How to raise capital in uncertain times

Toronto Star

a day ago

In this series we tackle some of the thorniest questions facing business leaders today.
The question:
I've been working on a potentially revolutionary climate solution. The concept is very promising — it's a new approach in the carbon-removal realm — but to get to the next level, I need capital to develop this technology. When I've tried to pitch to potential investors, there's been some initial interest, but no actual bites so far. What am I doing wrong?
— Stalled in Streetsville
Dear Stalled,
First of all, you're not alone.
While it may not be reassuring to hear, early-stage Canadian ventures have had a particularly rough time attracting capital lately.
ARTICLE CONTINUES BELOW
In 2024, seed-stage investments were down nearly 50 per cent compared to the previous year ($510 million compared to $958 million), and the average pre-seed deal came out to about 64 per cent of the five-year norm.
For climate startups, the struggle is even more real: between the second quarters of 2023 and 2024, funding dropped 69 per cent.
But take heart: Canada's cleantech sector has seen some notable early-stage wins in recent months.
One such example is Dispersa, a Quebec-based company that has developed a novel way to create sustainable surfactants (the class of chemicals responsible for the degreasing properties of cleaning products) using microbes.
Earlier this year, Dispersa landed $5.8 million in seed funding. A key driver of that success, says Mary Dimou, general partner at Nàdarra Ventures, the investment firm that led the round of financing, was communication.
'If a team can clearly communicate both their science and their strategy to us, they stand out,' she says. Here, Dimou helps break down the elements of an effective early-stage pitch.
ARTICLE CONTINUES BELOW
ARTICLE CONTINUES BELOW
Know your timeline
Pre-seed, seed and Series A funding is meant to provide startups with sufficient resources to help them develop a promising concept into a viable product.
As many founders know, however, the path to market — honing a prototype, mapping out a customer base, determining distribution strategies — can be a moving target.
That presents a challenge: how to accurately ballpark both the time it will take to reach key milestones and the capital required to get there.
According to Dimou, the 'gold standard' for a round of fundraising is about two years of runway.
'If someone comes to me and says they're raising a million dollars, I'll ask right away, 'How long does that get your company through?' If they cannot tell me that it's around 24 months, or even a bit more, we have to restructure the round completely,' she says.
Resist the temptation to overestimate how much time you're able to buy with a tranche of funding.
ARTICLE CONTINUES BELOW
ARTICLE CONTINUES BELOW
While it may seem like a strategic way to reduce the perceived risk of investing in your venture, intentionally fudging the numbers will ultimately alienate funders and undermine your credibility.
Err on the side of what's realistic — and explain your rationale.
As Dimou explains, with certain companies in Nàdarra's portfolio, the firm increased the size of the round, put more of its own capital in the pot and invited more investors to join, as a way of ensuring that regardless of macroeconomic trends and potential adoption setbacks, a given venture 'is going to be ready to get through whatever milestones are required to get to a functional next round.'
Have contingency plans in place
Given the current geopolitical volatility and trade uncertainty, it's wise to work through all the what-ifs before you approach potential funders.
If you're entirely reliant on the stability of a single supply chain — or your business plan hinges on a specific customer base in one territory — the smallest hiccup could tank your company.
Dimou recommends walking investors through various scenarios, with at least two options for each stage of growth.
'Provide us with a high-level assessment of how the costs or the timelines could change based on those types of changes,' she says.
ARTICLE CONTINUES BELOW
ARTICLE CONTINUES BELOW
Be strategic about timing
It's one thing to tell someone why they should invest in your company — it's another thing to explain why they should invest in your company at this particular moment in time.
In Dispersa's case, it was the company's ability to make a compelling argument in the latter category that sealed the deal.
'So many founders right now are leading with their tech versus leading with their timing,' Dimou says. 'We want to hear why the solution matters right now, not just in the future.'
Although regulatory hurdles can be the bane of a founder's existence, savvy entrepreneurs — especially those developing sustainable solutions — may be able to leverage those constraints as opportunities.
Dispersa is a notable example of how regulation can create markets, Dimou explains.
With the EU's updated guidelines for deforestation-free products set to take effect in December of this year, palm oil–derived surfactants (which have often been used as greener swaps for synthetic chemical cleaning products) will be off the table; the FDA's restrictions on dioxins in the U.S. mean that American manufacturers may be compelled to find non-toxic alternatives.
ARTICLE CONTINUES BELOW
ARTICLE CONTINUES BELOW
The upshot: more demand for cleaner cleaning components.
'Generally speaking, when regulations come into play, corporate buyers have about five years to make changes to their products,' says Dimou. 'As a founder or as an investor, you want to make sure your ramp-up cycle aligns with how long it takes to go through that process.'
Talk to the right people
For cleantech startups looking to raise capital, the challenges are baked into the sector: Few VCs have the specialized knowledge to grasp the finer nuances of first-of-a-kind technologies, which also typically require pre-market timelines that far exceed the comfort levels of most funds.
It's critical that founders reach out to advisors who can help them determine the best path forward — especially when they're facing a host of different options.
Dimou has seen this firsthand.
'When you've created something really cool, it can sometimes do a lot of cool things,' she says. And if you've got five customers, all from different industries, making different offers, it can be brutal to figure out what to do first — and where to dig deep.
'It's like winning five lotteries,' she says. Without shrewd guidance from experts who understand the tech, it's much more difficult to identify the strongest market — or even which problem makes the most sense to solve first.
'I've seen companies essentially blow up a technology that might have saved the world.'
ARTICLE CONTINUES BELOW
ARTICLE CONTINUES BELOW
Take heed, Stalled.
Your frustration is understandable — no doubt you've spent innumerable hours refining your product. But the last thing you want to do is undermine all that potential by rushing the next steps.
It's just as important to dedicate time and effort to develop your business plan and hone your pitch so that you can succeed in deploying this potentially game-changing solution where it will have the greatest impact.
Are you a business leader with a conundrum? Write to us at [e-mail].