions.

Number two, if you need to raise capital for

your startup, who are the first five people you ask and why?

Do you have their phone or email how do you get it?

Better yet go see them in person.

Lastly have you created a one page investor pitch?

If not then review this module's readings and try to do that this week.

Great we will see you on the next video.

Financing Your Buisness

Renewable Energy and Green Building Entrepreneurship

Rencontrer les enseignants