VC Fund Raising Manual - Documentation

via Specific Marketing

Published June 21, 2008 Uncategorized
Tags: capital, Fund raising, Investment, raising funding, raising VC funding, start-up, VC, VC investment, venture capital, venture capital funding

When you are preparing documents for VC fund-raising, the one piece of advice you will be given by a lot of people is that you need a 'business plan' document that you should send to the VC firm. You are also supposed to have an 'executive summary' that you can send up front.

Don't.

That doesn't mean to say you shouldn't have a business plan, but I suggest you don't email that to a prospective investor. There are several reasons for this:

1) VCs don't read business plans, they are long and boring

2) Neither a business plan nor a business plan summary achieve what you need to achieve at the point of first contact

3) The business plan will start floating round the start-up scene, I have seen many dozens of business plans that were not intended for me

The documents that you should prepare for the fund raising should be alinged with the phases of the fund raising process. In my experience, the following is useful (I will elaborate on a few docs later on):

1) Pre-pitch phase: 2-3 page teaser document

2) Pitch: 15 slide (or so) PowerPoint presentation

3) Due Diligence: Depending on your business, you will need to present the following documents:

Documents related to spending money:
- Financials (past and forecast). Probably prepared in a professional accounting software and exported to either Excel or Word format. If you prepare your financials in Excel, this is fine for a seed stage company.
- Hiring plan associated with the financials (where appropriate)

Documents related to the product, the technology, their development and protection:
- Technology outline (if any). Word document format
- Product outline. Word document format.
- Product development plan. Word document and associated Gantt charts, probably in MS Project
- Patent strategy (if any). Word document.

Documents related to sales and marketing:
- Marketing plan. Probably in PowerPoint format.
- Sales plan. Various formats, but either an export from a CRM system (to Word) or an Excel spreadsheet

Document related to your industry:
- Industry and M&A analysis. PowerPoint format.

4) Legals - after you have signed a term sheet

You should have prepared digital and physical copies of all contracts that the company has signed in the last few years, as well as any previous investment agreements and the articles of association of the company.

General comment:

Prepare all these documents separately. There are many good reasons for keeping them separate.

Different people can create these docs independently without interfering with others.

The content is in relevant formats.

You gain the ability to distribute certain documents specifically to certain people whom you are dealing with during due diligence and legals, but not to others. For example, should the VC hire a technology expert to evaluate your technology, then these people really don't have to see your financials or your sales and marketing strategy. Likewise, when the VC is asking potential customers about your product, then they don't need to see your financials, or technology outline or patent strategy either. Having separate documents allows you to compartmentalize your information and distribute it on a when-needed and need-to-know basis. This reduces the likelihood of leakage somewhat. Also, should a VC abort due diligence, you haven't shown them all your documents, but only a few.

You can also send documents one by one (no VC is going to read all these documents in one go). Also, it gives quite a nice impression when a VC asks you for your [...] plan and you can send over a whopping doc one day later.

The first two documents are the most important ones, so I will describe them in somewhat more detail below.

Teaser Document

I suggest this a 2-3 page long PDFed Word document. This document has several purposes:

1) to enable you to pitch to a VC
2) to mentally prepare the VC for the pitch
3) to enable the VC to communicate your story within the firm

The content of the teaser document should cover the most important aspects of your company, but not all of them. It should cover:

Product: what is your product, why does it matter
Market: why are you addressing an interesting market
Team: who will make it happen

The ideal thought that a VC should have when reading this document is: "Hmm, very cool, I want to see these guys pitch…" So, don't try to answer all the questions in the document. Leave blanks. You are not trying to convince people to do something. Your purpose is to make them curious. To want to know more. To want to meet you and have the opportunity to find out more.

(By the way: obviously you won't call it 'teaser document', right?)

Pitch Presentation

Endless articles have been written about this one. Have a look at the Stanford Educators Corner, loads of good stuff here, including this one:

As I said before, I have seen 100s of start-up pitches. Some were brilliant, some were disasters, most were somewhere in the middle of the extremes. Your document should cover the same points as your teaser doc, but there is more information in it:

Product: what exactly does it do? What pain does it make go away?
Market: who are the people who will benefit from your product? why is this an interesting market?
Business model: how will you make money? why is this a good model?
Marketing & sales: how will you bring your product to market and how will you sell it? will you have good margins and if so how large are they? what are the costs of sales?
Industry: who are your competitors and how will you compete? are there elements of buyer, supplier or regulatory power that impact you? how are you going to maintain a competitive advantage?
Team: who will make it happen? do you have a good mix of experience and hunger?
Financials: how much money is this going to cost over what period of time? how much revenues do you expect to generate? what are the key variable that will influence your revenue forecasts?
Investment case: is this sector acquisitive? what are the acquisition drivers in your industry? What are the acqusition drivers going to look like say 3 years from now? how do you fit into all of this?

If you can present a case covering the above points on some 15 slides (some 2 slides for each point), you will have done better than most. When I was working at Library House, we asked presenters to cover all the above points in 7 minutes (no more than 12 slides). And yes, it is possible to do that very well.

Overall, the request in the pitch is NOT to get investment. Your simply want to further intrigue the prospective investor. You want them to dig in, to do due diligence on you and work with you during the coming weeks.

As a side note: sometimes you are asked to pitch your company at a public event. In this case, I suggest you don't include all the detail of a one-on-one presentation. This is more of a shorter 'teaser' presentation document in that case.

I will cover how to pitch to a VC in one of the future episodes.