The Ultimate Funding Stack for Climate Tech
OpenGrants CEO, Sedale Turbovsky, and Enduring Planet CEO, Dimitry Gershenson, will break down today’s funding opportunities and tools for climate tech companies, including grants, revenue based financing, and more. This session is perfect for any founder in the climate space looking for funding to scale and strategizing for a long-term plan.
In This 1-Hour Session, We Covered:
- The funding landscape for climate companies in 2022
- Types of non-dilutive funding available to climate companies
- How to find the right opportunity and prepare your company to receive funding
- Tips to manage fundraising in an economic downturn
About the Speakers
Sedale Turbovsky, Co-Founder & CEO, OpenGrants
Sedale Turbovsky is the CEO and co-founder of OpenGrants, a venture-backed startup focused on building modern infrastructure for funding. He has been an entrepreneur since childhood. After honing his leadership skills as an outdoor guide in his younger years, he started his professional career as an independent consultant focused on delivering data products and digital strategies to enterprise clients in South America. He is experienced in independent grant writing and public/private partnerships at the highest level, having worked directly with OpenGrants’ current strategic partner, Momentum.
Dimitry Gershenson, CEO & Co-Founder, Enduring Planet
Dimitry Gershenson is the co-founder and CEO of Enduring Planet. Dimitry has worked in climate and impact investing for over a decade, partnering with, and investing in startups, funds, and non-profits across the US, Europe, Sub-Saharan Africa, Latin America, and Southeast Asia.
Prior to Enduring Planet, Dimitry led M&A and served as COO for Rango Wireless, an Enduring Ventures portfolio company. Before that, Dimitry built Meta’s Energy Access program, a $15M+ investing initiative that enabled energy access for 3M people and unlocked over $500M in additional capital in underserved markets like Kenya and India. While at Meta, Dimitry also led the development of multiple predictive ML products in the cleantech space and built corporate accelerator programs for impact startups in India and Puerto Rico.
About Enduring Planet
Enduring Planet provides founder-friendly growth capital for climate entrepreneurs. Our revenue-based financing requires no collateral, no personal guarantees, and no dilution. Apply in <10 mins, get a term sheet in 1 week, and funding in your bank account in <30 days.
Read the Transcription
Please note, this transcription is automatically generated and may contain some spelling and contextual errors.
All righty. Welcome everybody to the ultimate funding stack for climate tech webinar. I’m really excited to have y’all here while folks are rolling in. Just wanted to say that you’re in the right spot. If this is the webinar you wanted to attend, and if this is not the webinar you wanted to attend, then I don’t know how to help you, but you could be stick around anyway.
Yeah. Or stick around and learn. We’re gonna talk a low on how to be very tactical with funding for your climate startup, super excited to have Dimitry here. And we are going to definitely have this session fairly locked down just because we have a lot of people and that will keep interruptions at a minimum.
So if you do have questions and please do fire away with questions you can use the Q&A tool. And if you do have any kind of technical issues as well you can reach out via the Q&A tool and our team will take care of those. So please strap in, this is gonna be super fun.
We’re excited to have you all here. There is a lot going on in the world right now, so I’m going to pop over here and introduce myself and say, we really appreciate you taking time out to come and learn with us today. I know that there is a lot going on and this is something that I think is critically important on the list of important things in the world is the the climate and the planet that we live on.
And so really appreciate all of y’all who are. Working on innovative solutions for the, for climate looking for funding hopefully that we can be a great resource. My name’s SDEL tra Bosky, I’m the founder and CEO of OpenGrants and we help streamline access to grant funding for a variety of things, including including climate tech.
And I am really excited to introduce Dimitry Gershenson, who he is the co-founder and CEO of Enduring Planet. And I’m gonna let him, tell you a little bit about what Enduring Planet is and what they do. And then we are going to we’re gonna get into discussion. We will have some time at the end as well for Q&A, and this webinar will be available on for viewing after, after the session as well.
So excited to have you all here, Dimitry, thank you so much for taking time to spend spend some time with us to talk about climate tech and and funding for climate tech.
Totally. Thanks, Sedale. It’s really exciting to, to be here. I think that this conversation is not had enough if that’s the right way to say it.
I’m a little sleep deprived. My four year old got her COVID shot yesterday, so hopefully I’m coherent. But she didn’t sleep. And so neither did I, but we’ll make it work. As Sedale mentioned I’m Dimitry, I’m the CEO and co-founder of Enduring Planet. We’re a specialized lender/ FinTech focused exclusively on the new climate economy.
So we provide a non-dilutive growth capital to climate entrepreneurs today, exclusively in the US. And soon, internationally. We lend currently through a revenue based financing instrument, although we’ll be adding other products to our sort of offering for founders, but at this moment we invest in post revenue climate startups and small businesses that are generating at least 25 grand in monthly revenue on average with 35% gross margins.
So that’s typically like seeds series a startups, or, small businesses that have been operating for quite some time and have consistent and growing revenue. Our revenue based financing offering is entirely non-dilutive. So there’s no warrants, there’s no equity participation of any kind.
There’s also no collateral, no personal guarantees. You don’t have to put your house up to access capital. And it’s super fast. So the application typically takes about 10 minutes and we offer a term sheet within a week and funding within 30 days. So it’s probably some of the fastest capital you can get for your climate business today.
And the last thing I’ll just say is that we. We don’t just invest we’re partners. So we share deal flow with over 200 VCS in the space. We have lots of other partners that offer all sorts of different capital and services to both our portfolio companies and just broadly our network. Like we make VC intros for folks that we don’t invest in just because we want founders to access the money that they need to save the planet.
And we also, we prioritize investing in underrepresented founders. So we love backing anyone basically who doesn’t look like me. It’s not exclusive to underrepresented entrepreneurs, but it is a priority for us. And it’s actually part of our corporate mission as a public benefitation, but also it’s part of our underwriting process to prioritize those investments.
Excited to have this chat looking forward to talking about the stack, all the opportunities for founders and maybe a little bit more about Enduring Planet. So back to you stale.
Awesome. Thank you so much. Yeah, really excited. I think, There is a lot of experience that you’ve had.
I, in, in your background, I think you led Meta’s energy access program for quite some time. You also served as COO for Rango wireless. And so really excited. Like it’s not just that Dimitry showed up today and was like, Hey, we’re doing Enduring Planet, but you’ve been through this process.
And as a founder, This is my fourth venture back company and really excited. I actually started my first company that was very luck lucky enough to start was a company called CarbonBLU in the climate space. And so really excited to be back to this subject because it is so important.
I’m gonna go ahead and send out a poll for everyone who’s who’s here today would love your thoughts on just kinda how you’re feeling. I know that there is a lot going on in the world, as we mentioned some pretty heady topics that have been in the news recently. And so I think, one of the things that helps me work through a lot of that stuff, I was speaking with Dimitry earlier is I can’t get on Twitter, these days too much. But I, I do love, being able to dig into a place where I know I can make some impact and create some positive change. So really excited to, hear how y’all are doing. But I think, in particular, like being able to say all my expertise is getting people money.
That’s what I do. That’s what I’m good at. So let’s, let’s dig in and find some cool ways to fund some really exceptional, impactful ideas. So excited to share some knowledge. I’m gonna go ahead and end this poll, seeing lots of folks say that they’re excited to learn, which I’m excited about.
A lot of people who are also a bit anxious about the world which I think is warranted. And hopefully we can convert that anxiousness into some some positive forward forward motion here. I think, first off, Dimitry, you talked a little bit about non-dilutive capital and there’s a lot of different non-dilutive money out there.
I wonder if you could just baseline for us, like what is, what does non-dilutive capital mean? And yeah in general, what are the different kind of, kinds of non-dilutive capital that you’re seeing used in climate tech in particular.
Yeah. We could probably just do an hour on this question, but I’ll try to keep it succinct.
So when you’re raising money for a business, there are effectively two options. There’s debt and there’s equity. And those, and grants, sorry, there’s three options. clearly on sleep deprived, right? There’s dilutive and non-dilutive options. And within the non-dilutive space, which means there’s no equity participation, there’s grants and there’s debt, and those can then be further broken down into a million different versions.
So within grants you’ll have grants that are given to you up front, you’ll have cooperative agreements where you get reimbursements. You’ll have lots of different flavors of grant funding. And then on the debt side, there’s a cornucopia of options, right? So there’s everything from different versions of corporate finance, which means you get a loan to the actual corporate entity.
There’s also project finance where you effectively raise capital to an outside entity that has some relationship to your business, usually a project company. And then within those there’s lots of different models. There’s inventory finance, PO finance revenue based finance cash advances term loans credit lines, your credit card is non-dilutive capital.
And so I think the way that is helpful, that I found that’s helpful for founders to think about it is that there’s often a form of money that you can access that’s specifically aligned to the expense that you plan to have. And as a founder, it’s really helpful to think about this portfolio of options holistically, rather than put blinders on and say, oh, I’m a venture back company. So I’m just gonna raise venture capital. That’s what we see a lot in the industry. It’s actually a view that’s promoted by VCS as well. And we find it pretty frustrating, cuz it, then what it does is it forces founders to raise the most expensive money.
So VC money is the most expensive money you will ever raise. And it then also ties them into a model of funding and financing that isn’t always entirely aligned with their like operational objectives or their corporate mission. And so there’s nothing wrong with VC, right? We’re a VC back company.
We share deal flow with VCs. There’s a time and a place for raising venture capital. But I think the message, if you come away with anything from this webinar is like venture is a tool. That has like a use case. And you will have lots of different use cases for capital as you build your business. And most of those are often better aligned with a different tool.
And so the key is the. Educating yourself about how to make that alignment work. And there’s now starting to be more and more resources around the breadth of options available today. So like climate tech, VC did a piece last year that we collaborated on, which laid out the climate capital stack, very high level, like a primer.
There are folks today that are producing a series on this, which I can tease, but can’t talk about yet, cuz it’s not published. And we actually produce content on this question every week. So every Tuesday, if you go to Enduring Planet.com, we have an insights piece that we publish usually at the intersection of like climate entrepreneurship and capital.
And sometimes they go a little broader, like this week we did one with one of the directors of carbon at Netflix around building corporate partnerships, which is like then drives fundraising. But we cover a lot of content around this question of like, how do you fund your climate business?
I’ll. Pause there. There’s like lots of considerations around non-dilutive capital terms, structures, whatever. But we can get it to those later.
Yeah. No, thank you. And that’s great context. I think, one of the things I’m, doubling down on what Dimitry said of if you take anything away and, I just say this to everyone, it’s like being very tactical about how you use funding within your startup is something that will really help you.
And in particular with with climate where you’re looking at especially in the hard tech space, if you’re deploying, direct like carbon capture, like air behemoth thing that’s, it’s millions of dollars. And if you go raise that all from VC, you’re gonna get to the end of your company life.
If they fund you at that level in the first place and you get to the end of your company, you’re be like, oh, I don’t own any of this. Yeah. And so that’s where, in particular, my expertise and my background has been in using grant funding as that kind of like initial tool for early stage demonstration projects, like coming out of the lab or coming out of, your tinkering and thoughts to, Hey, like we’re gonna build that prototype and we’re gonna get to that, TLR one through, five kind of thing.
And that brings me to that next lens that I’d love to apply here. And I’d love to hear your thoughts on is, at different stages, you’re gonna be looking at different kinds of capital. Any thoughts on. You mentioned like the whole, like climate stack, like funding stack tool, any thoughts on, how founders should be thinking about funding at different stages?
Are there like, yeah. Some correlations, some hard and fast rules that you’ve seen play out?
I would say that the guidance that I would give now is probably different from the guidance I would give in six months or in 12 months, because one of the incredible things about this space is that there are new options available every day.
And like we’re gonna launch probably a new product every six to 12 months. And so those products will serve different segments of entrepreneurs. I think generally you’re right. Often grant. So like we’ll just focus on non-dilutive right. You can raise venture anytime, as long as you have a venture backable story.
So we’ll put that aside. I think you’re generally right. That grants are. For earlier stage companies, although we’re seeing now more and more that there is public funding or even private funding from private foundations that can be leveraged, a grant to do all sorts of things at any stage.
So folks might have fairly established business, but they’re doing a project cooperatively with a state or city or federal institution. And all of a sudden there’s free money available. Grant funding is never free. There’s significant operational cost. You have to apply for it administrative, et cetera. But like from a repayment perspective, it’s free.
And I wanna double down on that and just say that those are in fact, in my view, at least some of the most exciting opportunities something that California funded a couple years. It was called Zenz and it was like the largest deployment of electric port equipment ever, I think, in the world.
And there was like reach stack. And if you don’t know the port space, none of these words will make any sense, but there was like reach stackers and gantry cranes and tug butts and like all this drainage equipment that was all electrified and it was up and down the west coast and it was this massive project.
And I think there was probably like a couple, maybe as many as a couple hundred different vendors that got to take part in that in terms of providing and demonstrating technology. And so I do think yeah, early stage grants are cool and it is like more of crossing that chasm of death at that point.
But down the road, there’s a lot of opportunities to use what we see as like grants as sales enablement almost where you’re like, oh, I wanna sell this to the federal government. They’re not quite ready to like actually buy it wholesale, but they will they’ll, pilot it and they’ll pay for it with grants.
Yeah, spot on. And I think this transitioned us well to the other side of non-dilutive money, which is debt, right? So a lot of folks thinks that in order to raise debt, you have to be like profitable, or you have to have a big balance sheet, or you have to have lot of assets like that I think is true.
When you look at bank debt or like hard blenders but there’s an infinite universe now of options that sort of upends that model. And actually there’s a question here, which I think ties the grant conversation and the debt conversation together, which is are there options for raising money about in advance of a grant?
And David, it’s funny, you should mention that cuz that’s the next product that Enduring Planet will be launching. This fall, we will be offering advances against state, federal municipal grants. For often for a lot of these reimbursal grants, like if you go to, let’s say the DOE or the California energy commission or ER, or whatever you apply, there’s a staff recommendation that you should get the award.
And then from that point until you actually see any money, it’s six, nine, sometimes 12 months. And so we’re gonna start offering folks capital to bridge that gap. It’s not yet available. I’m like, sorry to not just hand you money today. But it will be available quite soon. And if you want you can shoot us a note and we can stay in touch about your specific need.
There’s a, probably just like contact enduring plan com is fine. So I think the other thing I’d say about about debt is. Again it’s really tied to the use case. And so if you’re an early stage climate business and you have, you’re like, I don’t know, selling a widget to a customer, right?
And you have inventory, you can probably access inventory finance, which will be non-dilutive, it’ll be secured against the inventory means you have to raise the less venture money to buy stuff, which you then sell and immediately recruit. If you have large POS that you need to execute, there are players who will offer PO financing.
There aren’t any, there isn’t anyone specialized for climate today. We will get there eventually. But this is what I mean about tying your use case to the product. If your post revenue. There’s, there are lots of revenue based financing offers available to entrepreneurs. We are the only climate exclusive lender who does that.
And I think we have the best terms in process. So if you have revenue come to us and then I think there’s also now an evolving community of capital for folks who are early and have business models where assets generate revenue. So for example, like EV leasing or EV financing businesses, folks who might sell hardware, but then have a recurring subscription the folks at third third sphere, for example, have a credit fund that exclusively focuses on lending to companies that have these like asset finance kind of models or asset back models.
And if anybody wants an introduction, I’m like, I’m happy to make it. We’re really tight with them. We share a lot of deals though. So I think to your point It’s less about stage and more about this, need like demand supply fit for capital. I think that you’re probably right if you’re pre-revenue and pre-commercial traction, it’s really hard to raise that unless you can get an advance against a grant, right?
There, there are sometimes, and this is this is a challenging space to navigate, but there are private, like family offices, high net worth individuals, angels who might make loans to pre-revenue startups because there’s a mission alignment. These are somewhat difficult to access. They’re usually not publicly advertising that they have this money available.
But there are mechanisms for reaching them. So there are things like impact collectives, like tonic gratitude, railroad Creo that are collections of impact investors who might have these boutique like specialized offerings. There’s also like there are syndicates that invest in the space where the investors in the syndicate might have other like capital options that obviously don’t advertise through the venture syndicate.
But if you get in front of them, then you could say, Hey, like you wanna invest in my Topco. Can you also do debt to, offset how much venture I have to raise? And so I, this is where if you don’t have the expertise finding folks who can help you think through this question is really valuable.
And I don’t mean like investment bankers, cuz they will not help you. You should be looking. Yeah, you should be talking to other founders in this space who have similar business models who have raised holistically or talked to folks like us because we like, even if we can’t lend to you, we will help you figure out the answer or we’ll point you to some.
Yeah, I was just gonna underscore that. I was like, you’re not talking about like the guy on LinkedIn who was like, oh, I’m gonna help you fundraise.
Don’t do that. Yeah, don’t do that.
And for a couple re… I think there’s a high level sort of reason generally in tech to avoid that.
But this space in particular, exactly what you were saying is highly this is just very different. Yeah. And there’s also I just wanna add depending on what you’re looking at, if you’re doing education or if you’re doing hard tech, there’s other, there’s other groups that are pouring capital into this space the utilities are particularly active.
Some of the kind of corporations that own the utilities are super active. There’s. There’s all kinds of different capital here, and it can be a bit difficult to navigate, but it really does help if go find someone who’s in your, who’s a similar in a similar vertical or who’s just in the similar space and is raised capital.
And it is like a lot of relationship building and networking. And that’s something we bring up in the grant space as well. It’s unfortunately the answer here is like talk to people, meet people and level up your network. Yeah. And, I’m I’m happy to be a resource for anyone as well. Having raised and done business in this space for a while now.
But I think, just get really good at following up with people, building relationships and managing that kind of that pipeline.
I think what I’d add here is that folks often underestimate how much fellow entrepreneurs are interested in willing to help. It is incredible. How easily it is, how easy it is for folks to just say yes.
And I sort of second sales point I think also there are oftentimes sort of consultants that you can hire to help you navigate this stuff. And I think I would recommend you lean towards one type versus another. So they’re the people who like will charge you for deal for basically a pipeline.
Like they’ll connect you for intros and they’ll charge a placement fee. Don’t talk to those people. They’re sharks. And they often nobody takes the intro introductions. It’s like a total mess. And then there are the people who will coach you on fundraising. And if those folks have raised capital before and have been successful entrepreneurs themselves, they’re worth talking to.
And so like I used to work. For a consultancy that kind of did this, it was run by Mike Jackson, who now is the managing partner of earth shop ventures. And Mike had been a partner at Wesley group. He had been a founder himself. He’d raised a bunch of money. And so he would coach founders. And I had been an investor at Facebook and run corporate accelerators.
So I would coach founders on fundraising. And we would just charge per hour. There was no placement fee and folks found it really useful and wasn’t a lot of money. And so I think that this is there’s lots of folks like that out there. I don’t know that many that are specialized in climate, but it like doesn’t really matter, right?
Like for that kind of con consulting and coaching, what you really want is someone who understands the capital landscape. Who’s not just focused on venture who can really think holistically about the problem. And there’s surprisingly a lot of resources out there as well. A 16 Z Andreen did like a big piece on debt in the space.
We produce content. There’s like a ton of folks doing content on this. And you can actually get pretty savvy pretty quick just by looking online to Laura’s question, you should work with OpenGrants or climate finance solutions or any of the other places that like there’s lots of folks who can help you pair the list down.
And then I think also OpenGrants allows you to like sort and pair grants so you can see where Lyman is. But maybe I should have let you answer that question since it’s actually,
it’s all good. I think that’s great. That, and that. Laura, that’s exactly what we do. There’s a couple ways to go about it.
That could be really beneficial. One is definitely, you can use filtering on our platform to be like, all right, we’re looking for half million dollars. We’re looking for DOE grants. You can really filter it down. We have some filters there in our search engine and it’s free to sign up and you can just get get in the platform and do that.
The other thing that I would recommend though, and this kind of goes ties back into what we were talking about, about talking to people. If you’re specifically talking about grants, someone like myself and this is not to just to my own horn, so to speak, but like someone like my myself can take you from zero to 10 really quickly in the grant space only because we’ve have been doing this for 10 years.
And so there’s just a lot of experience there and we have a whole marketplace of people like me, who can help you with this. There’s some incredible folks. And they’re not gonna charge you for that, like conversation. So you can reach out to reach out to myself or reach out to anyone in our marketplace.
We have a whole group of people there, you just type in climate tech or climate, or, if you’re working on battery technology or if you’re working on anything, like just type in the couple words that maybe defines what you’re working on. And you’ll see a list of human beings that you can click message and you can talk to them and really get get in there.
And, even two good conversations can really get you super far in this space because while it is large and confusing the resources here, and I think this is one of the really cool things, the resources here, and we mentioned this before are so specific. It’s like, all right, you need funding for inventory.
You need funding for a demonstration project. You need funding for R and D. These are all like different pieces. There’s different tools and matching them is something that the experts can do really quickly for you. And so you can get really far, really fast.
Yeah. I would say that this is. Grants are maybe one of the few spaces where like I would advocate for hiring people to help you navigate the universe and apply.
There’s a science to applying for grant funding. It is a ton of work. The reporting requirements are often really cumbersome and it is incredible. How many times I’ve seen entrepreneurs apply for grants, spend an incredible amount of time, not understand the requirements, win the grant, and then be like, holy crap.
I don’t even want this money because it’s just too painful. And so this is where professionals can be really helpful. I like, I’m not here to toot Al’s horn, but I do think that it’s one of the, one of the few areas where like having specialized help to raise is really valuable.
Yeah. I just, the question that was offered earlier of like, all right, there’s this huge universe of grants.
How do I narrow it down? Yeah. I think that, that’s a common complaint. There’s oh, we got this grant, but now we gotta do all this reporting and we don’t know how to do it. Yeah. It’s very cheap money. It’s the cheapest funding you’ll find, but there is an opportunity cost.
There’s an investment. I still argue that it’s the cheapest money you can find. I think it, it definitely depends on the agency and like where you’re getting the, for sure. Yeah. There’s probably some situations where debt would’ve been better and I shouldn’t have done this, but I will say that a professional can at least help you go in with your eyes open too.
And just we’re getting this money, there’s, there’s a lot of other reasons to get funding. And I think, maybe that’s something that we could talk about real quick is In the grant space, there’s these other reasons to get the money that go beyond just the grant, right? It’s just strategic relationship.
It’s it’s an opportunity to apply pipeline to other things. Do you see that in, in like kind of the debt space where you’re talking about revenue financing, or are you finding, and do you see that, like these partners should be like your long term, like venture debt or, debt partners, or is it more of yeah.
A transactional relationship where it’s like, all right, we got the money and we’re gone.
I think 90% of the capital you’ll see in the non-dilutive space outside of grants is very transactional. But it doesn’t have to be. And so I think that there are a number of firms, especially in the climate space that have come out in the last few years or that have been around and just were.
Weren’t as well known that have really deep networks in the space have a lot of operational expertise and either explicitly offer something beyond capital as part of their value proposition or it’s it ends up just being a thing. So the kind of cool thing about lenders is that their objectives and incentives are often better aligned with your near term objectives and incentives than VCS, right?
So what VCS are optimizing for is exit value, which means like unsustainable growth is still growth. What lenders wanna see is very sustainable, like execution that aligns with. Their model, which is often like similar to whatever model you built for your growth. They’ll probably be more conservative, but it’s still like in the same universe.
And if a lender has an opportunity to support you, to execute and repay them, they’re incentivized to do it. And so like in our case, we’re a revenue based financier for now. That’s our only product today. And if there’s a way for us to enable you to grow your revenue, we’re gonna do it right.
If we can connect you to a growth consultant, our marketing consultant, who we know is really good, we’ll do it. If there’s other investors that we think would be really well aligned to help support your revenue goal, we’ll do it. We helped one of our portfolio companies source an outside board member.
We helped one of our other portfolio companies connect with a large customer. Like these are things that today we. We’re able to do because of like mine and my co-founder’s network. And over time, like we’re building out these sort of partner communities where folks are really acting as this tie that like raises all boats.
And I think the same can be said of third sphere of homecoming. There’s a few players who really specialize in providing these capital solutions to climate founders. And they’re not just, they’re like, they’re not transactional. Sure. If you don’t want anything but money from them, great.
Here’s some money our process is pretty, pretty simple, but I think if folks have other needs, then we’re always open to, to support those. I will say that like generally the expectation with VCs is different. And so I think most VCs expect to be involved one way or another. At least after the like angel round, like most angels are pretty hands off, but I think institutional investors starting with pre preceded up tend to be pretty involved more so than lenders.
But I think it just really depends on the partner. And this should be like a core question that you ask, right? So when you’re trying to evaluate a capital offering, there’s a few buckets of things to consider. One of those buckets is the value add beyond the capital. And then for the capital itself, you should be thinking about the cost or the implied cost.
If it’s a contingent instrument where there’s not a fixed income interest rate, the term the like other terms in the agreement, covenants conditions that might make the product more expensive in reality than the implied interest or the fees. There’s a lot of lenders have hidden fees. They don’t talk about, they’ll be like, oh Hey, like it’s only 8% interest, but oh wait, you have to move all your banking to our platform.
And that has a 2% fee. And then there’s a 5% origination fee and then there’s this fee. And then there’s oh, the interest rate changes. So like with VE with venture term sheets get really complicated and you have to be really savvy about understanding those terms and the same thing with lenders, right?
Don’t just think about cost of capital with debt. There’s so many other levers and sometimes more expensive. Capital’s actually way more useful to you than cheaper capital. So one example, right? Unsecured debt, like revenue based financing. It’s unsecured, there’s no collateral and no person guarantees is more expensive than a term loan.
So that term loan will have collateral personal guarantees generally. With revenue based financing, you can generally raise it and it’ll take two to three hours of your time with a term loan. You’re gonna spend six months doing, I don’t know how much diligence, and if you need if like you have a high enough margin and your revenue’s growing fast, do you like you have to make those trade offs intelligently.
I love it. And I just wanna like highlight that for any founders who, going back to the tool set, we work with a lender. Who’s incredible. He happens to also be an investor, so there’s like this good relationship when we brought him in strategically.
But yeah, the money is expensive, but sometimes, the trade off is that we can say, Hey, we need 50 K and it’ll show up the next day. And that’s it’s a text, right? Like that kind of just like tactical ability to go get the money you need to get something done. And make sure you can get to that.
Next thing is huge. And so I think this brings us to like the kind of the last point I want to hit before we move into Q&A, and just as a reminder, yeah. You can use the Q&A tool to send any questions away, but so we’ve talked a lot about the resources and the. The ecosystem and the universe of opportunity out there.
I guess one quick question that I wanted to hit on real fast is, anyone who’s raised venture probably knows of the, we the red flag terms that you should be very careful of, or at least be very aware of things like prorata and most favorite nations and like those kinds of things that pop up and you’re like, Ooh board seats.
Are there any things in the, this, the world of debt in general, that folks should look out for? Or is there a good resource where yes. You’re like, what are the red flags like top three?
Unfortunately so the thing you need to understand about lenders is that they’re all about protecting downside risk and this is where it can get like really hairy and really ugly.
At the, within the broad universe of debt one is understanding how pricing changes over time. So most debt will have some underlying rate that floats. And so when the fed interest rate goes to, short term lending rate goes to four or 5% or something like that, like you might go from a loan that’s 10% to 15 or 18.
And so really understanding the cost of capital and how it translates to like different trajectories for your business is one place where people, I think should spend. Two is any covenants, right? Usually there’s like operational financial covenants. So oh, if you don’t maintain X ratio of debt to equity, it like automatically triggers a repayment or a default.
You have to you can’t take on any additional capital without talking to us. And we have first write of refusal. There’s all these different things where lenders try to maintain control. And you have to really understand those. A third one is like a security, right? And so this is where like collateral personal guarantees and leans start to get used a lot.
And and one of the things that’s really common for startup lending is that the lender will ask for a lien on your IP. And this is something that founders don’t entirely understand, but basically what it means is that if you stop paying, they own your, I. If you’re a startup where your IP is, what matters, which is for 98% of startups, probably the case you no longer have a business.
And so like the, sometimes you have to take a loan, that’s gotta lean on your IP. But generally like I wouldn’t right. We don’t ask for that. We would never ask for that. And so I think those are the broad categories. There’s so many gotchas, right? That lenders have this is why end during planet.
We publish our term sheet on our website. So you can actually see all the core terms of your deal before you apply. We will always do that for all of our term sheets. And if you ever are like I would, this is something you can do is you can ask your lender before you really engage to see a template of their term sheet and a template of their definitive terms.
And if they don’t give it to you, that’s a red flag. If somebody asks us for ours, we’ll just give it to them. It won’t have commercial numbers. Like it won’t have the specific numbers in there, but at least you’ll see all the covenants, all the perspective, limitations, et cetera. To Rashi’s question EV every debt instrument is different.
There’s fixed variable rate. It depends in the case of revenue based financing, we, what we do is we make an offer based on a percentage of top line revenue. And there’s not a fixed interest rate. The sort of implied interest rate is dependent on how you perform against our model. So you could actually grow really well.
But if we overestimated your growth, then your cost of capital ends up being pennies, because we like priced it. And we have mechanisms for founders also retain upside if we underpriced. So there’s like a drop off in rev share there’s bio provisions. And every day we’re trying to think about like, how do we better balance our risk and the upside potential for a founder?
I think that probably answers that question. Yeah.
I wanna I wanna hit on one other thing and then we can go into Q&A cuz there’s some good questions coming in that I’d love to dive into. And that is so we know all these things. How does that translate tactically to actually going and raising capital?
And I wonder if you could maybe talk through just some high level points of decisioning and like how you approached a capital raise. Yeah for a startup in this space.
I think the first thing you need to know is how much you need and what you’re gonna spend it on.
That’s like a really critical exercise and you should try to go as deep as you can. I typically recommend folks model out at least 24 months with fairly high certainty in terms of their expense needs. You can go shorter. If you, if it’s just like totally unclear and then once, What you’re gonna spend the money on, then try to figure out what options are available for the different kinds of spend.
So if you’re, pre-revenue, you’re super early, it’s probably grants angel money preceded money. If you have some revenue, you can probably access some debt. If you have a PO or you’re about to start selling inventory, you might be able to access some debt. There’s a few options. And then as you start to get bigger later the sort of menu really opens up.
And so then once you’ve done that and you’ve figured out, okay I have this much I’m gonna spend, I might get a little revenue. And so really, I need to raise this much. You should always, by the way, have a line of sight on 18 months of capital, at least in today’s funding environment, it might be even 24.
And so it doesn’t mean that you always have to have 24 months, but know that raising money takes time. And so if you’re gonna let your runway run down. In the past, like people would recommend six months, you start raising money. Now I’d probably say nine months, you wanna start raising money if you’re raising venture and debt together.
And then yeah, you need to build a pipeline of prospects, right? So like fundraising is very much like sales. What you’re you need to understand who’s accessible to you. There’s lots of databases out there that highlight different kinds of investors in climate VCS, angels, lenders, et cetera.
And so once you’ve built that sort of like high level funnel, then you start to evaluate the different options there and you build an outreach plan. When it comes to raising money from Enduring Planet again, it’s like it’s a 10 minute application. No joke. And we’ll get your term sheet in a week.
And so that process is pretty effortless. It’s no more than two to three hours of diligence calls following your initial application, we make it pretty easy. With VCs it’s really different. It depends on the firm. Some folks will write you a check after 30 minutes. We’ve in fact, our largest checks for our proceed round were with basically no diligence.
But they came from very friendly sources, right? So these were folks either that we knew or who came from a referral like that was already an investor in us. Otherwise I would expect, anywhere from one week to six months of effort with a firm it really depends on you on your business model.
Like I think somebody had asked about, had said that they had been struggling to raise funding for over a year. It might be that like you’re talking to the wrong. Capital sources, not every business is venture backable. I think most entrepreneurs underestimate what the requirements really are.
I think somebody else asked about like ROI. So it’s not a 10 X ROI angel funding has like closer to a hundred X target for return on investment because they expect 99% of their investments to fail. And that that’s what you’re going up against. If you can’t tell a story that your business is gonna be worth, a few billion in call it five to 10 years, like you’re not gonna raise venture money.
And so then you have to reposition and think about where you’re gonna go if it’s capital.
I’ll just, I just wanna punctuate that real quick by saying that sometimes you’re also, maybe you are venture backable, but you’re talking to the wrong investors. And I think people underestimate like the universe of VC there’s investors on our cap table that I met, so far, three years into the company.
And I was like, I wish I’d talked to you first. I would’ve given you the whole, would’ve given you the whole round. And they would’ve taken the whole realm too, if I’d known they exist. So I think it is, it’s also about just figuring out and funneling towards those capital sources. And honestly, similar to similar to the grant space.
It’s there’s a lot of stuff out there. It helps to talk to founders who are in your space, who’ve raised and can be like, Hey, and that’s was exactly where the connection came from. It was like some founder I talked to one day was like, Hey, you need to meet this guy. I was like, okay, great. And he was like, we should have invested, we would’ve given you $2 million out the gates.
I was like, okay there you go.
Yeah. Yeah. And I think so there’s a couple questions here about like timeline, I think timeline just really depends on the source of capital. There are grant opportunities where you can see funding in 30 days. Like it’s totally possible. Look like, I think SBIR is pretty fast, right? Like after you’ve applied, it’s a fairly quick turnaround. And then other programs take a year. It just really depends. And so I think it, what you need to do is. Ask the question of either the folks administering the grant or the folks helping you access the grant so that you can then plan appropriately.
And in cases where it’s a really long time, even after you, like after you’ve already won it still a long time, then you can start to look at options to get in advance against that capital. And again, by the fall, we’ll be offering that.
I want to stress also, the other reason that this is super exciting, what Dimitry is offering is not only because there’s the timeline issue, which unfortunately don’t have a better answer to that grant timeline question.
Other than that, It’s crazy variable. But the other thing that you’ll find frequently, especially with government is there’s actually retention on your grant. And so anytime you invoice, you’re only getting like you’re usually getting only 90% of what you’ve actually charged the government for back until you finalize your contract, which can be three years.
So if you get a contract for a million dollars, you’re looking at floating 10% of a million dollars. For three years, just like to be clear. So that can be, yeah. And for an early stage startup, that can be quite like a drain on capital. And so having a resource that can front you and advance you money against your grant is a game changer.
Super excited about that, by the way.
I might take like just 30 seconds to answer John Barlow’s questions. So he asked about exits for VCs and exit is required. That’s how they make their money. But that exit could be an IPO. It could be an acquisition, it could also be a secondary transaction.
So a private equity firm buying their shares, but the key is they need to have an exit. If what you’re looking for are investors who are interested in just long term growth without an exit, that there are private equity players who will contribute capital to your business, either in a minority or majority control model where they may wanna hold indefinitely.
But You have to be really mindful of who you raise capital from and how they think about making money. So some folks are all about cash flow and other folks are about like an exit down the line and you just have to balance your your requirements there.
Yeah. Great great insights. So there’s a couple questions interesting specific grant programs with decent terms and award timelines in the climate hardware space.
I built a whole platform to answer this question so that I don’t have to remember this stuff. And so what I’ll suggest is if you wanna look for some specific programs, I’d hop onto OpenGrants, it’s free. I will say there’s some great programs in California that are have great terms.
Cal seed is one of them. It’s incredible. You should look into it for sure. In the hardware space also SBIR. A lot of the agencies have moved to a rolling deadline, in fact, so you can apply anytime. And SPI is a great space great terms, awesome award timelines very competitive, but really a great spot.
Those are the two off the top of my head that I’ll mention. I know that there’s some really cool corporate programs out there. They pop up from time to time. Toyota does some really cool stuff. Amazon does some interesting things. Wells Fargo has some interesting programs. There’s a lot of different stuff out there.
It’s really hard to track. That’s why we built OpenGrants.
Yep. Yep. And I think that covers a lot of the open questions. Do you wanna just talk about SBIR timelines.
Sure. Yeah. The SBIR timeline. So the question that is here is for SBIR grant applications. How much time in general does it take to put together?
Now, this is a loaded question because the application itself is a bit different for any agency. I will say that if you’re gonna put together really good technical response you probably are doing other things at your company. And so you might end up taking two, two to three months to put a really polished, good response together.
That’s not full time though. I’d say you, two to three months is a reasonable expectation, especially if you’re working with a consultant, who’s helping you do everything, get all the paperwork together.
Yeah. Should I, yeah. And the anonymous attendee just go OpenGrants check out the climate like this, the The stack link that we put up.
Do we, should I answer Christina’s question about my background? Would that be yes.
Helpful? I would love, yeah. I think we got right into it for Christian Short introduction, but yeah, definitely.
Yeah. So I’ve been working in climate for 13 years with much of that work intersecting with impact investing.
So I was a peace Corps volunteer working in rural Latin America on climate issues. I spent a bunch of time in east Africa, looking at energy access, both as a grad student, as an another consultant for folks like the world bank and IFC Inc. And the I C I spent about five years at Facebook now, meta investing out of the infrastructure group into Cleantech and emerging markets and supporting the deployment of energy access by renewables in Africa, south and Southeast Asia, Latin America.
I spent a bit of time writing corporate accelerator programs focused on impact at meta and doing work around financial inclusion for women entrepreneurs who are building e-commerce businesses all over the developing world. And then I spent a bit of time as an operator. So I, I joined this group called enduring ventures and ran one of the portfolio companies for about a year, did some M and a work it’s like a it’s called Rango wireless.
It’s a internet rural internet business. I also helped incubate our first venture studio company, which is better cooking or ECOS off. It’s a lower carbon backed climate startup that I sit on the board of. And then, I had this opportunity to figure out what I would do next with the support of the enduring ventures team out of the venture studio.
And I really wanted to build a business that would help climate entrepreneurs of all shape, size, and colors, like advance their mission and in particular, around accessing capital. And so I think for me we’re in a really interesting place in the world. We’re like, Shit’s really hitting the fan and the world’s on fire.
But at the same time, there’s this incredible amount of support and action for climate. And so now more than ever, there’s this incredible need for capital and it, and an incredible need for like different capital money that is founder friendly. That’s fast that is active not just passive money and money that’s really best designed around saving the planet.
And so that’s where we wanna play. That’s where we help a lot of other actors play in the space too. We’re really excited about the burgeoning, like climate capital ecosystem. And yeah, I, I hope that answers your question. It’s a really exciting time to work in this universe.
And if you’re not actively working in climate and have the opportunity to transition, I highly recommend it. Oh, you’re mute.
Awesome. Yeah. Thank you so much. Really appreciate that. And yeah, was I’ve as you can all tell now if you didn’t before the reason I was super excited to speak with MIRI is he does have this just like depth of knowledge and experience in the space that I’m also particularly passionate about.
I actually started my career consulting in south America. And this is where I fell in love with grant funding as a tool for doing all kinds of impact related projects. So yeah, really excited to continue to see what y’all do in this space. I just super pumped about the the grant advanced product that you’re building out.
There’s one. There’s one last question here that I think Dimitry is probably just like just perfectly suited to answer. And I’m happy to talk a bit about the grants but maybe I’ll let you go first.
Yeah, Connor. There’s a ton of activity in Europe around funding, climate startups through venture.
Pale blue dot, giant, speed invest. I mean like the list is pretty long. I would check out any of the databases that folks have put together a VCs in the space. There’s a few climate tech VC has one. Yeah, there’s a whole list. I think I’ve tweeted about this. So if you wanna follow me on Twitter, you can find, you should follow on Twitter.
Just follow me. You should just follow me on Twitter. I post pictures, my bird. It’s great. I think like the ecosystem in Europe is a little less developed than in the us. There’s actually a lot more credit, like debt options available in Europe, because as a result of the lack of of venture funding, but that’s changing, there’s a new 5,000 plus million dollar fund announced focused on climate in Europe probably every month.
And it’s only gonna keep getting better. So I, I, if you wanna shoot me a contact message, I’m also happy to talk through it, but there’s a lot of resources out there. I would also join work on climate, my climate journey those types of slack channels, where there’s a big community.
And you can often ask this question. People will like immediately dump 10 lists on you. That will give you all the answers that you need.
Yeah I will say one of the things that has been really cool to come out of the pandemic has been just like the rise and like full population of a lot of very cool communities built around this stuff.
And yeah, so we definitely get in there. The grant space in the UK is also just massively robust, probably also in part due to the fact that the VC space is a little bit less developed and harder to deal with. And so there’s in fact, grants in the UK function a lot better than the ones here in the United States.
So you gotta leg up there for sure. Definitely
Alright. Let’s see. I don’t I guess there was a question about contacting us we’ll definitely share contact information. We’ll share the video afterwards. Cool. One more. Let’s I’ll let you tackle this last question right here. Oh yeah.
Jump in. Okay. So project finance is very different.
If you are a developer building projects financing, the first project is like probably the hardest thing you’ll ever do. We actually did a piece on this in our inside series that you can read from the founder of plus power. Basically you’re like either getting a grant you’re raising money from a a developer who has been successful in the past.
And so does like angel project finance. And then, depending on where you’re at, there’s there’s a few specialized entities in east Africa across the continent, really that do innovative project finance for clean energy and climate. It’s specific to what you’re doing clean cooking, clean energy nature based solutions, whatever.
It’s not easy. And pre-selling carbon credits is also not easy. They often need to be certified. So Vera gold standard, whatever, if they’re not, there are opportunities to do UN certified credit sales. Those are also hard. So I would say that if it’s specifically a carbon offset play, there are folks that help you execute on that.
So south pole is one we share a lot of opportunities with this group out of New York who’s who I’m blanking on. But. Yeah, it’s, that’s a whole other animal. I would get help I would get expert help.
I will say there are, and just ran, there are folks on the OpenGrants platform that can help you with some of this.
They go above and beyond the grant funding space and you’ll find that a lot of firms. So the one that I’m thinking of right now, climate finance solutions, just fantastic, like killer firm. Excellent. Amazing at getting grants and they’re just like dialed, and they can do the whole thing.
And you’ll find that a lot of the consultants that we curate for at OpenGrants, once again, like we did this for a reason, it’s because these people are like multifunctional and they can really get the job done for you. I would get help as well. It’s a hard space.
One thing also, is there a bunch of multilateral and bilateral institution project prep facilities that will fund your like pre-project work. And I would look for those as well. There’s like usually, world bank USA type of DFI, the Swedes, like all of the Europeans typically have it’s often specialized oh it’s for microgrids or, oh, it’s for biochar or whatever.
But you will, there, there definitely are options like that as well.
Awesome. Hey, we are at time. This has been super fun. Thank you so much, Dimitry for joining and sharing your wisdom and insights. Thank you, everyone who attended and hung out with us past the past the time here definitely reach out.
We will also, if you registered for this event, you’ll be getting an email with follow up information and also a link to this recording. So thank you all. Please be in touch with OpenGrants, reach out and during planet. We’re excited to, to see those solutions and keep creating positive impact around the world.
Thanks so much, Sedale. Bye everybody.