The economy may be gearing up to double-dip, Congress and state-level governments may be soured on doing anything serious about energy technology and climate change, and LPs may be down on the venture capital category altogether. But I still continue to be approached by smart, motivated investors looking to launch a first-time cleantech venture fund. It's a testament to their enthusiasm and entrepreneurialism -- and to the continued evidence of the long-term business opportunity in these sectors.

But how can these entrepreneurial investors successfully launch a new cleantech venture firm?

My first piece of advice is: don't do it. Seriously, this is a very hard thing to do even in the best of times. Venture capital is overcrowded, LPs are down on the asset category and even the sector, and it's always near-impossible for first-time funds to get traction in any case. So unless you're really a masochist, think about other roles in the cleantech sector that might also be fun and more accessible. This will be hard. It will take years of your life and probably will not work out.

If the last paragraph didn't dissuade you, then ... OK, here are some other thoughts:

I've seen three different pathways for new cleantech venture firms to get up and off the ground.  

One pathway is what LPs would classically call "emerging managers." These efforts are led by well-established and recognized venture investors with a significant track record at existing firms who break away from those firms and build an independent team, most often full of other well-recognized luminaries. This is what firms like C Change Investments, Silver Lake Kraftwerk, and a few others have done.

The second pathway is the "affiliation" course. These efforts are connected and often co-branded with more established firms.  The more established firms bring some name-recognition, LP connections, deal networks and some expertise, and often some capital and operational support to help get the new firm off the ground. Blackstone's cleantech venture team is an example here, and of course Kraftwerk is, as well (these first two paths aren't mutually exclusive, after all).

The third pathway is the "pledge fund" option. And this is what's really available to those who are launching into this area but don't have the advantages of having been at an established firm with a long track record. To many of those hoping to launch a brand new cleantech venture fund, this is really the only viable option, unless they happen to have a very, very wealthy connection willing to bankroll them. And even then, it can still be the best available path to take.

In this pathway, a small (2-3 partners) group develop their pitch to appeal primarily to a small, specialized subset of LPs. It may be a regional play, or a particularly unique investment strategy, etc. The idea is to have enough of a pitch that is clearly differentiated from the cleantech VC herd that some LPs can fall in love with the concept instead of having to rely upon existing track records. Next, the firm goes out and aggregates a small pool of interested, likely pretty small LPs (perhaps in the range of $100k to $2M), typically high-net-worth individuals, corporations, and family offices rather than large pension funds and other institutional LPs.

But rather than ask these backers to put money into an unproven committed capital fund, the firm brings them fully baked deals and each of the funders decides for themselves whether they will put money into the deal or not.  These backers have "pledged" to invest in the firm's deals, and the shared expectation is that they will, but they don't have to blindly do so.  

In this way, over a few years, the firm establishes a track record. And then, if things go well they can raise a committed capital fund, from existing backers and new LPs, graduating over time to more institutional LP types. This is the pathway one of my old firms took, and over four or five years they were able to raise a fund over $100M.  It was not easy and it wasn't a straight path from start to finish; there were certainly hiccups along the way.  But they were able to do it.

Some other tips:

- I see too many such first-time investors try to go to large institutional LPs for their backing. It can be a helpful conversation if it's for general feedback and advice, but I've almost never seen such LPs back truly first-time investors (even those with "emerging manager" mandates often want to see a track record from another firm).

- Truly challenge yourself on your investment strategy. Now, in my LP role, I get to see tons of different pitches all the time. And they really do blur together. I've been guilty of this myself in the past, and so I know it's true -- what you think makes you differentiated really doesn't. I can almost guarantee that your message is too nuanced, too dependent upon proof of competence (necessary, but not sufficient for raising LP funds), and too jargon-y. Take what you think makes you differentiated and double down on it. Don't go off the deep end. But don't be afraid of turning off some LPs with your differentiated strategy; your goal is to get a small number of LPs to be inspired to actually write checks, not to have a majority of LPs think you're smart.

- Know your customer. All LPs are not alike, first of all, despite my sweeping generalizations throughout this rambling column. You need to make sure your pitch is one they'll be receptive to. Also, make sure you're asking for the right size of a commitment. Many smaller funds will approach larger LPs, thinking that it's easier to ask for a smaller amount of commitment rather than a larger amount. Actually, that's not true -- very often the LP will have a minimum commitment size they can do, and also restrictions about not being more than 20% of a fund (for example).  So if you're talking to a large pension fund about your $50M target fund, and they only write $20M minimum size commitments, there's likely a mismatch. So pre-qualify, do your research, and also don't be afraid to ask lots of questions.

- You will hear "no" a lot. Don't give up; don't lose heart. And if there are LPs you truly believe should be backers of your effort, make sure to keep them somewhat in the loop on all your progress. As long as you don't push too hard, a "no" can sometimes turn into a "yes" down the road. Not often, but sometimes.

This is a down point for the cleantech venture community, but the space will come back. Firms that are able to get such multi-year efforts launched successfully in this environment may well be positioned to take advantage of the upswing to come. LPs are finally starting to loosen their purse strings. So if I didn't scare you off with all the purposeful pessimism up top, good luck!