VCs receive so many investment proposals it is important to put your investment proposal in a form that a VC can QUICKLY get his or her head around to rapidly understand the stage of the company, opportunity highlights and the financial situation.
I tell people that I receive about 4,000 investment proposals per year, but that’s not true. I actually receive a lot more than that. Sometimes a VC or accelerator shows me 10 to 15 at once. Sometimes a banker shows me the five they are working on. If I go to a conference and meet 100 people, I am likely to get at least 100 investment proposals within a few weeks.
The point is that I need to move quickly to be able to make an assessment of which ones to progress to my team and which ones I can introduce to someone I think can help them. I try to do this with every deal. I try to send the entrepreneur in the right direction and pass them onto a friend somewhere in the world where they can be helped and the contact of mine can make a good investment or become an advisor to the company creating a win-win for everyone. This is how I operate and how I collect favors and good karma every day.
I saw this financial summary today and thought to share it. The name of the company will remain confidential, but I think these are good categories to show an impatient VC. I also like the way these guys show 2 years of historical fins and 3 years pro forma. This is the stuff I really want to know.
A few key financial ratios that help drive thoughts on valuations now and into the future.
Net cash flow
Once I engage with a company I like to have the founders walk me through a detailed financial mode in Excel. I have a section in my book about this written by Scott Maxwell from OpenView Venture Partners about the key elements and details of each element in a detailed financial model. This blog post is trying to help entrepreneurs get to first base, not seal the deal. You need detailed financials, but I’m talking here about the initial approach with an email and an executive summary or teaser.
Much of the time I feel like I am pulling teeth to get information. Keep in mind when you email a VC or banker that they may see thousands of emails with investment opportunities and if getting information becomes too painful they will hit the gong and move onto their inbox or go back into a meeting they just walked out of.
I appreciate an email that opens with how you know me, who introduced you or where we met. It helps if the person that knows me makes the intro. If it’s a cold call that’s fine, but saving me the time from checking my CRM is already doing me a favor and I am starting to like you.
I like to get the answers to my key questions as quickly and effortlessly as possible. I always want to know:
How much funding has the company raised to date? How much of that funding is from outside investors (not the founders)? When did each financing event occur? How much cash have you got in the bank now? What’s the burn rate / cash generation rate? Are any of the investors notable like a famous entrepreneur, VC or corporate industrial partner? What is the stage of the company with respect to revenues, product, team, key customers, other commercial agreements, partnerships, strategic milestones, etc.?
I like one or two sentences at the start of the email and then a few bullet points. It should read well if I open it on my iPhone or Blackberry. A sea of text on font 6 is a turn off. Long emails or investor materials that go on and on about trends like the proliferation of mobile phones or how all advertising is going mobile, does not tell me the answers to any of my burning questions and the further I go on reading without getting any of my questions answered the more I become aware that I am investing time without any return.
I also like to see financials like the one above, a 2 to 4 page executive summary and an investor slide deck. If you’ve got polished investor materials please send them.
Everyone is different and someone else will want to only see an executive summary and go through a song and dance dating process exchanging many emails. Not me. I like to make a quick decision to 1) move ahead myself introducing the opportunity to my team, 2) help the entrepreneur by making some kind of intro or 3) respond with an honest answer that this is not for us.
Now let me tell you what I really dislike. This stuff just causes pain.
“Hi Andrew, we have been very busy working around the clock. I think it is now time for us to meet. Please let me know if you can meet me in San Francisco for a drink.”
“Andrew, I have something I want to discuss. Can I come by for a coffee?”
“Andrew, I am going to send you detailed information on a deal that I am working on very soon. Maybe next week or the week after. How’s the family?”
The worst email approaches are signed with a vague email address and they don’t even tell me the name of their company or maybe that’s all they tell me. (Using a gmail account is fine. My point is that sometimes there is no mention of the company name and when I try and find a web site from the domain of the email, it’s just gmail.) I then need to check my CRM and see if this person is in my database just to find the name of their company. If all I have to go on is the name of the company I check VentureSource, CrunchBase and just start searching on Google. This is time rape and I don’t like it. It’s the worst thing that can happen. I get a fist full of 70 business cards every time I go to a networking event. Even if I’ve been on vacation with someone I appreciate the professional approach outlined above.
I love my job. I love seeing innovative ideas and helping people. What I am really after is good businesses where investors and founders will make a lot of money. I have a chapter in my book called “what to bring to the dog and pony show” with advice from a bunch of VCs on the approach, what to bring and what goes into each of these investment materials. BTW, the publication date for my book with McGraw Hill is August 16, 2013.