Send a brief Investment Summary that is so compelling that it makes us anxious to read your full business plan. Otherwise, you may not get to the next step!
Remember your audience when writing the Investment Summary. You need to appeal to new investors that may or may not know anything about your company or your offer. Most people want to tell us all about their business and nothing about the deal . At first blush, all we want to know about is the deal to determine whether your company matches our profile.
If your company matches our profile, then we are interested to learn more about your business. So Step One, start with an Investment Summary that tells us quickly and succinctly about the deal . Then, you can send the full business plan upon request.
Remember to make your summary COMPELLING TO AN OUTSIDER. Convince me why I should use my scarce capital to invest in your company - one out of hundreds to chose from! Make sure your investment summary includes the following critical elements - which are geared toward the investor reader:
- Concept overview : This should be very brief and broad and should include highlight of product/service, business stage, basic history and sales and customer information and forecast.
- How much money and what type of investment ? This paragraph should describe the offer in terms of dollars sought and the type of investment (equity vs. preferred stock vs. debt). Tell us how much of this you have raised and describe any prior outside investments. Tell us who has invested in your company; you can either list names if well known or define them as to type such as strategic, angel or founders.
- Tell us what you plan to do with the money : Investors want to know what you plan to do with the money - buy equipment, add employees, buy another business, conduct R&D, etc. Be specific. Explain how this new money will make your company grow. Make sure you tie your projections into the pro forma section in the forthcoming business plan.
- What type of return can I expect ? All investors want to know what's in it for them. Tell them up front; don't make them dig through the pro forma section to figure this out! Based on the new money and the attendant growth, tell how the company's value will increase. Then, explain your exit strategy on how to reap this increased value. Do you plan to merge, sell or go public? When? This needs to be addressed in the executive summary. If not, outside investors will not see a way to make money by investing in your deal.
- Give me compelling reasons why I should invest in you and your company . Investors have many opportunities to invest their money in what appears to be very good companies. Investors need to believe that you have assembled the right management team - one that can deliver the goods so to speak. Demonstrate why you and your management team can implement the business strategy and manage this company through high growth. Show us your abilities, skills, prior experience (especially building companies), business networks, management style and industry credentials and awards.
- Convince me that right now is the right time : Points 1-5 above will be moot if you don't convince me that right now is the right time to invest. Make sure to convince that now -- not later, not yesterday-- is the time to invest in your deal. Also, your request should match the life cycle of your business. For example, mezzanine debt does not work for startup companies but can for later stage companies with a profitable track record. Most funds specialize in investing at certain stages of business growth, so it helps to know your audience.
Upon request, send us the complete business plan. Hire outside professional help if you are not a skilled writer or you are not comfortable with financial modeling. A poorly written business plan can cost you millions in potential investment dollars!
Make sure the full plan includes at least this much information (in your preferred order):
- Investment Summary (see Step One above)
- Company Mission and History
- Products/Services - tell us if you have registered brands, patents, proprietary products or services
- Marketplace - size and scope; where your company fits
- Manufacturing Capacity/Operations and Distribution Channels
- Sourcing and Supply - especially any critical outsourced functions
- Customers - brag if you have recognizable names or Fortune 500 customers
- Competition - diagram how your company compares to the competition
- Management and Organization - diagram your organizational chart; highlight biographical information that demonstrates that this team can grow this company; highlight members of the board of directors and your advisory boards, especially members of a scientific advisory board
- Financial Analysis and Projections
- Include 5 year forecasts - prepare integrated balance sheet, income and cash flow statements
- Include a text summary of the financial forecasts that highlight performance over the five years, use of percentages is helpful
- Use text to clearly indicate major shifts, i.e. improved margins due to capital available to buy raw materials in bulk
- Include historical financial data
- Include text summary to highlight any unique aspect or explain any problem areas; deal head-on with tough issues
- Deal Structure and Use of Proceeds - be specific about how you are going to use this new money
- Exit Strategy - if you know names of potential acquirers, list them
- Investment Considerations - tell us of all the benefits investors receive such as board positions
- Product/Service list
- Press releases and coverage
- Customer or supplier letters of recommendation
- Backlog list or work
- Certifications, ISO status or other such relevant information
While the above list is not exhaustive, it is thorough. Be careful not to overdue the business plan. We only have a limited amount of time to read your plan. Use clear and concise sentences and remember -- pictures and graphs are worth a thousand words.
Be prepared to answer in depth questions about anything in your investment summary, your business plan with appendix, or your company. Make sure it all ties together. If you change your assumptions on how much money you wish to raise, make sure you also change your financial projections.
Hopefully you were successful in attracting an outsider to seriously consider your company. What's next? In the language of venture capitalists, the dog and pony show follows. That's the time for you to impress the investor with your presentation skills and knowledge of your company. These presentations involve the senior management team and often last twenty to sixty minutes and are followed by a question and answer session.