| "Get an introduction to the venture capitalist." It's | | | | capitalist wants before sending the proposal - you will |
| good advice. It just isn't always possible, or even | | | | save yourself a bundle in printing and shipping costs, |
| likely. Many outstanding entrepreneurs with equally | | | | not to mention the time saved in going after the true |
| outstanding financing proposals simply don't have The | | | | targets. |
| Introduction. | | | | Accentuate the Positive |
| Unsolicited, and un-introduced, financing proposals are | | | | There are some things you can do that act as a |
| typically tossed into the dog pile or slush fund or | | | | catalyst in getting your proposal noticed (in addition |
| circular file. In most venture capital firms it is the job | | | | to having a great business plan, which I assume you |
| of a new member of the firm, typically someone | | | | do have). |
| with a freshly scrubbed MBA, to weed through that | | | | First, address the plan to a person, not to the |
| pile, toss out unlikely candidates and pick out any | | | | company. In your research, you learned about which |
| projects that are worth looking at. So the first barrier | | | | partners sat on which boards, which ones gave |
| is a young, ambitious, very well educated, | | | | speeches at which industry event. Use that |
| inexperienced person who wants to make a good | | | | knowledge now to target the proposal to just the |
| impression on the partners in the firm. | | | | right person. |
| Getting out of the Dog Pile | | | | And, perhaps most importantly, in your cover letter |
| About 90% to 95% of the proposals in the dog pile | | | | tell why you are sending this business plan to this |
| are tossed. Some of the top reasons for tossing | | | | lender/investor at this point in time. Perhaps it's |
| proposals at this stage include: | | | | because they funded a company that will be a major |
| Sloppy appearance. Loose pages held together with a | | | | supplier of yours. Perhaps an associate recommended |
| paper clip, smudges on the pages, yucky colors - | | | | that firm. Perhaps you heard the principal speak at a |
| these are all quick "toss me" clues. This is typically the | | | | convention. The fact that you got his name out of a |
| very first thing that the reviewer notices, so the | | | | book doesn't count. Make the reason real. |
| appearance has to be commanding. | | | | Making the Second Cut |
| Too little information. A 1-2 page summary is very | | | | Depending on the size and culture of the venture |
| nice IF it has been specifically requested by the | | | | capital firm, the initial reader, a mid level associate or |
| venture capital firm and IF it really does include the | | | | even top partners may make the second cut. Criteria |
| information requested by that venture capital firm. A | | | | here focus on the specific needs of the venture |
| generic 2-page summary sent to 200 venture firms is | | | | capital firm, such as: |
| pretty much a waste of time. A 50-page dissertation | | | | Emphasize symbiotic relationship with existing |
| on a new patent is equally ineffective - it just doesn't | | | | portfolio companies. Any company that can |
| provide all the information that a venture capital firm | | | | demonstrate a strong relationship to a successful |
| needs. The length of the proposal is considerably less | | | | existing portfolio company, or provide a means of |
| critical than the quality of the information provided. | | | | creating profit in existing portfolio companies, is way |
| Rarely can sufficient information be provided in less | | | | ahead of the game. Not only will the venture capital |
| than 20 pages, and rarely is it acceptable to present | | | | firm be well aware of the industry, but it will |
| more than 30 pages. And all of the pages - no | | | | welcome the influx of influence on the bottom line of |
| matter how many pages there are -- must be | | | | its other companies as well. |
| responsive to the needs of the specific type of | | | | Create strong ties where slender threads exist. So an |
| venture capital firm. | | | | Advisory Board member and the venture capitalist |
| Too much information. There's a myth with some | | | | went to the same graduate school. It's a slender |
| truth to it: When confronted with a huge pile of | | | | thread of connection. But that graduate school needs |
| proposals to read, the reader will toss them up in the | | | | to be listed prominently in the bio of that Advisory |
| air, and the heavy ones that fall to the bottom of | | | | Board member. (As an aside, contact the department |
| the heap will be read last. A financing proposal with | | | | chair or known professors to see if there is a direct |
| three binders attached, with everything from | | | | introduction available somewhere.) Create a database |
| incorporation documentation to copies of patents for | | | | of all advisory boards, schools, publications, companies |
| competing companies, is too much. Like | | | | and associations that all of your key people, contacts |
| Scheherrazade's stories, the financing proposal entices | | | | and potential investors have. Cross reference those |
| the reader to want more. Dumping everything in the | | | | to everything you can discover about the venture |
| venture capitalist's lap before ever meeting him gives | | | | capitalist. There probably are slender threads that can |
| the venture firm no reason whatsoever to ask for | | | | be brought to the forefront. |
| more. In fact, presented with such an overwhelming | | | | Demonstrate an in-depth knowledge of the industry |
| glump of information, most venture firms would be | | | | and its profit structure. It never ceases to amaze me |
| extremely leery about asking for more. | | | | how many people think they know the retail business |
| Wrong format. There is a structure to a financing | | | | without ever having sold so much as a pair of shoes. |
| proposal: the beginning (the cover sheet, the Front | | | | The same holds true for every industry. Each |
| Page and the Table of Contents), the middle (the | | | | industry has its quirks and foibles. Each industry has |
| guts of the information divided into logical sections), | | | | unique profit centers and modes of operation. Each |
| and the end (absolutely essential attachment, such as | | | | industry has its true leaders and its falsettos, those |
| copy of critical patent). Omitting sections, or writing in | | | | who talk loud but don't truly know anything. Nothing |
| the format of a novel, does little but confuse the | | | | can beat actual experience in the industry. |
| issue. Leave the creativity to the presentation itself | | | | The Final Cut |
| and keep the structure pretty basic. | | | | The top 2-10% of the proposals remain in contention |
| Information that is too technical. Scientists and | | | | here. About half of the entrepreneurs will be invited |
| engineers waft poetic about inventions that are all | | | | to present a dog and pony show. While the early |
| but incomprehensible to everyone else. While it is | | | | stages of elimination are driven by industry standards, |
| safe to assume that the venture capitalist is | | | | at this level it gets very personal. The selection |
| intelligent (and he is!), remember that the first line of | | | | process here caters to the needs of the specific |
| defense is someone who isn't terribly experienced. So | | | | venture capital firm at that specific point in time, and |
| explanations really help. Pretty basic explanations help | | | | can change from day to day, or from week to |
| even more. | | | | week. |
| Lack of a concise Summary Page, with specific | | | | You can do everything absolutely right and be |
| funding needed specified. The Front Page, or | | | | eliminated here. Perhaps the other companies in their |
| Summary Page, contains very specific information: | | | | portfolio have hit snags that haven't reached the |
| the industry, the status of the company, the amount | | | | public yet. Perhaps the venture capital firm is in the |
| of money needed, the type of funding requested, | | | | midst of over committing to certain industries. |
| and The Hook. The Hook is a brief note of whatever | | | | Perhaps an IPO that was previously scheduled got |
| it is that distinguishes this company/invention/concept | | | | pulled back, so the venture capital firm doesn't have |
| from the thousands of others on the market. Lacking | | | | the money it expected to have. |
| ALL of this information on the Front Page, most | | | | Perhaps there truly is something amiss in your |
| venture capitalists won't go further. | | | | financing proposal that one of the partners picked up |
| Lack of information on the principals. It is axiomatic | | | | on. |
| that venture capitalists invest in people, not in ideas. | | | | The one consolation is that, if you have reached this |
| There are tens of thousands, if not hundreds of | | | | high, you will likely get a call from someone at the |
| thousands, of patents languishing in the Patent and | | | | venture capital firm expressing some type of |
| Trademark Office. There are very few unemployed | | | | explanation for not proceeding. At the earlier levels of |
| skilled leaders. Make certain the venture capitalist | | | | elimination you probably heard nothing at all. Listen |
| knows how truly talented your management team is. | | | | carefully to what the venture capitalist has to say, |
| Wrong level of investment or wrong industry for | | | | and proceed accordingly. And be encouraged. You |
| venture capital firm. Venture capital firms receive | | | | ARE in top contention, even if this is not quite the |
| dozens of business plans every day that are simply | | | | right firm. |
| inappropriate for them. Venture capital firms | | | | Look at your financing proposal again - this time from |
| specialize. Some like small startups; some only invest | | | | the perspective a first reader, and then from the |
| in mezzanine stage companies. Some prefer | | | | perspective of a top partner in a venture capital firm |
| investments under $2.5 million; some will only invest | | | | intent on making money. Revise. Target. Send it |
| over $2.5 million. Some specialize in communications or | | | | again. |
| biotech or energy. Find out what the venture | | | | |