Robert P. Mollen, Counsel at Fried, Frank, Harris, Shriver & Jacobson (London) LLP.
I’ve previously written about how to pitch to VC’s, particularly US VC’s. http://bit.ly/2oUTS14
However, the trick is getting introduced to them in the first place. http://bit.ly/2ooM06g
Your investor pitch materials are critical from that standpoint, particularly your (a) one page executive summary; and (b) initial pitch deck. Your executive summary is particularly important, since it may be the first time that an investor has heard about your company. Members of your network who are willing to help you will frequently use your executive summary to make one-way introductions to investors. Thus, the purpose of the executive summary is to secure a meeting with a potential investor, or at least to get him or her to want to see your pitch deck.
There are a number of blogs on the web as to what to include in the executive summary. These are useful checklists, and some of them even make points like those below. Surprisingly often, however, I see draft executive summaries that fail to convey why a potential investor should want to learn more.
So here are my views on some key points to address in your executive summary.
Start with the elevator pitch
The executive summary should start with a short business description, and the first sentence (or two) of that description should be the elevator pitch. That initial description needs to persuade the reader why he or she should bother reading further. Investors review a lot of summaries and pitch decks, and founders should assume that investors have short attention spans. Don’t bury the reason why your business is worth considering – make clear up front why it should be distinguished from the hundreds of other candidates that the investor chooses not to pursue.
Present a credible business model
Your business may still be at a stage when your business model is subject to adjustment, but you nonetheless need to present a credible basis why your business model should work. It is the rare start-up that can sell itself on the basis that, e.g., it can figure out later how to monetize the community that it is building, or how to distribute its product or service.
The key problem for any start-up is credibility. You may be approaching investors when you have low or no revenues, when your business model may be unproven, and when there is a high risk that you won’t be around in a year or two. Consequently, your executive summary needs to establish your credibility in any way that you can. Here, in no particular order, are some things that may help to evidence credibility, and should be reflected:
- Management team, board or advisory board members or other advisors who have credibility with investors. The management team may have credibility as a result of prior successful exits, impressive sector credentials, or otherwise. Board and advisory board members and advisors may bolster the limited credibility of unknown founders.
- Revenues -- useful if not dispositive. Some investors may be more focused on an absolute revenue threshold, while others may only be interested if the revenues, and their sources, help to prove the business model and addressable market. Revenues that don’t fit the business model (such as consulting revenues) are likely to be discounted.
- Contracts or proof of concept trials with important customers, especially corporates that are seen as thought leaders in the space. Data also is key here – what do the contracts or POC’s say about the value of your service or product and your business model?
- Investment from key players, such as corporate venture units, well-known investors (at your stage of investment), business angels or others with credibility in your sector. Note, however, that very early stage investment from investors who are known to “follow-on” in subsequent rounds may be problematic if the investor determines not to follow-on.
- Success with recognized curators, including selection by prominent accelerators, success in key start-up competitions, selection for grants or key innovation programs, or otherwise.
Acknowledge and distinguish the competition
There is nothing that turns off an investor more quickly than a statement that "we have no competition". Nonetheless, I frequently see executive summaries that fail to address competition or even deny the existence of competition. Every company has competition, direct or indirect. The key here (in a couple of sentences) is to identify key competitors/sources of competition and then make clear why you think you have a competitive advantage.
Present realistic numbers
Your executive summary generally should include five year projections of revenues. These numbers will always be highly speculative, but you need to be able to defend them. I frequently see “hockey stick” presentations that show massive growth in years 4 and 5. There occasionally may be a justification for those numbers – but even then an investor is not likely to believe them, and may accordingly doubt management credibility.
The executive summary is a billboard for your company. Your investor materials are marketing materials, and they should look professional.
I am surprised by the number of times I see executive summaries with misspellings – that is inexcusable.
Use short and succinct sentences that clearly convey your points. Please avoid empty buzzwords.
Finally, effective use of tables and graphics beats grey text on any day.
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This discussion is not intended to provide legal advice, and no legal or business decision should be based on its contents. If you have any questions or comments, feel free to contact [email protected] or via LinkedIn here.
You will find Bob’s other weekly blogs for emerging and growth companies on US issues, international expansion and early stage financing here: http://bit.ly/2lP5uMP