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50 Questions: What is the first document I should put in front of a VC?

Twenty-seventh in a series of weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital.  We expect the series to run for a year after which we will collate the posts into a book.  You can find the rationale behind the series here, and the list of questions here.  We welcome your comments on any and every aspect of what we are doing.

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Hopefully the recent posts in this series have given you an idea of how VC evaluate companies, markets, teams and so on.  My next three are going to deal with how to best get that in writing with the aim of getting productive meetings with investors.

I use the term ‘productive’ very deliberately as I’m a big believer that ‘raising money’ is actually better described as ‘selling equity’ and hence should be treated like a sales process where qualifying prospects out quickly is key to being efficient.  The purpose, then, of putting something in writing in front of the VC is to make sure that they have thought about your business enough to be genuinely interested before you give up your valuable time to meet with them (and take up theirs).  Meetings where it becomes quickly apparent that there is no fit between the startup and what the investor wants are no fun at all and the approach I describe here works better for both entrepreneur and VC.

The first document you put in front of the VC should, therefore, contain the key information a VC needs to make their first level assessment – and that includes a description of the product/service, the market, key team members, any high profile investors or advisors, how much you raising, and some high level financials.  Depending on the startup other elements may be important too – e.g. if your product is novel like say Quora was last summer it will help to describe the customer problem and vision, if you are entering a competitive market you should refer to the competition or if you have a uniquely interesting business model like say Groupon you should detail that out.  The product/service description is by far the most important of these as that is the first filter most VCs use to determine interest.

The other important thing is that the document should be short.  You want the VC to read it and understand all the key points so you know your meeting will be productive, and that means getting it into one or max two pages of an executive summary, or into the body of a shortish email.  In the world of iPhones, Blackberries and narrow band cellular networks short emails have much more chance of getting read and getting read quickly and I think the best approach is to send an exec sum attached to an email with 100-200 words in the body making your top 1-2 points (which should almost certainly include product/service).

All of the above assumes that you have already determined that you want to raise venture and have a reasonable chance of success, i.e. you are in a sales process rather than a discovery process.  If you are still at the stage of figuring out whether it makes sense to try and raise money then you should be looking for meetings with anyone who can give you feedback and setting them up as discussion meetings rather than pitch meetings.

Finally, if you are lucky enough to have a company that is super hot, is growing super fast, or has some other characteristic which means that in practice all VCs are interested and you don’t need to worry about non-productive meetings then it is less important to make sure your business is well understood before the meeting happens and maybe your time is better spent doing something other than preparing documents for investors.  For most though, I would guard against arrogance.  It is far better to have over-prepared than under-prepared.

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  • http://www.paloalto.com/about_us/leadership/alan_gleeson/ Alan Gleeson

    Hi Nic, While you do not explicitly name the document – it is a business plan. You make an interesting point regarding the consumption of same though in terms of how many VC’s work i.e. scrolling through an overflowing inbox on a mobile device.

    Producing a business plan will ensure entrepreneurs are ‘over prepared’ given the holistic nature of the business planning process. However as you point out the days of sending a 40 page business plan are gone. Instead entrepreneurs need to recognize that time pressed VC’s need to make a quick call and hence entrepreneurs need to ensure the business plan is easy to digest by the recipient. A short exec summary in the body (i.e. not an attachment) + a warm introduction (perhaps referencing the referrer at the top of the mail) will help ensure your mail has a chance of getting read.

    Thanks Alan Gleeson

    PS By way of full disclosure my company is in the business plan software/ SAAS field.

  • http://twitter.com/sebify Sebastiano Mandala’

    “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers”, I think one can find what it’s needed.

  • http://trabajox5.com/ Trabajos Part Time

    thank you very much for these great tips that can only be with much experience in CV .. All The Best!!!