At some point in the evolution of your business you are going to be looking to take on some investment. Whether that's an overdraft from your bank or a full on investment raise through the sale of shares you will find yourself in the position of having to pitch the highlights of your business to world weary bankers, been there and one it Angel Investors, and the Great White Sharks themselves the Venture Capital brigade.
I'm going to talk you through the VC/Angel investors as frankly your bank will have as much imagination as one of Gordon Brown's speeches and be twice as dull.
When it comes to raising Venture Capital finance it’s a whole different story. You are going to have to have a compelling business model, good growth, a whole lot of potential and be able to build a presentation that’s going to stand out among the 5000 + presentations that a Venture Capital company will receive annually from companies looking for investment just like you .
The danger when delivering presentations is that almost everyone I have ever met, [me included] thinks they are a lot better at presenting than they really are. With the odd exception rest assured you probably aren’t the fascinating and intriguing personality that you would like to see yourself as and moreimportantly your pitch is as dull as ditch to those who listen to these for a living.
Over the next few days I’ll give you some ideas into some of the painful lessons I’ve learnt both from fund raising myself as well as the companies I’ve worked with to help them do the same.
First up and most importantly before you even get an invite to present you’re going to need to send through a business plan. These can be long and complex documents and Venture Capital companies have little time and lots of choices so one way of making yours stand out is to send an executive summary with it.
Check out a web site called www.thefunded.com to read the hard luck stories of those that didn’t do this well with some excellent hints on how to prepare one. Do this right and getting in front of people who have money to invest and can make a decision becomes a whole lot easier.
As a little cheat guide for you here is an outline of how your executive summary should look, written by a man who know a thing or two about this- Guy Kawasaki www.Guykawasaki.com
Remember- and this is very important - the job of the executive summary is to sell your ideas ,not to describe your company, there really is a big difference.
Contrary to the advice in articles strewn all over the web you do not need to explain the entire business plan in 250 words but you need to convey its essence, and its energy. You have about 30 seconds to grab an investor’s interest. You want to be clear and compelling.
Forget what everyone else has been telling you. Here are the key components that should be part of your executive summary:
1. The Grab:
You should lead with the most compelling statement of why you have a really big idea.This sentence (or two) sets the tone for the rest of the executive summary. Usually, this is a concise statement the unique solution you have developed to a big problem. It should bedirect and specific, not abstract and conceptual. If you can drop some impressive names in the first paragraph you should—world-class advisors, companies you are already working with, a brand name founding investor. Don’t expect an investor to discover that you have two Nobel laureates on your advisory board six paragraphs later. He or she may never get that far.
2. The Problem: You need to make it clear that there is a big, important problem (current or emerging)
that you are going to solve. In this context you are establishing your Value Proposition—there is
enormous pain out there, and you are going to increase revenues, reduce costs, increase speed, expand
reach, eliminate inefficiency, increase effectiveness, whatever. Don’t confuse your statement of the
problem with the size of the opportunity (see below).
3. The Solution: What specifically are you offering to whom? Software, hardware, service, combination?
Use commonly used terms to state concretely what you have, or what you do, that solves the problem
you’ve identified. Avoid acronyms and don’t try to use this opportunity to create and trademark a bunch of
terms that won’t mean anything to most people. You might need to clarify where you fit in the value chain
or distribution channels—who do you work with in the ecosystem of your sector, and why will they be
eager to work with you. If you have customers and revenues, make it clear. If not, tell the investor when you will.
4. The Opportunity: Spend a few more sentences providing the basic market segmentation, size,
growth and dynamics—how many people or companies, how many dollars, how fast the growth, and
what is driving the segment. You will be better off targeting a meaningful percentage of a well-defined,
growing market than claiming a microscopic percentage of a huge, mature market. Don’t claim you are
addressing the $24 billion widget market, when you are really addressing the $85 million market for
specialised arc-widgets used in the emerging wocket sector.
5. Your Competitive Advantage: No matter what you might think, you have competition. At a
minimum, you compete with the current way of doing business. Most likely, there is a near
competitor, or a direct competitor that is about to emerge (are you sufficiently paranoid yet??). So,
understand what your real, sustainable competitive advantage is, and state it clearly. Do not try to
convince investors that your only competitive asset is your “first mover advantage.” Here is where
you can articulate your unique benefits and advantages. Believe it or not, in most cases, you should be
able to make this point in one or two sentences.
6. The Model: How specifically are you going to generate revenues, and from whom? Why is your
model leverageable and scaleable? Why will it be capital efficient? What are the critical metrics on
which you will be evaluated—customers, licenses, units, revenues, margin? Whatever it is, what
impressive levels will you reach within three to five years?
7. The Team: Why is your team uniquely qualified to win? Don’t tell us you have 48 combined years of
expertise in widget development; tell us your CTO was the lead widget developer for Intel, and she was
on the original IEEE standards committee for arc-widgets. Don’t just regurgitate a shortened form of each
founder’s resume; explain why the background of each team member fits. If you can, state the names of
brand name companies your team has worked for. Don’t drop a name if it’s an unknown name, and
don’t drop a name if you aren’t happy to give the contact as a reference at a later date.
8. The Promise (£): When you are pitching to investors, your fundamental promise is that you are
going to make them a boatload of money. The only way you can do that is if you can achieve a level of
success that far exceeds the capital required to do that. Your Summary Financial Projections should
clearly show that. But if they are not believable, then all of your work is for nought. You should show
five years of revenues, expenses, losses/profits, cash and headcount. It might also make sense to
show a key driver, such as number of customers or units shipped.
9. The Ask: This is the amount of funding you are asking for now. This should generally be the
minimum amount of equity you need to reach the next major milestone. You can always take more if
investors are willing to make more available, but it is hard to take less. If you expect to be raising
another round of financing later, make that clear, and state the expected amount.
You should be able to do all this in six to eight paragraphs, possibly a few more if there is a particular
point that needs emphasis. You should be able to make each point in just two or three simple, clear,
specific sentences.
This means your executive summary should be about two pages, maybe three. Some people say it
should be one page. They’re wrong. (The only reason investors ask for one page summaries is that
they are usually so bad the investors just want the suffering to be over sooner.) Most investors find
that there is not enough information in one page to understand and evaluate a company.
Please remember that the outline above should not be applied rigidly or religiously. There is no
template that fits all companies, but make sure you touch in each key issue. You need to think through
what points are most important in your particular case, what points are irrelevant, what points need
emphasis, and what points require no elaboration.
Some other general points:
- Do not lead with broad, sweeping statements about the market opportunity. What matters is
- not market size, but rather compelling pain. Investors would rather invest in a company solving a desperate problem for a small growing market, than a company providing an incremental improvement for a large established market.
- Don’t acronym your own name. Sun Microsystems did not build its brand by calling itself “SMI.” (Of course, if you know where the name Sun came from, you understand this is an inside joke.)
- Drop names, if they are real; don’t drop names if they are smoke. If you have a real partnership with a brand name company, don’t hide your lantern under a bushel basket. If you consulted for Cisco’s HR department one week, don’t say you worked for Cisco.
- Avoid “purple farts”—adjectives that sound impressive but carry no substance. “Next generation” and “dynamic” probably don’t mean anything to your readers (unless you are talking about DRAM). Everybody thinks their software is “intelligent” and “easy to- use,” and everyone thinks their financial projections are “conservative.” Explain your company the way you would to a friend at a cocktail party (after one drink, not five).
- State your value proposition and competitive advantage in positive terms, not negative terms. It is what you can do that is important, not what others cannot do. With the one or two most obvious competitors, however, you may need to be very explicit:
- Use analogs, as long as you are clarifying rather than hyping. You can say you are using the Google model for generating revenues, as long as you don’t say you expect to be the next Google.
- Go back and reread each sentence when you're done: Are they clear, concise and compelling?
Finally, one of the most important sentences you write will not even be in the executive summary—it is the sentence that introduces your company in the email that you or a friend uses to send the executive summary. Your summary might not even get read if this sentence is not well-crafted. Again, it should be specific and compelling.
It really is one of the hardest documents I've ever had to write, but it does focus your mind on what the key strengths and weaknesses of your business are. Strangely it does make you reconsider many of the ideas you have too, and helps you improve on them.
