Submitting a Plan to Investors

Chapter 22: Getting Financed - Page 22.8

Submitting a Plan to Investors

Mind the Law

Be aware that securities law covers investment offers. It is illegal to sell shares in your company to people not qualified as investors. This is not the format for a long legal discussion, but at least you should know the basics. Securities law regulates investment offerings carefully. You can do some good research at www.sec.gov/answers/accred.htm for example, but make sure you consult a qualified attorney before making an investment offer.

Avoid turning to friends and family for investment. The worst possible time to not have the support of friends and family is when your business is in trouble. When the business is financed by friends and family, you risk losing friends, family, and your business at the same time. I know an entrepreneur who stuck with a losing business for six years longer than he should have, because he started it with money from friends and family.

Form should follow function, of course, but there are some expectations you should meet. How you submit a plan, and the form you use, should depend a great deal on the underlying objective. What you do for a mainstream venture capitalist should be tailored for that use, and different from what you’d do for a bank loan application.

What Investors Want to See

Show how much money you seek and how much ownership you offer. How much do you think your company is worth?
List current shareholders and outstanding blocks of stock, existing options, and potential dilution.
A strong management team, with a good track record.
A believable business model.
Good credible evidence of interesting potential growth.

Investors Expect a Summary Memo

Mainstream venture capitalists and most angel investors expect to see a 2-10 page Summary Memo first, before they see a complete business plan.

The Summary Memo gives its readers a quick but practical view of the business concept, the market, the management team, strategy, and basic financials. Professional investors use this document to decide whether they want to see the full plan. The Summary Memo is sometimes called an Executive Summary, but it is not the same thing as the first chapter of a normal business plan, also called Executive Summary. Its business objective is to interest investors in talking to the management team and looking at the complete plan. It needs to highlight and present the most important information that helps in that process.

Don't prepare just a Summary Memo instead of a plan. The purpose of the Summary Memo is to get an investor to ask for the whole plan, so of course you have to have the plan ready to go before you show the Summary Memo.

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