“The closest real-world analogy to raising money, whether you are seeking it from venture capitalists, angel investors, or the three Fs (friends, fools, and family), is speed dating. That’s right: In five minutes, people decide if they are interested in you, just as in bars and nightclubs. This isn’t right, and it isn’t fair, but it’s reality.”—Guy Kawasaki, “Reality Check”
As you begin raising money from outside investors such as a venture capital (VC) fund, you will need to use different communication tools to accomplish various goals. Prepare the following five key documents to engage and communicate with a prospective investor:
When to use these money-raising tools
Raising money for your venture is a process consisting of several stages. Neither party will want to waste the other’s time. Each document is used at a different stage to communicate additional information about your business opportunity. Be strategic about when you provide each document, making sure to send the right information at the right time.
Advice about non-disclosure (NDA)
Be careful when disclosing confidential information.
- Ask the party to sign a non-disclosure agreement (NDA) if you plan to share confidential information in the business plan or patent applications.
- Do not disclose confidential information in your elevator pitch, executive summary or investor pitch deck.
Most investors will not sign an NDA until they are in later-stage due diligence; in fact, most U.S. investors will not sign an NDA at all.
About the tools
The tools help you comunicate effectively with potential investors, as well as other stakeholders such as potential partners, customers and employees. Speak the language of your audience—balance technical detail with strategic and financial language.
1. The elevator pitch
The elevator pitch describes your venture concisely and in a compelling way (30 seconds maximum). Know your elevator pitch cold so that you can use it during your networking efforts, which could be a referral, a request for more information, a meeting or literally meeting someone in an elevator. Think about how you can communicate what you’re trying to do efficiently and effectively.
The elevator pitch from Guy Kawasaki’s Reality Check is very effective: “My buddy and I have been working in our garage, taking no pay, and with MY SQL we built a site that is doubling in traffic every month. Right now, we’re at 250,000 page views a day after thirty days.”
Why does this work? In a few short sentences, they demonstrated that they can make some money go a long way, developed an idea that scales and have generated early customer validation. This elevator pitch will get an investor’s attention.
2. The executive summary
The executive summary summarizes the key sections of the business plan (two to four pages). Most investors will review this document first and then decide if they will continue exploring the opportunity. The executive summary must be compelling and very well written. The goal is to create interest, communicate the market issue, outline your business solution and describe why your team is the right group to be successful.
3. The pitch deck
The pitch deck communicates the key business strategy and investment opportunity in a presentation to the potential investor. It should consist of ten to twelve slides and convey information about your innovation, the market it serves, the management team and how you will bring the idea to the next stage. The presentation should be no more than 20 minutes in length.
4. The business plan
The fundraising business plan describes your venture in detail (25 to 35 pages). It includes a specific timeline with milestones and detailed financial reports. The fundraising/financing business plan may differ from the day-to-day operational plan, which is an internal management document and is not used for fundraising.
5. The white paper
The white paper provides a detailed technical overview of your product. It is used primarily in technology ventures (less so in life sciences).
Important elements for all the tools
- Send communication materials in .pdf format.
- Get input from all team members. Give one person the responsibility of pulling together all of the documents for consistency and flow.
- Documents should look professional; this includes layout, grammar and spelling.
- Make the document interesting to read—use graphics and tables to convey key messages.
- Once you have a solid draft, ask another founder, advisor or mentor for feedback. The document should make sense to a new set of eyes.
- Speak the language of your audience and translate technical features into benefits. Answer the question “So what?” for every message you’re trying to convey.
- Exceed the expectations of your audience.
Kawasaki, G. (2008). Reality Check: The Irreverent Guide to Outsmarting, Outmanaging, and Outmarketing Your Competition. Toronto: Penguin Canada.