Amidst seed round, Retrolux co-founder Leif Elgethun shares advice about fundraising, investments, accelerator participation
Hoping to drive efficiency through energy audits and quotes for retrofitting and energy saving projects, local software and clean energy startup Retrolux is growing its partnerships and seeking seed funding to support its next steps.
Retrolux on two monitors. Image courtesy of Retrolux.
Retrolux, conceived in 2012, touts collaboration amongst stakeholders for improving the lighting industry by offering a simple, cloud-based, mobile and integrated software system to address lead generation, energy and cost analysis, rebates and incentives, specifying materials, project financing, project delivery, “or anything in between.” The product is tailored for lighting retrofit contractors, ESCOs, lighting project owners, manufacturers and vendors.
“Our North Star is keeping as many fossil fuels in the ground as we can,” said co-founder Leif Elgethun. “I think it's an important one. And along the way we're gonna make sure we have a great culture and values that support the time mission.”
Elgethun refers to the above as the “two core pillars” of his career.
“One is I want to focus on sustainability and get humanity back in alignment with our planet and our ecosystems,” Elgethun said. “And second, I really want to ensure that all human beings have an opportunity to reach their fullest potential. So, our team members who we get to work with directly and (the community).”
The seed round funding already has more commitment than Retrolux is trying to raise, Elgethun said, but “the hard work is just beginning.” Boise Entrepreneur Week, Built in Idaho and Trailhead appreciate the opportunity of meeting with Elgethun to hear about what’s next for Retrolux.
“Right now we are working through due diligence with some larger investors to make sure that (people) feel comfortable on both sides,” Elgethun said. “But, soft committed, we are actually over the hump; now I just got to get it all closed.”
What will that work look like?
Fundraising has a lot of things that are required. The first is getting your company to a stage that is attractive to investors (to try) to raise money. You've got a good story to tell. Second, you need to get the company ready to fundraise, so you need to make sure you've got your documentation in place; you've got a good understanding of what you're trying to accomplish (with the funds). You don't just go raise money to raise it; you want to spend it on taking the company to the next level. What's (that money) going to do for the company? Then once that's done, you actually start what I think most people think of as the actual fundraising process, where you're going out and looking for investors, pitching to them, and then trying to get them committed ... and sign paperwork and get checks. It's kind of like a sales process: you've got to go find the investors and you have to sell them on why the company is a good investment, and close. And it's a lot of hard work because just like sales you get a lot of no’s and a lot of maybes; just a lot of effort finding investors and hopefully getting to the finish line.
Retrolux on an iMac. Image courtesy of Retrolux.
With this seed funding round, what do you hope it will accomplish?
I think what I can share is why companies should raise money from my perspective, and when you raise money from investors in the startup space. The goal is to help the company reach a set of milestones that are important to increase the value of the company. And those milestones will be different depending on the type of company and the company stage. And so if you're a software company, your first fundraising might be used to build the first product and get your first customers. So, you want to prove you can build software, then you also want to prove that customers will pay for it. The next round for that same company might be to build the second product, or it might be to accelerate sales, so you're growing sales at a certain clip, and can you invest money to grow sales fast. And if you do that, you'll have more revenue, but you also have a faster growth rate, which will make the company more attractive to investors, again, and then you do that again and again and again. And that's kind of one strategy for high growth tech startups. When you're in each of the stages, you're going to spend money. (And this is similar for hardware, but not necessarily the same for biotech or pharmaceuticals). You're going to spend money on R&D (research and development) that's going to be to build your product. And so, if it's software it's going to be code; if it's hardware it's going to be a physical widget. Then the second thing is sales and marketing, so that's going to be gross sales, (an) increase revenue, and that could be hiring people; it could be spending that money on advertising. And then the third bucket that nobody's excited about spending money on but is required to run a business is overhead. Administration, or overhead, would be things like office space, insurance policies, CEO pay. So that first example I gave, where you're trying to get a product built and get some early sales, well the most money is going to get spent on R&D to build the product, because you're not selling it yet, and then you have a little bit in sales; as you get later stage, the balance is going to invert. The ratios change but the three buckets end up usually being where most of the money is spent. When you raise investor capital investors always want to spend money on revenue growth or attraction. That's the main thing they would like you to spend the money on because that's the clearest way to show increasing value of the company — again I'm talking software. Right now our budget is entirely sales and marketing, R&D and overhead. And when we raise this money, we will be spending money on those things, and we will be spending the money to increase our revenue.
As you mentioned, you all are at the sales and marketing and growing revenue stage; how did you know you were at a point where that would be the best next move?
The buzzword that is used in the space is product market fit. And as a founder I used to get really frustrated with that word because there is no definition for that phrase. What product market fit means is that you have built a product, and the market likes your product, … but there's no definition to know when that's happened. And I think every company kind of has to decide the best way they want to measure that. (At Retrolux) we have decided that product market fit means that we can sell the exact same product to a well-defined target customer the same way and get the same results. And we have achieved that. So we're not selling different products or different variations of products. We're not selling different pricing to different customers; we're not going after different party customers; we're not using different processes to close them. You're looking for that consistency and repeatability, (but) you don't need to have lots of customers to get to a point where it's ... getting to be kind of rinse and repeat. And once that happens, then you want to rinse and repeat a whole lot faster. And that's the whole goal of increasing your sales and marketing. You don't want to spend too much money in sales and marketing if you're still learning how to sell your customers; are still working on a product the market likes; you don't have your pricing settled in because you don't know what they're really willing to pay (or) you don't know who your target customer is. If those things are still happening, you don't have product market fit.
Are there some particular partnerships, or approaches to partnerships, that you would like to highlight?
Partnerships are critical for all startups. It is really hard, if not impossible, to boil the ocean and build everything, do everything yourself. It's really important to stay focused as well, so that you can get really good at one or two things. And if you do that, you're going to need partners to help you fill in the gaps of what you are not doing, and that also helps you define who you're not, which helps you define who you are. Every company's going to have a different kind of thinking around what a partner is and who the right partners are, but all companies have partnerships that are at the early stage and then the later stages. So, when we think about partnerships, we like to think about partnerships and how they fit into different categories of our business. So one type of partnership that we like to look for is technology partnerships. These would be companies that have a technology that we can work together with to provide more value for our customers. Those partnerships are really critical because that company builds technology that we don't have to build, and that allows us to get to market faster. A good example would be Uber. Uber didn't build mapping technology. They partnered with a mapping technology company to provide the maps that are behind everything you see on your phone. The second type of partnership that's really critical would be what I would call sales and marketing partnerships — companies that have similar interests in reaching your target market, and together you can provide a better solution to the market than you could on your own. The third type of partnership would be what I would call customer plus partnerships; this would be a partner that pays you money, but you help them earn more revenue as well; you're providing value back to them outside of the traditional customer relationship. I really get excited about those partnerships because if they work well, both companies are earning revenue together. And the startup is earning revenue directly. You're kind of hitting two really important nails on the head. And that's super important in startups anytime you can accomplish two things with one relationship by just minimizing the amount of relationships you have to maintain, which require time and money.
Some of the other partnerships that I don't think startups think about, but we do at Retrolux, (are) financing partnerships. We think of our investors as partners in our company as well, because they are invested in our success, and many of our investors provide a whole lot more to the company than just a check. They ultimately own part of the business.
“Partnerships are critical for all startups. It is really hard, if not impossible, to boil the ocean and build everything, do everything yourself. It's really important to stay focused as well, so that you can get really good at one or two things. And if you do that, you're going to need partners to help you fill in the gaps of what you are not doing, and that also helps you define who you're not, which helps you define who you are.”
—LEIF ELGETHUN, CO-FOUNDER OF RETROLUX
Were there particular resources in the startup community that you found helpful?
It's been really exciting to see how many resources continue to enter the market and Boise. And that's been really great for new founders especially, to have more options and more resources. We as a company have taken advantage of every local resource, regional resource and national resource we can possibly get our hands on. Here in the Boise market. … start with Rick Ritter. He was very instrumental early on in helping us navigate the startup journey, both with the Watercooler and Tech Connect and some of the things that he was doing. Boise Angel Alliance was very instrumental in our early trajectory as well. The Trailhead group has been a huge resource for the community, both with shared spaces, events, trainings, being kind of a catalyst for the startup community here in town. Their work with what is now Boise Entrepreneur Week is an extension of that hyper focused kind of effort around what they do throughout the course of the year. The Boise Venture College is another area that is both a resource as well as a great addition to the community. And then you have groups like the Small Business Development Center, and other government groups that support startups. Then it's important to also think about the service providers that are active in the space and contributing to the ecosystem, like law firms: Hawley Troxell, Holland and Hart, Perkins Coie and Stole Reeves come to mind as groups that are continually leaning into the startup tech community. You've got lots of investors that are now paying attention to Boise and coming to town, so that's going to be good. The financing part of the world is definitely an area where we have room for improvement. We don't have the escalator here in Idaho to get companies through their funding stages, the kind of scale that other, more established ecosystems have, but the good news is companies are getting funded anyway, whether that's through the venture capital community in Salt Lake, Seattle, Silicon Valley or the investor community in Boise; there's lots of kind of early stage investors in Boise to help companies getting off the ground. It's an area that has seen, I think, tremendous improvements over the decade or so that I've been in startups in Idaho. Here in the energy space, or the clean tech space, there is the Cascadia CleanTech Accelerator. And then I know Trailhead is also going to have a clean energy, clean tech program coming up as well.
How would you approach angel investing?
Most startups kind of follow the same trajectory: founder, friends, family, capital. You're spending money yourself, your own time, your own resources. And then you're going into your close community and asking them to help support you in your journey. The next step in the funding cycle for venture-backed startups is the angel (investment) community. The angel community in Boise is strong and getting stronger. In that space, you really need to get out and network; the most active ones share opportunities they get excited about with their friends. It's really a warm intro type of space where you meet somebody, you can get introduced to somebody. It is (also) important to get a lead investor. If you're going to do a round with angel investors (they typically) want to know that somebody has gone deep into your company to understand what it's all about and what the opportunity is so that they can invest in the company. One part of the process is finding that lead investor to set deal terms, and deal terms just means what are the options to raise money, and what is the valuation of the company. And there's other terms as well that are important, but what are the terms of the investment. After angel (investors are) institutional investors, or venture capital. These are professional investors that are investing other people's money, and some of their own, and that is where things get really serious because (they are) not going to continue to have that job if they don't return money to their investors that are investing. Typically if we're going to get that type of funding, we're going to have a more established business; we're going to have a product, maybe some revenue, and you're going to have something that proves that there's a bigger opportunity and your team can execute on it. And then from there, you're into the institutional investment space and you're going to continue to raise capital as you grow and are successful. If you're not hitting your milestones, it's hard to raise.
There are very few types of companies that are appropriate for angel investing (and) venture capital, and they need to have two really important things. The first is that they need to be solving (a) problem that has a very big market. And so there needs to be a need to have a very big market. The second thing that you need to have is an ability to grow fast. Investors are looking for you to grow the company super fast because that increases the rate of return that they're able to earn. I would just highly recommend if you're looking at angel investment, talk to lots of founders that have had exits in the space; talk to the investment community in Boise, you'll definitely be able to find folks that have a meeting with you that are experienced and find out whether or not your company fits into the bucket they are looking for. And they will be honest with you and maybe say, ‘Your idea is just not big enough.’ (or ask) ‘Can you make it bigger?’ And it'll help you understand and think about your business more clearly, and you may find out that you're trying to build something that doesn't make sense to go down that pathway or you can adjust what you're trying to accomplish and it does.
One other thing to note: angel investors are high net worth individuals investing their own money. Most angel investors invest for two reasons — which one's more important changes from investor to investor — but first and foremost, they're investing for returns, they want to get their money back plus more. (Second), here in Boise, they're investing because they want to invest in the economic growth of our community. So they're investing in the companies and the people in those companies to help us build a stronger startup ecosystem, a more vibrant community in Boise, and this is the same in Boise and in other cities.
How would you approach being part of an accelerator?
Accelerators and incubators can be good for startups as long as the value that accelerator (or) incubator promises aligns with the company's current strategy, current shortcomings or current needs. You wouldn't want to apply for and go through an accelerator focused on biotech companies if you were a clean tech company. Every accelerator has a focus: a stage focus, a company tight focus, geography focus. I think a lot of us first make the mistake of just applying to every accelerator or incubator because they think the prestige of going through it or getting it as something they can put on their resume is a good reason. Good reasons are, ‘Man, I'm an early founder and I would like to go to an accelerator that teaches me about startups, so I understand how they're built, how they work, how they scale, because I don't have any experience in that.’ And we've been through one of those; I did it when I first started thinking about starting Retrolux; so my co-founder and I went through one, and I came out the other end and I said, ‘I don't know enough about startups in the technology space to do this right now.’ But I learned a ton and it got me down the pathway of learning rapidly, so that I could eventually launch Retrolux and give it my full time and attention. There's other accelerators that are really focused on, like, go to market sales and marketing; there's other ones that are focused on research and development, and ones that are focused specifically on sectors like clean tech or biotech.
Again, I just highly recommend, as a founder, look at the accelerator (and ask) ‘Do we fit 90% of their check boxes?’ Because if you don’t, you’re not going to get in and you’re wasting your time applying. Then second, look at what they're promising; what benefits they have and (ask), ‘Would that be beneficial for us and our current stage.’ If the answer is yes to both of those you should apply.
You all were recently awarded a place in the Top 10 best startups. Why do you think that recognition was given your way?
I honestly don't know how they develop their rankings because they don't involve us in that process at all. What I do know is that typically startups are looked at through a lens of employee account, investment raised, and media mentions; those are all things that are publicly known.
What do you all hope to do at Retrolux that makes you all an attractive startup for employees, for people to be at that kind of level?
We as a company have a very strong set of values. And we also have a mission that is focused on climate change and climate, which I think is very attractive to a lot of, especially, younger folks in the workforce today. We believe strongly in diversity and inclusion. We believe strongly in a flexible, safe workplace. And I'm very proud of the culture we built that is hardworking, fun, respectful, and fair. We strive to be one of the best places to work. That's something that I take very seriously as a founder and a CEO, and ultimately, I would encourage anybody that was interested in working with Retrolux to reach out to me directly. And if there is a good fit or an opportunity, we also make sure that all new team members get to meet the other team members so they can hear from the team that is actually working there what it's like and how it fits together. Because that's ultimately what matters ... and I've got 100% confidence that they're going to be great people to work with, and that they're also willing to share the same about their experiences with the company.