WRITING A WINNING EXECUTIVE SUMMARY By Samuel M. Shafner Conventional wisdom dictates that venture capital investing has dried up, that only later-stage follow-on rounds are being done, and that first-time venture investing has gone into hibernation. That is wrong. In 2002, more than $21 billion was invested by VCs, more than 10 percent of it right here in New England. Of that $21 billion, about 20 percent went into companies receiving their first rounds of VC funding, according to the PriceWaterhouseCoopers Moneytree Survey for fourth quarter 2002. In fact, VC funding is at about the same level it was in 1998, just prior to the bubble. And there is plenty of money to go around. You may be asking, "Then why can't I get my fair share of it?" Let's start with the easy deals. It's not hard to cook up one of these. Start with a well-protected disruptive technology. Mix in two or three serial entrepreneurs with successful exits and good reputations to their credit (and, for extra flavor, have them ante in at least $100,000 each). Finally, add clear access routes to enormous markets with which they are familiar, strain through a convincing short-term sales and profitability path, set it out on the table, and watch the hungry investors gobble it up. But what about a merely mortal startup, with virgin entrepreneurs, a good but unproven business or technology, and market projections but no purchase orders in hand? How do you demonstrate that you are a serial entrepreneur in the making, if this is the first of your series? The answer is to think like a venture capitalist, be sensitive to his or her concerns, and demonstrate not that you necessarily are a low-risk proposition but that you are a high-reward one. This correlation with a VC's outlook should be reflected in the key "door-opener" document used with VCs: the one- or two-page executive summary at the beginning of your business plan, often used as a stand-alone introductory document as well. As a rule of thumb, the executive summary should assert every fact needed to persuade a VC to invest; the rest of the plan must amplify and support those assertions. The executive summary is the graphic equivalent of an elevator pitch: important not only because time is short but also to show that you know your business well enough to summarize its essence in the few minutes of an elevator ride. So, after introducing the basic facts of the business (its core technology, applications, market, stage of development and funding status) in the first two to three sentences, the executive summary should cover the following areas: Product or service. Describe the business. Show how the technology relates to generating revenues and profits. Do not dwell on the technology, however impressive, in the abstract. Also touch on the status of patents, copyrights and any other entry barriers. Market and competition, sales strategy. Don't say you have no competition; everyone does. Identify the real competitors, both external and within potential customers. Don't underestimate customer inertia if your technology requires replacement of an arguably inferior but entrenched system. Management team. If you can't recruit an experienced CEO or COO with prior entrepreneurial success, show that your team is ready to deal with the challenges of a startup. Show a full management team. If their involvement is contingent on funding, say so, but name names. It is not easy for someone with a good day job to risk it by putting his name in your business plan. But why should a VC gamble on you if your own executive team insists on playing it safe? Other personnel. Name or describe the engineering team and other key employees. Include brief bios of directors and key board of advisers members. Financials. One VC put it well: He may not believe an entrepreneur's projections, but, before investing in someone, he should learn his fantasies. Projections should be well thought-out and realistic, yet show optimism, because they will be reduced anyway. Keep the use of proceeds broad and flexible. Two areas best omitted are valuation and deal structure. Let interested VC firms propose terms, preferably in a letter of intent, which you then can negotiate with the assistance of an experienced attorney. At first meetings, VCs often encourage entrepreneurs to speculate on their valuation, but that may be to assess their realism. Be prepared to respond, but keep your answers broad and flexible, at least until you are able to sense the VC's viewpoint. There are other topics to be covered as well, but these are the most important points. A startup must be carefully aimed, like a missile: small differences in the beginning can radically change its vector and ultimate destination. Samuel M. Shafner is a partner at Burns & Levinson LLP and is a member of its corporate group. He has more than two decades of experience in venture capital, corporate finance and mergers and acquisitions. He represents European and domestic venture capital funds, as well as numerous technology-based enterprises. Derby Management 399 Boylston Street, Boston, MA 02116 Tel: 617-292-7420