Here’s How You Get A VC To Pull Out Their Checkbook

Business Plans are dead. Most sophisticated investors ignore them, focusing their attention on an entrepreneur’s pitch and presentation materials, financial forecast and executive summary. As noted in Entrepreneurs Shouldn’t Pitch Their Ideas To Venture Capitalists, most sophisticated investors place their bets on people rather than opportunities. As such, the primary goal of your executive summary is to open the door to an in-person meeting.

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Entrepreneurs routinely seek my advice regarding their executive summaries. In most cases, I provide some combination of the following advice:

Brevity – Maximum length: two pages.

Visuals – Given the limited space, use images, graphs, charts and photos to tell your story; team pictures, logos, etc. work well.

5th Grade – Many entrepreneurs use overly dense, academically oriented language. As best-selling author Stephen King once said, “Any word you have to hunt for in a thesaurus is the wrong word.” Most newspapers are written at a third-grade reading level, White House press releases average a fourth-grade reading level and the New York Times is easily digestible by the average fifth grader. Apply the Flesch-Kincaid Readability Test to your executive summary to ensure the average 5th grader can understand it.

Buzzkill – Overuse of buzzwords and jargon convey an entrepreneur’s professional immaturity; it can also confuse a 5th grader, so use plain English.

Too Techie – Tone down emphasis on the technology underlying your venture; an interested investor will perform tech diligence at the appropriate time.

No VC Fit – Match your venture with appropriate funding source. For instance, a services business or an opportunity with limited growth potential might be a good fit for an Angel investor, but not a venture capitalist. A restaurant is a generally appropriate for a bank, but not an Angel investor.

Real World Executive Summary Template

Jeff Carmody, Co-Founder of Agility Capital and a successful institutional investor, provided me with the outline shown below. Any errors or omissions in the subtext are my own. Hopefully this straightforward format will help you avoid overly obtuse verbiage, while keeping your executive summary to two pages.

Opportunity
PAIN: what painful issue are you addressing and how extensive is the issue (e.g., paper cut vs. bleeding artery)?

The Company
SOLUTION: why your venture will not only assuage the pain, but will also make a ton of money for your investors in the process.

Market
Clearly define the addressable market for your pain reliever, which is a subset of the total number of people who are feeling the pain; the total market size is not relevant.

Product
What does your pain reliever look like, how is it implemented by the customer and what future products do you expect to roll out?

Distribution and Sales
How do you profitably get the pain reliever to the consumers experiencing the pain?

Patents and Trademarks
Describe any defensible intellectual property associated with the pain reliever.

Competition
Who else offers similar pain relief and why is yours so much better?

Management Team
Explain your team’s experiences that are relevant to the success of your current venture.

Capitalization
How much money are you looking for, what will you do with it and what other funding sources (if any) do you already have secured? If a valuation has been established, what is it?

Financials


It is surprisingly simple. The combination of a meaningful introduction and a straightforward executive summary will greatly enhance your likelihood of efficiently obtaining funding on advantageous terms.

Contact
Who do I write the check to and where do I send it?

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet you a crazy personal opinion or tell you about that killer burrito I just ate.

Photo Source: photosteve101

John Greathouse

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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  • jrz

    I disagree that the NY Times is written for the 4th grade level. Maybe the LA Times or NY Post. But I do strongly urge any writer of a biz plan to write well and precisely, something lacking in 80% of the plans I read. Every comma, every word needs to address its points precisely.

  • jrz

    By definition, an executive summary is a synopsis of a fully drafted plan. How can a summary be written without the extensive analysis and writing created by a complete business plan? I believe that it is too dangerous to rely solely on a summary for 2 major reasons: 1) during due diligence, details might be needed that a fully fledged plan can only answer, 2) a well written business plan should prepare the management team to handle all potential issues, The executive summary is the distillation of all the research and analysis of a strategic plan — yes, it must be well written and embody all of the critical elements of a plan. The executive summary is a hortatory document (sorry, John) and must lead the interest of potential investors — populated with facts and statistics. But it is called a summary for good reason, it was backed by thoughtful analysis and summarized for a specific audience with literary language.

  • jrz

    Let me add that start-ups only need to provide the summary and a Powerpoint initially, That is what they want to see first. But there are instances when a VC firm will request a business plan. I rather have a business plan always ready when such a request is made.

  • JRZ – to be clear, articles on the NYT vary is their readership level. The NYT’s Educational page is vague, but they encourage elementary school teachers to use their paper as an educational tool, suggesting that some of their articles are appropriate for kids 12 and under.

  • Correct – some VCs will want to see a full-fledged Bus Plan. However, most early stage, sophisticated investors will not require such a document.

    With this said, a well-written, cogent BP will absolutely help you and your team execute more efficiently. My argument is that they remain worthwhile planning documents, but are less relevant when raising early-stage funding.
    Thanks for sharing your thoughts

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