Building an ESG startup can be challenging. Along with building a product, hiring a team, and scaling revenue, startup founders are also responsible for figuring out how to secure venture capital for their ESG startups. Learn more about the various venture capital strategies to utilize as an ESG startup and how to attract investors whether you’re a series A, series B, or late stage startup in 2024.
Venture Capital Strategies for ESG Startups: Attract Investors
Venture capital (VC) firms gather money from multiple investors to help fund companies with high growth potential. In exchange for the investment, venture capital firms take equity or an ownership stake in your company. When choosing companies to invest in, VCs consider your growth potential, the strength of your management team, and the appeal or uniqueness of your products or services.
Here are some venture capital strategies on how to attract ESG investors whether you are a Series A, Series B, or late stage ESG startup and how you should utilize funding for each stage in 2024.
Series A Funding
What is Series A Funding?
Series A is typically the first round of venture capital financing. During this stage, your startup usually has completed its business plan and has a pitch deck emphasizing product-market fit. You are refining your product and establishing a customer base, investing more into marketing and advertising, and can demonstrate consistent revenue flow.
Now you need to:
Fine tune your product or service
Expand your team of employees
Conduct additional research needed to support your launch
Raise the necessary funds needed to execute your plan and attract more investors
In the Series A round, you need to have a plan that will generate long-term profits. Despite how many enthusiastic users you may have, you need to demonstrate how you will monetize your product or service in the long run.
Most Series A funding comes from angel investors and traditional venture capital firms. Family offices and corporate venture capital funds are also other available sources for funding. These investors are interested in startups that have a solid business strategy and founders who have the ability to execute it in order to reduce the risk of a failed investment on their part.
The most common Series A investors are:
Accelerators
Super angel investors
Venture capitalists
Corporate venture capital funds
Family offices
How Mature Should Your Startup Be for Series A Funding?
Some of the indicators that your startup is ready for Series A funding are:
You’ve achieved a product-market fit
You have a proven revenue model
You’ve generated around $500k-$4M in annual revenue
You’ve built your core team
At this point, your business is growing, but you’re at a point where in order to capitalize on the momentum, therefore, you need more funding. The part of a startup that often gets overlooked is how much it costs to scale. Series A funding allows your startup to continue growing without being limited by the amount of money you have in the bank.
What Is The Average Series A Funding Amount?
According to Fundz, in Q1 2024, Series A rounds in the US have a median funding amount of $18 million. It’s not uncommon for startups to raise millions for their Series A.
Just like the other fundraising rounds, the goal with your Series A should not be to raise as much money as possible. The goal is to raise enough money to get you to the next stage of your business.
What Should You Use Series A Funding For?
Scaling customer acquisition and retention: Begin investing in marketing and customer support in order to scale customer growth.
Developing new products or services: Create and test new features or add-on products or services to explore new revenue streams.
Expanding into new markets: Explore new customer segments or even geographics.
Building out your core team: Expand your team to manage and scale growth. The Series A funding may give you the ability to hire more senior and experienced employees.
Preparing for the Series B funding round: Prepare for the Series B funding round by demonstrating growth and market traction. In addition, refine your pitch deck and develop a roadmap for future growth.
Series B Funding
What is Series B Funding?
During the Series B stage, your company is now ready to scale. This stage of venture capital supports any manufacturing and marketing and sales operations. In order to expand, you will need a much bigger capital investment as Series B funding differs from Series A. While Series A investors will measure your potential, for Series B, investors want to see actual performance and evidence of a commercially viable product or service to support future fundraising. Utilizing performance metrics will give ESG investors confidence that you and your startup’s team can achieve success at a larger scale.
VCs, corporate VCs, and family offices that provide Series B funding specialize in financing well established startups. They help provide funds your startup needs to expand markets and form operational teams such as marketing, sales, and customer service.
Series B funding allows your startup to:
Grow your startup’s operations
Meet your customers’ demands
Expand to new markets
Compete more successfully as an ESG startup
The most common Series B ESG investors include:
Venture capitalists
Corporate venture capital funds
Family offices
Late stage venture capitalists
How Mature Should Your Startup Be for Series B Funding?
Very few companies make it to a Series A round, with only 20-30% according to dealroom.co. Even fewer companies make it to Series B and beyond.
Your Series A was all about scaling and fast growth. Your Series B is a continuation of that along with plans for expansion.
At this stage, your business most likely looks something like this:
A large customer base
A proven and consistent acquisition strategy
Solid leadership team
The ability to grow even more over the next year
Series B is all about expansion. You should be trying to expand on nearly every level, including market share, international reach, customer base, team, brand, etc.
What Is The Average Series B Funding Amount?
According to Fundz, in Q1 2024, Series B rounds in the US have a median of $35 million. It is important to build a financial model in order to raise the amount your business needs.
What Should You Use Series B Funding For?
Scaling operations and infrastructure: Consider investing in new technologies, systems, and processes in order to support growth.
Hiring key executives: You can use Series B funding to hire key executives to help manage your company’s growth such as a chief financial officer or chief operating officer.
Investing in sales and marketing: Scale customer acquisition by investing more into larger marketing campaigns or growing your sales team.
Conducting strategic acquisitions: If your financial forecast can support it, you might consider acquiring complementary businesses or technologies to expand your company’s product portfolio and reach new markets.
Late Stage Funding
What is Late Stage Funding?
Late-stage startup funding is meant for companies that have already proven themselves as a business model but need more capital for expansion. This funding round usually occurs once the company has achieved significant traction, established a clear market position, and has a plan for continuing scaling its operations.
How Mature Should Your Company Be for Late Stage Funding?
Your company should be fully matured at this point. This means that you’re a key player in your industry and have significant market share.
Some common milestones for a company heading for late stage funding are:
You’ve started to expand internationally
You’re nearing profitability
You have multiple revenue streams and a diverse revenue model
Since you’re a market leader, chances are that people who are looking for the type of product you sell are aware of you. Therefore, doing things such as creating additional products or acquiring other companies will have a significantly bigger impact than spending more money on ads or marketing campaigns. Your company is no longer fueling growth through generating awareness of your product but by also exploring new revenue channels.
What Is The Average Late Stage Funding Amount?
According to Crunchbase, in Q4 of 2023, investors put $15.7 billion into startups at Series C and beyond. The average Series C funding amount in Q1 2024 in the US was a median of $50 million, according to Fundz.
What Should You Use Late Stage Funding For?
Investing in research and development: You will likely have new competitors in your market. In order to stay innovative, you can explore new products and technologies to stay ahead of your competitors.
Expanding into new geographics: You can use late stage funding to expand into new locations, either domestically or internationally, to reach new customers and markets.
Strengthening the balance sheet: You can strengthen your balance sheet by paying off debt, repurchasing equity, or building up cash reserves.
Making strategic acquisitions: Make strategic acquisitions to expand your product portfolio and reach new markets.
How to secure access to Venture Capital for ESG Startups in the NYC Market
There are various venture capital opportunities for ESG startups in the NYC Market. NYC’s Economic Development Corporation (NYCEDC) Founder Fellowship is for startup founders from underrepresented backgrounds. The Founder Fellowship program helps underrepresented communities get access to the resources that traditionally have been really difficult to access and to make an impact on the next generation of entrepreneurs in NYC. Startup founders get access to networks, fundraising, mentorship, business development, and other opportunities needed to build and grow in NYC.
In addition, NYCEDC is leading charge on NYC’s Green Economy Action Plan which aims to both reduce the unjust environmental burden on the city’s disadvantaged communities and ensure that those who live in these neighborhoods contribute to and benefit from the wealth and jobs created through this effort. The plan lays out a series of commitments and strategies that will increase economic growth, create thousands of jobs, and build a greener economy that all New Yorkers can contribute and benefit from.
One component of the plan is the upcoming $100 million, 112,000 square foot Climate Innovation Hub at Brooklyn Army Terminal (BAT), where NYCEDC plans to grow NYC’s climate tech ecosystem, support underrepresented climate tech founders, and further develop the commercialization of climate technologies.
Promoting Gender Diversity in NYC Sustainability Ventures at Emerald Summit
Are you a women-led or women-owned ESG startup business based in NYC who is looking to connect with others in the climate tech space? Then you will want to attend this year’s Emerald Summit, sponsored by Wallet Max, on September 19-20, 2024. During this summit, speakers and investors will come together and focus on environmental, societal, and governance impact led by female founders. The Emerald Summit will provide a range of networking opportunities such as meeting potential investors and learning from successful female startup founders in the climate tech industry. Be part of the movement promoting gender diversity in NYC sustainability ventures by signing up for Emerald Summit now!
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