When listening/reading today's media anyone considering joining/starting an earlier stage, innovation driven business would have to have second thoughts. It, however, is important to realize that innovation, engineering, and/or investment projects do not necessarily stop during periods but become more highly focused; and planned with a path to profitability and/or strategic impact. All emerging companies must have a plan and associated executive summary that convey why the company will be successful despite current or future "environmental" obstacles.
Investors initially want to hear a clear mission statement and description of the industry where the company will compete. Of course accomplishments and milestones to date, market trends, market growth, and, of course an evaluation of the competition is a must. Then obviously why the will be successful despite that competition or any other “environmental” circumstance.
Within these descriptions an explanation of where the company is positioned with current technology and economic cycles will help generate a rationalization for success. Knowledge of the general market size and addressable market, with a bottoms-up calculation in the appendix is very helpful. Do not overstate the expected growth rate.
Obviously concise descriptions of key staff and why they are a part of the company is appropriate. Not simply a regurgitation of a resume; but why the sales guy is the right guy to sell this product to these customers (gee, maybe he did it before), etc. Highlight current Board or Advisory Board members as well. It is important to understand that the better the Board, the better validation of the company’s potential future success.
Selecting the appropriate investment firms to present to; is as important as much of your content. In the cover letter introducing an Executive Summary a clear strategy of explaining why their firm has been selected as one that should be interested the plan is an important first step. The required research to properly select and position an investor is difficult but a qualified investor creates positive synergy from the beginning. Finding a referral to a specific investor is also extremely important.
Outlining the support you would hope to be provided by the investor both in the near and longer terms is mature demonstration of your view of what investor participation really means. Recruiting, access to industry data/customers, process validation, and also governance support, financial syndication support in current and future rounds or best practices adoption; are all components that can be included in the Executive Summary.
A critical component of a plan and summary is to clearly articulate a direct comparison of your business model and a successful, known company that has employed a similar model. Examples demonstrating these similarities might include the company selling similar products, sold to the same buyers, or IPO’d or sold for a great return; or the company’s involvement of with other complimentary companies as part of the go-to-market-strategy. Possibly direct reference to a common set of successful strategic or tactical milestones that reduce early stage risk can make for a very compelling argument.
What is the sales and go-to-market strategy? Break the marketing/sales effort into identifiable elements from initial customer contact, to sampling/testing, prototypes, field trials, production timelines/orders and delivery. What might be some of the key contract components that might be specific to the business? Such insight is very compelling to the would-be investor.
Discussion of valuation in initial documentation is always inappropriate. Determining current or the discounted blue sky/future valuation of the business is best served as being part of the due diligence process versus being dictated by the founders. Outlining that its determination is viewed as part of this process in the Executive Summary will lead to an opportunity for developing mutual respect with a would-be partner.
When discussing the businesses product do it concisely. Explain how it solves the target problem; identify its key differentiating technology, and key barriers to entry including patents, deals and licenses. Description of the honest current stage of development is also very important.
Additional compelling topics than can be referenced in the Summary might include:
- Initial customer concerns about the company products or approach and what was done to resolve or mitigate the concern.
- Acquire one or two alpha sites with champions that are willing to talk or be referenced.
- Highlighting the current company’s feature set, the developing product roadmap and why customers will buy more than once.
Presentation of ill-conceived or incorrect financial information can undermine the best Executive Summary more quickly than any other plan component. Seasoned investors know the relative costs of labor, construction, distribution, and sales, etc. as a matter of course. Attention to and a clear understanding of each and every financial component presented is important. This concise knowledge in building a proper rationalization goes a long way in convincing the reader that everything else they are reading might have integrity.
Describing how much money the company will need at each set of inflection points is critical. Within that description, how the money will be spent also is a component of the plan that can add great credibility to the document.
Description of the competition and how you are positioned against them is of importance. Demonstrating transparency in this conversation again shows maturity. Include alternate technologies that solve the same problem. There is always competition. It validates your business idea and might even help defray your marketing and sales costs by educating the market.
In summary, what investors are looking for must be considered in detail when presenting the company. Investors want:
- Great deals, not good deals
- Exceptional ROI
- Dominant competitive advantages
- Proven management
- Large and growing markets
- In their comfort zone (size diversity, space)
- Synergy with other portfolio companies
About Roger Akers: Roger Akers is a co-founder and managing partner at Akers Capital LLC. Since successfully raising The Pac West Technology Fund I in 2000, Roger and the Akers Capital team have invested in, mentored and helped build emerging technology companies throughout the western region. For more information about Roger Akers and Akers Capital LLC, please visit their website at http://www.akerscapital.com