August 15, 2017
When it’s time to start raising money, getting your foot in the door can come from a warm intro and a good executive summary.
Think of fundraising as an enterprise sales process. Which means it’s going to take time to get fundraising done and you’ll need a lot of prospects at the top of your sales funnel.
As you prepare for your fundraising effort, you need to get the basic tools of the trade completed before you start the process. The Executive Summary, Presentation and Financial Model are your marketing collateral to sell your product. You’ll build a funnel of prospects, requiring both research and introductions.
The goal is to create competitive term sheets, from multiple investors, for your growth capital, and the executive summary and traction can help you nab some investor meetings.
Traction First – Before Fundraising
Before we begin – I need to point out two not so obvious points for founders:
Your Need for Capital Does Not Mean You Can Raise Capital
I’ve been there, you have constraints, lack of cash, lack of engineering resources, and you need the money to pay for design.
All of that is a reality that stands between you and the fulfillment of your product vision. Get used to it, even after you raise the capital, you will continue to have constraints.
You need to find a way to get customer validation and traction before you raise money. That’s what the investors will require you to do before writing a check.
You May Not be Ready to Go Raise Money
All too often founders complete a pitch deck and confuse doing that work with the “Real Work” of customer validation, traction and revenue.
Your product offering and company need to be at a point in the maturity of the company that you have proven your concept with data.
For example: If the idea of the product or service is known to the market – e.g. you’re creating a competitive product, this can be a direct competitor or a derivative competitor in different markets, then you have a known comparable or “comp”.
Let’s say you are copying a former employer and building a competitive product. The investor risk, in this case, is mostly on your team’s execution of your plan. You have to answer the question: “can you build a competitive product and market and sell it better than your former employers?” There are known unit economics, pricing, conversion ratios, etc. The competitor, in this case, your former employer, has an enterprise value or a comparable.
However, if you are launching a brand new product into an unknown market, e.g. AirBnB before it launched, the risk is greater than just execution. It is also now a question if anyone actually wants the product you are proposing and which market wants that product for what price. In this case, the unit economics are speculative and there isn’t a comparable. With that, the reward for the investor is also potentially higher.
That’s why customer development and traction is so important.
Remember, investors have opinions and checkbooks. If you have only an opinion, your opinion combined with customer data will get you to the checkbook. If you have a new product, unknown market, and unknown channel, you need to at least have 50 customer development interviews that show why people will want to purchase your product.
Business plans are dead – at least in the tech market.
The reason is that a 40-80 page document is irrelevant given the dynamics of actually interacting with potential customers. Remember what Mike Tyson said – “everyone has a plan until they get punched in the face.”
That’s not an excuse for not planning – just a reminder that a plan doesn’t reflect the reality of the world and that you are better off doing the customer interviews and getting traction than sitting in your basement writing a plan.
Having the documents ready doesn’t mean the company is ready.
Startup Executive Summary
The Executive Summary is the two page summary of the business. It addresses the Pitch Deck content (problem, solutions, etc.) in a narrative arc that tells a story. The purpose of the Executive Summary is to “get you in the door” for the meeting with the Angel, Angel Group or VC.
No one is going to write you a check from any of these documents alone. Think of this as a process, you’ll still need to do the meetings, build a relationship and pass the due diligence process. But without doing these docs, you’ll look like a noob and won’t raise any cash.
Do the deck first, then draft the summary from the pitch deck. Remember, it’s only there to help you get the meeting and will be sent over in email as part of the meeting request – resist the urge to detail out all of your plans. It should match your website.
You won’t need to send the deck in advance. It serves as the discussion guide for the conversation you will have in the meeting.
All of these documents should sync, from your website, summary, and financial model. When they are out of sync you will get questions. Do the work, pay attention to the details.
Read more advice on raising capital at TechCo
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