Three hundred seconds. That’s the average length of time your business plan has in the hands of investors before they decide to give it a “thumbs up” or a “thumbs down,” changing the fate of your startup forever.
Despite having spent years brainstorming, filing for patents, building your team, and preparing your business plan, all of your dreams could come crashing down in a matter of mere minutes. Trust me, I’ve seen it happen before my very own eyes.
With such a narrow timeframe to work with, it’s the quality of your executive summary that determines if you’ll walk out of the boardroom with a term sheet—or your head—in your hands. But how do you summarize a 100-page business plan into as little as 8 to 12 sheets of paper? What bits of information do you put on it and how do you prioritize the importance of each?
If you’ve already read some articles, web pages, or even books on the subject, you’ve probably heard many well-intended suggestions, but few practical tips on how to write your own executive summary. The truth is that many instructional materials out there fail to address one key issue: the job of the executive summary is to sell—not to describe.
What do I mean by this? Your executive summary serves the purpose of persuading Venture Capitalists to invest in your business by helping them check off all the boxes on their list. In order to keep this document short, concise, and focused, you’ll need to know exactly what VCs are looking for.
In the following sections, I lay out “the boxes” that a VC mentally checks off as they evaluate an executive summary.
Your business concept makes sense at first glance.
“Could you explain this section a little bit more, please?” is probably the worst thing you can hear from a Venture Capitalist.
Consider for a moment just how many “new” business ideas come across a VC’s desk per month and how intimately familiar they are with each industry. It’s a pretty bad sign if they can’t even figure out what exactly it is you do.
Some entrepreneurs consider this a badge of honor as if their business idea were so revolutionary that nobody could have conceived of it, let alone understand it. Believe me, it shouldn’t take a cryptologist to decipher your executive summary. Instead, it should be both so brilliant, yet so easy to understand that your mother would get it if you explained it to her.
You think I’m kidding, but that’s how I test all of my ideas before I start a business (and I’m on my 5th).
The initial paragraph of your executive summary is an elevator pitch in written form.
The first step toward writing a killer executive summary is refining your elevator pitch. Of course, I’m referring to the classic illustration in which one gets stuck in an elevator with a top executive and has the opportunity to pitch their idea to them. During that slow descent from the 99th floor to the lobby, they have a minimal amount of time to properly explain their idea and make a lasting impression.
Fellow entrepreneurs, you already know what I’m talking about. Maintain this same sense of urgency as you’re writing your executive summary and don’t let wordplay get in the way of explaining your business in a simple, yet elegant manner.
According to Albert Einstein, “If you can’t explain it simply, you don’t understand it well enough.” In other words, the inability to properly present your idea in layman’s terms demonstrates both inexperience and a fundamental lack of understanding.
Most investors would agree with Al on this one.
Your business has been thoroughly planned.
Your executive summary should address all of the main concerns that VCs might have regarding future investment, but before they ask. If you find yourself being faced with the same objections every time you present your business idea, make sure to resolve them early on in the summary.
If your company is both young and involved in a relatively new market, you’ve got even more to prove to investors. Any signs that you’ve cut corners, failed to do your research, or haven’t properly planned for the future will scare them away.
So, how do you prove that your business is well planned? You provide authoritative research and statistics for your industry, accurate projections for future growth, and key indicators of success—all of which are addressed in the following sections.
A clear market exists.
You need to have much more than “a hunch” or gut feeling that your business idea will succeed in the real world. You need data. Don’t be afraid to dig deep for the numbers that quantify the size of your market. Even research from a lesser-known source is better than having nothing at all.
However, you should always back up major claims about your market with industry reports from respected and recognized sources like Nielsen, IBISWorld, PWC, and Pitchbook—to name a few. If the whole premise of your business hangs upon a key piece of research, it definitely should be rock solid.
Research authorities will vary by industry, so make sure to identify which sources are the most trusted and most well-known for your market segment.
Your business demonstrates strong competitive advantages.
Not only will you have to prove that there’s an opportunity in your industry but you’ll also have to prove that you have what it takes to dethrone the reigning champ. Strong competitive advantages may include lower manufacturing costs, patented technologies, and new distribution methods.
For example, think of the SaaS business model and how delivering software via the cloud has really revolutionized the business tech sector. By allowing consumers to access their software via the internet, SaaS startups have been able to greatly reduce distribution costs and make high-performance programs available on almost any device, regardless of the hardware specs.
But today, SaaS is no longer the novelty it once was. Just about everyone is using cloud technology, including the big players like Microsoft, Apple, and Google. With today’s technology advancing so quickly, being the first to market is no longer a competitive advantage. You need more.
Your financial projections are realistic.
Like I mentioned in my article, “How Do VCs Valuate a Company?” making unrealistic projections for your business can make you look out of touch and inexperienced. By using a variety of tools on the internet and applying the VC method to your own business beforehand, you can eliminate this risk.
You should also perform analysis on competitors in your industry to determine what a realistic number should look like. For example, if your business just entered the hardware sector, your projected revenues for Year 5 shouldn’t be higher than those of Apple.
Investors have a great chance to make an ROI.
By using your financial projections, VCs can determine just how much your company will be worth at exit and how much ROI they can expect to receive by investing in your company. However, VCs won’t take the time to send your business plan to a data analyst for review—at least not at first.
They will start by just doing some calculations on paper or in their head. The aforementioned VC method is an equation commonly used by Venture Capitalists to quickly come up with a potential ROI.
“What kind of ROI should I be aiming for?” you may ask. According to the research, 10x is the bare minimum that VCs expect from new investment.
Management is capable.
If I’ve said it once, I’ve said it a million times: there is a higher correlation between the success of a startup and the capability of their team than the quality of their idea.
While his ideas are certainly brilliant, Elon Musk’s skillset and expertise are what separate him from “one-hit wonder” entrepreneurs. Not only did he successfully co-found PayPal, but he also went on to take Tesla from its first product launch to IPO, and started the world’s first privately-owned space transportation service. With such an incredible track record, it’s obvious that Musk’s entrepreneurial success isn’t a series of coincidences, but rather an enduring trait.
VCs recognize the past accomplishments of key staff and use this to determine the likeliness of the startup succeeding. Just imagine if Elon were sitting on your board of directors. That would change the likelihood of investing in your startup, wouldn’t it?
The Structure
At this point, I’ve given you a rather conceptual overview of what your executive summary should contain. However, you might still be asking yourself, “what is an executive summary supposed to look like?” For the visual learners out there, let me break down what each section should look like:
The Introductory Paragraph
Start with an attention-grabbing sentence that would encourage an investor to continue reading. This should be a highly compelling statement regarding how you solve the big problem and what makes you different. Essentially, this is your UVP (Unique Value Proposition).
The rest of the paragraph should provide supporting evidence for the claim you made in the first sentence. If possible, drop the names of important advisors, key investors, and the companies you’re already working with. Don’t wait until the end of your executive summary to mention that you’re working with a Fortune 500 company or have a Nobel laureate on your advisory board.
The Big Problem
Before pitching your idea, it’s important that you clearly communicate the unresolved problem at large. This could be a global issue, such as the shortage of clean drinking water, widespread pollution, and the emission of greenhouse gases. It could also be a highly-concentrated problem that affects certain communities, such as disease, poverty, or malnutrition.
The problem doesn’t have to be humanitarian, necessarily, but it should be strong, compelling, and backed up by established research.
The Solution
By communicating the size or severity of a problem, you also highlight the need for a solution. In this case, the big problem will relate directly to what you do best — or your product/service.
Who are you offering this product/service to and how does it actually solve the problem? How is your solution distributed, who are your partners in the market, and do you already have a customer base and revenues?
Use clear, concise language (not invented terms and trademarks) to explain to investors how the solution works, all the way from R&D to distribution.
The Opportunity
This is where you’ll delve deep into the numbers to exhibit the size of the opportunity that your business is exploiting. Market segmentation, size, growth, and dynamics are all important factors to address. Quantify everything in terms of dollars, percentages, ratios, and numbers.
Most importantly, be realistic with the size of your market. Many entrepreneurs make the common mistake of overstating their reach. For example, if your company is involved in tech, base your projections upon your market segment (i.e. FinTech), not the tech industry as a whole.
It’s also better to target a meaningful segment of a growing market than to pick a microscopic sliver of a giant market. In other words, it’s better to be one of the top dogs in a new category than be at the bottom of a well-established market.
Your Competitive Advantage
Nearly 3,000 years ago, it was said, “there is nothing new under the sun.” If that was true three millennia ago, just take into consideration how true that is today. No matter how revolutionary you think your idea may be, it has already been invented by someone else. Even in the youngest markets, you will face competition (today or tomorrow) and it’s unwise to use your “first mover advantage” as your only competitive advantage.
Identify a sustainable competitive advantage that separates you, and will continue to separate you, from your competitors for the years to come.
The Model
How exactly will you generate revenues and from whom? What makes your model scalable and how will it efficiently use the capital it receives from investors? Do you have any metrics to back up these claims, such as customers, units, revenues, or margin? Where will your business be in 3 to 5 years?
The Team
List key accomplishments of your team members and demonstrate what makes them qualified for the job. Don’t just tell investors that your CEO has 40 years of experience in the tech industry; say that they served on the board of directors for Microsoft and that they were the lead developer for Windows.
A quick rule of thumb: focus on the quality, not the quantity of your team’s experience. Eight decades of combined experience may seem like a large amount, but what did they accomplish during that time? Also, don’t just insert a shortened version of each member’s resume. Show how the experience of each team member fits into the business plan as a whole.
The Promise
“If you invest X, you’ll receive Y in return.”
This is the basic promise that VCs are looking for in your executive summary. State it clearly and be sure to prove that your business will generate far more profit than the capital it requires to do so. If your projections seem unrealistic, however, all of your hard work up until this point will have been in vain.
At a minimum, you should show 3 years of revenues, expenses, profits, losses, and cash flow. Key drivers, such as customers and units shipped, are also important to provide in this section.
The Ask
Finally, you’ll ask investors for a specific amount of funding. Ask for the minimum amount of capital you need to reach the next major milestone. If you request too much capital, you’ll also run the risk of either scaring away investors or giving up too much equity early on. It’s possible to always ask for more when investors make it available.
If you intend to raise a following round of financing later on, make that known to investors and state the estimated amount.
The Conclusion: Your Executive Summary Says it All
Keeping VCs interested in reading your executive summary involves leaving a breadcrumb trail of compelling facts and figures. It also requires you to arrange the information that investors want to see in an easily consumable manner. Don’t make an investor flip through the pages of your executive summary and pull out their reading glasses to figure out what your business does.
Within just 8 to 12 pages, an executive summary should include all the information an investor needs to see—no fluff. Not sure where to start? Begin by using this article as an outline and fill in each section as you go. Then, read through it to see if it checks all the VC boxes.
If you’d like a VC’s honest opinion on your executive summary, feel free to send it my way. I’ll do my best to provide you with feedback that will help you in your journey to get VC funding.
And, if you’re seeking Series B to Series C funding for your business, you can also visit our page to learn how we at VCengine can take your business to the next level.