| A great question! I get this question quite often. When | | | | 1. One page executive summary that provides a |
| we screen companies to present at the private equity | | | | snapshot of the company's investment opportunity. |
| investor forums we put on for the Network of | | | | This is the most public piece of information and should |
| Business Angels and Investors, they complete a | | | | be designed so anybody can read it. |
| comprehensive application form and submit all the | | | | 2. Investor Ready Business Plan. This is the marketing |
| documents that they will provide to investors. Business | | | | document that is going to move the company along |
| plans communicate different information than a private | | | | with the investor and garner interest. They may |
| placement memorandum (PPM). | | | | receive it after talking to you or a representative or |
| Business Plan: A well run business with real potential to | | | | after seeing a presentation. They may also receive it |
| scale and grow will have a business plan that is their | | | | cold from one of their trusted sources, and therefore |
| blue-print for building the business. They have an | | | | the document must be a compelling read and answer |
| internal document that has the details about | | | | the fundamental questions an Investor wants to know: |
| organization plans, production, distribution, compensation, | | | | how do they get a pay raise and what is their |
| and marketing strategies. We call this an operating | | | | mitigation of risk. You should have someone, impartial |
| plan. Investors want to know one of these is in place | | | | and not connected or familiar with your business to |
| because it shows the company has a mature attitude | | | | review it before sending it out to a lot of investors. We |
| regarding planing and preparing for growth. They likely | | | | often see business plans that jump from point A to |
| will not read it in its entirety, but they will spot check | | | | point C and assume the reader knows point B, only |
| areas as part of the due diligence process. Then there | | | | because someone who knows the business well has |
| is the business plan a company uses to get money. | | | | reviewed it and connected the dots in their head. The |
| The 'Investor Ready" business plan differs from "bank | | | | business plan will end up in the circular file if it has this |
| ready" business plan. These business plan version | | | | type of gap in it and other typical errors we see as |
| summarize the operating plan in providing a high level | | | | companies go through our investor screening process. |
| over view of each section, not an executive summary, | | | | 3. Investor Pitch: the 8-10 minute presentation used |
| but about 16-20 pages, and the financial forecasts. The | | | | during investor forums and when you get the initial |
| Investor Ready Business Plan is a marketing | | | | face to face with a potential investors. Typically this is |
| document. It is "selling" you company as an investment | | | | about 12-15 charts at the most, with some charts for |
| opportunity. It can be "confidential" without the same | | | | back up and questions. |
| controls necessary for distribution of a PPM. | | | | 4. Private Placement Memorandum or Offering |
| Private Placement Memorandum: This is a legal | | | | Memorandum. Depending on the amount being raised |
| document that is provided to potential investors and | | | | and the type of raise (504, 505, 506) a full PPM may |
| serves to protect both the investor and the company. | | | | not be necessary. Always check with an attorney. |
| It is used for unregistered offering. Without one, | | | | You should have some document that communicates |
| companies can be sued for refund of the invested | | | | the structure and terms of the offering and the risks |
| capital by their investors if they do not produce the | | | | associated with that offering. |
| results expected. The PPM establishes the risk of the | | | | 5. Operating Plan. This is the blueprint to build your |
| investment and the process for liquidation of any | | | | business. It is necessary for two reasons. First, |
| assets should the company fail. It is highly confidential | | | | investors may want to view it to make sure you have |
| and should only be given to an investor that has stated | | | | the right strategies for growing the business and using |
| an interest in investing, not just "this sounds good". The | | | | the funds they will give to you. Second, and more |
| PPM usually is 60 or more pages, which is 2/3rds legal | | | | importantly, you cannot expect to grow your business |
| and regulatory information. It is not an entertaining read. | | | | with any sort of structured steady growth without a |
| Therefore, investors only read it when they are pretty | | | | business plan. It communicates to your team what |
| certain they will be investing. | | | | they are expected to do and it helps you chart your |
| So a company that is seeking angel investor money | | | | progress and anticipate shifts in strategy that will be |
| (from new investors not known directly by the | | | | needed to stay ahead of the competition and continue |
| company) needs to have 5 documents: | | | | to improve your efficiencies. |