How do Venture Capitalists Evaluate
Your Executive Summary?

Be brief. According to Fortune Small Business, you have less than 30 seconds to convince a VC to read the rest of your plan. Why so short? Well, you’ve got to know a bit about the way that VC firms are structured.

VCs are almost always partners in a firm that manages other people’s money although there are a few major corporations that have their own VC funds. For example, Intel invests in new technologies for two reasons. First, they will have ownership and an inside look at promising new technologies. Second, it’s a good financial strategy for them.

A potential problem for partners in a VC firm is that taking on new partners means cutting the pie into smaller pieces. So they tend to be slow at recruiting and adding new full partners. What that means to you is that the VC partner who’s most likely to be interested in your company is swamped with meetings and work. So they use assistants to screen business plans.

That plan that you labored so long and hard over lands in a stack of weekly work that could have as many as 100 business plans in it. Say that there’s 25 pages in each plan (the upper limit that VCS like to see, if they want to know more, they’ll set up a meeting with you) – that’s 2500 pages that the assistant has to clear in the week. If the assistant works a 60 hour week, they’ve got 3,600 minutes. Do the math. Yours has to stand out from the rest, and one of the best ways to do that is to keep it simple.

They don’t want to know the technical details of your business. They want YOU to know the technical details of your business. That’s a big difference and one that’s hard for me to convey to business startups. Your business is exciting – to you. The assistants want to find a great concept and a great team that will make money for their investors. Big money. Spotting a winner can move that assistant into a better job, closer to the real action.

What they want to know is:

• There’s a big market with motivated buyers because your business will solve a problem
• There’s little or no competition
• It’s going to be difficult for competition to come after that market because you’ve got a huge head start on them. If you’ve locked up patent rights so that they CAN’T go after your market by the best way, that’s really good news.
• You will get the job done.

So, tell a compelling story. How big will the market be? No silly guesses here, nothing like "Well, the market is going to be $3 billion dollars in five years and if we can only get 2% of it, that’ll be $60 million in revenues for us." VCS want to back winners. If you can’t be in the top 3 in your market niche (and they MUCH prefer backing market leaders) your business plan is history with them. Besides that, you haven’t told them why those customers are going to choose to do business with you.

So tell them:

• Here’s our estimate of the market.
• The reason why you’re going to be a market leader.
• How will you benefit your customers? How much will you benefit them? Why will they choose to do business with you?
• How are you going to prevent competition from going after your market and your customers?
• What does your management team look like? What have they already done? Do you have any advisors who will carry a lot of weight?
• How much money you’re looking for, what you’re going to do with it, what is the current financial situation.
• What have you already accomplished? List up to 8 things that you’ve done and don’t restrict yourself to the product itself. Sure, they want to know that you can make the product work, but they also want to know what parts of your team are in place and whether you’ve come to agreements with any strategic partners.
• What are the milestones you intend to accomplish?
• When do you plan your exit strategy? What do you think the company will be worth then? Keep your numbers realistic or they’ll figure that you’re just a dreamer, not a doer.

VCS say that they never turn down a business plan because it is too brief and they often turn one down because it gets bogged down in detail and never seems to come to the point. Consider your executive summary to be the "Cliff Notes" to your business plan. You want them to take away enough of the important ideas of your plan to get a "B" on the test. Your executive summary sets the stage for a complete reading and, if you’re good and your business is a good fit for them, maybe the first meeting of a profitable relationship.