Much has been written about what it takes to raise capital for startup and emerging companies. The truth of the matter is that raising capital is simple but hard. Many entrepreneurs are woefully unprepared as they approach capital providers, the result being frustration when they fail to connect. Having the necessary tools in hand before embarking on a fundraising effort greatly enhances prospects for success. Time spent developing and refining these tools forces focus and discipline and pays big dividends.
The Executive Summary. The first tool for the toolbox is a powerful, well written 2 – 2 1/2 page executive summary that covers the essential points that convince a capital provider to read on and want to learn more. Think of it as an electronic calling card – we push these out to our internal and external networks in order to introduce a deal and generate leads for our clients. Typical headings are: The Company; The Opportunity; Large Market Size; Competitive Position and Barriers to Entry by Competitors; Go to Market Strategy; Management Team; Financing Requirements and Exit Strategy. This is a sales document, not a securities disclosure document, and is designed to grab the attention of a potential investor and pre-qualify them as being interested in the company. It amazes me how many of these I see that are not in the King's English. An incoherent executive summary projects an incompetent management team.
The Business Plan. There are lies, damned lies and business plans. No one's business ever developed exactly along the lines set forth in a business plan. Everyone knows that, so why are entrepreneurs expected to bother? The main reason is that putting one together forces the management team to articulate the revenue model and demonstrate a facility with the numbers. Along the way, the management team has to think through the development path for the business and the capital it will take to buy the runway necessary for the business to take flight. Putting together a business plan should not be outsourced – using a canned business plan or one prepared by someone else leaves the entrepreneur at serious risk of being asked a question when making a pitch that he or she has not thought through. By all means observe the 80/20 rule – 80% of the business plan should consist of an expanded treatment of the topics covered in the executive summary and 20% on the invention or science. Investors want to know you are focused on making money, not working on a science project.
The Slide Deck. Investors have a limited attention span, so a 40-slide deck will not do. There are only about a dozen or so points that are essential to cover: Overview; The Problem/Opportunity; The Solution; The (Large) Market; The Technology/Product; Unique Competitive Advantage/Barriers to Entry; Competitive Landscape; Go to Market Strategy; Financial Roadmap (including high level 5-year projections and investment sought); The Team; Current Status (milestones achieved and pending orders); Exit (include most likely exit and comparables if available); Summary (three strongest points and what distinguishes this opportunity from others). Detail on any or all of these points can be kept in hidden slides, available at the touch of a button in response to a potential investor's question. Excellent presentation skills are a must. Slides are not a crutch and should not be read.
So there it is, the Fundraising Toolkit – simple but hard. With these tools in hand, a bit of coaching, and the right warm introductions, fundraising success can be yours!
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LeClairRyan is a law firm that has deep entrepreneurial roots, having originally been founded as a venture capital boutique. With more than 350 attorneys and offices from Virginia to New York to California, the firm provides business counsel and client representation in matters of corporate law and high-stakes litigation. Its mission is to achieve excellence for its clients by providing integrated, responsive and timely services. LeClairRyan has numerous attorneys and professional support staff focused on intellectual property, venture capital and the other legal needs that are often required by emerging businesses. Our intellectual property team is nationally recognized in patent prosecution, interferences, reissues and reexaminations, and in patent litigation in the biotech, pharmaceutical, software, chemical, electrical and physical science fields. This suite of services, coupled with expertise in venture capital and other types of equity financing, strengthens the firm’s ability to serve entrepreneurial, knowledge-based companies.