What are investors looking for when scouting sustainability startups?

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Posted by Tomáš Kabeláč

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This article was originally written in cooperation with the online magazine EU-Startups.

Finding the right sustainability startups may seem difficult, particularly for investors in which this industry is new. There are a lot of things happening right now in this prospective industry, which means it is experiencing a huge investment and startup-launching boom.

However, it’s good to know that even with some different specifications, the process is almost the same as when scouting for other startups, you simply need to broaden your perspective to reach this different kind of market.

This accounts for both investors wanting to help the planet with their capital, while investing in high-performing assets, and startups creating a pitch deck for catching the eye of those investors.

With our expertise in this field, we’ve highlighted the 5 key areas we look for when scouting sustainability-focused startups. Enjoy!

The scouting focuses

To make this process as effective and successful as possible, we’ve put together a set of focuses that are the most important for us. Within each focus, we’ve listed the specific indicators which are key details for our investment decision.

Sometimes, especially with SMEs, it is hard to communicate the impact of sustainability data into numbers. However, the startup industry is a creative and innovative one, and you have to be too, to understand how sustainability can influence your business in good or bad ways. What you can put into numbers, do. What you can’t, try to solve with your creativity and innovation.

Let’s see what the key focuses are for us:

People

Every great innovation needs even greater People behind it. Though these both go hand in hand, we believe that people are the key element of every startup. You will never build the perfect solution without great people.

These are the core values that investors are looking for when evaluating the team: They start with showing knowledge and expertise in the core business area, working through and showing commitment with long term cooperation and then they end with attitude, showing the best way of thinking and business understanding.

Never forget to show your drive, your trust and the hard work you invested in the company. Show the diverse team, the mixture of young people and experts. Do not be afraid of investing in experienced team members, they will bring the value back.

Solution

This is the part where inspiration reaches its highest. Here we analyze and discuss what challenges the startups and technologies could have the potential to solve. Here is the part when we can be amazed by the innovations that founders bring to the world.

For this focus, it’s good to know what is on the agenda in the current world and what could be in the next 5-10 years. That is the beacon we follow to make the best possible decision. When you know what could become a hot topic in the near future, you can start building technologies and innovations to be the best solution for that topic.

Define the customer problem, bring the solution and show us who and how you will pay for it. This is the core of the startup. Bring the feasible solution with the current track record of development or sales to prove that the concept is sustainable, as well from a finance perspective.

Sustainability

We want to support founders and leaders who speak through action and do their best to lead their startups sustainably from the beginning.

For those who are in a later stage, we use ESG (Environmental-Social-Governance) and SRI (Socially Responsible Investing) metrics to guarantee that we support the best ones. For those who are in early-stage development, we have a special reporting tool consisting of questions from the ESG reporting method.

What is even more important to us is the potential influence that the startups can have. We analyze the possibilities of positive impact and dive down deep to find the best outcomes. We set goals which we would want to achieve with the team. If both sides agree on a partnership, our efforts go directly into making that goal achievable at a specific time.

But the sustainability of your solution itself will not bring the right emotions to investors. Investors are not donors, that is why you must not forget the financial side of the company.

Business model

We believe in PPD (Purpose-profit driven) startups so we can provide a win-win situation for the founders who built the innovations, as well as for the investors who believe in the potential of the technology and enable it to happen.

We operate with our startups in the same way as any other startup industry. In fact, sustainability startups are as powerful in making great and sustained profits as they are in making a great impact in societies.

We want to see that they are taking the business seriously and so ask to see their business plan for the upcoming years. We want to see that the team thinks about the target group, paying models, marketing strategies, scalability, competition, unique selling proposition and who will pay for the product in the end.

Do not forget the world is globalized and all investors are looking for solutions with the potential to be scaled across all countries, and continents. It is important to bring the product to as big a group of customers as possible.

Startup

By ‘startup’ we mean all important things that usually interest you when scouting for a startup.

This could be the financial information about the startup, prior funding rounds if there are any (and which investors were behind them), the valuation of the startup, how long the startup operates, or the track record of the startup where investors can see the progress the team has already made.

Another part could be legal information and technology patents, the demographic situation, etc. This focus may look simple compared to others but don’t underestimate the importance of this data. Here you can verify if what you are feeling and what the founder says is true and whether the job is well done.

Specially tailored to each startup

All of the aforementioned focuses are equally important to us. However, we are aware that it’s not possible to have covered everyone since the beginning of the startup’s journey. You have to be flexible, as in the VC and startup industry you will meet a range of different startups in different development stages.

We take this into account and we adapt each of these focuses to meet each startup’s current development situation.

In the beginning, in the seed stage, our main focus is on People and Solutions. But we also have to see that the founders are aware of their mission from day one, and want to fulfil that potential. Later we slowly add any gathered Startup information, building a quality Business model, and then in the final process, we integrate Sustainability into the business.

Every startup has a different purpose and that purpose manifests in different ways. You need to understand that and adjust the impact metrics to suit each startup specifically.

Focus on future value creation!

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