Preparing a business plan?
Most entrepreneurs follow a more-or-less established organizational format
consisting of a number of discrete sections covering technology, marketing and sales,
finance, etc. and, of course, an executive summary. The executive summary
normally summarizes the contents of the business plan and succinctly presents
the rationale for business success with the goal being to minimize the time it
takes for an investor to develop an opinion, hopefully positive. While an
executive summary can be as little as a single page it can easily consume two
to three pages with text and perhaps a figure or two. If not careful it
can become a miniature business plan.
Every plan should have an executive summary, but there is a one-page section
of the business plan that I always put into my clients’ business plans and it
is called the Investment Thesis.
INVESTMENT THESIS
Entrepreneurs naturally assume and hope that investors will read their
business plan and arrive at the correct conclusions that compel
investment. Notwithstanding any earlier presentations by the
entrepreneur, an investor will spend very little time with a business plan
unless compelling interest is developed quickly (e.g., within a couple of
minutes).
Entrepreneurs, however, can help investors do their evaluation by providing
an explicit and succinct statement of the reasons investors should invest—the
Investment Thesis.
The Investment Thesis is a useful and powerful adjunct to the executive
summary if developed properly. It is a separate one-page section of the
business plan of equal rank to the executive summary which will quickly focus
investors on your opportunity as they initially scan the table of contents.
Imagine when you prepare the investment thesis that the words in the Investment
Thesis are the words the investor would use to convince his/her partners of the
value of the opportunity.
In other words, give the
investor the rationale for making an investment and don’t leave that to
the investor to figure out.
Below, an actual investment thesis has been extracted from a funded
startup’s business plan and provided below. Certain information (in [...]) has
been redacted, but the basic approach is simple; that is, provide concise,
clear headlines followed by supporting comments that validate the headline. The
statements, naturally, substantiate the basis for the expected success and
value of your company and must be specific and credible. Keep the number
of key points to four or five, no less, no more, and ordered from most
significant at the top to lesser points below. The Investment Thesis
should be inserted in the business plan after the executive summary and other
introductory or background matter.
EXAMPLE EXPRESSIONS IN AN INVESTMENT THESIS
- Large Fast Growing Market –
The market for [product
category] solutions is currently $[x.x] billion in size. The drivers of this market
include the high growth [specify]
sectors, [specify submarket] and [specify submarket]. The [specify] market and [specify segments] markets are
growing in excess of [x-y]%
per year in many cases. These markets alone should make up an estimated
$xxx million in sales in [year].
Much of the existing [specify]
technology is mature and not as well suited to take advantage of the
growth sectors of the [specify]
market as is [specify
company’s product trade name].
- Ideal Solution for [specify device type] –
The [specify] world is rapidly
adjusting to [specify
product category] and applications. [Product category] and [product type] products
associated with the [market]
trend have increased the need for greater [specify], [describe attributes]solutions, lighter
weights, lower costs, and the flexibility and durability to handle the growing
electronic complexity. [product
trade name], with its [describe
attributes] technology, represents an ideal solution for
[product category] in the [market].
- Strategic Partnerships Provide Validation
and Drive Growth – [Company
name] has developed a number of formal and informal strategic
partnerships to help validate [product
trade name] technology and grow its business. These include a
working relationship with [corporate
name] on the R&D and product marketing side; [partner name], a marketing
joint venture to license the [product
trade name] technology that is in the latter stage of funding;
a strategic relationship with [company name] a developer of [technology and products]; and
a working relationship with [company name], a manufacturer interested in
licensing [technology].
- Management Experience in Key Areas –
The [company name] management team,
including President & CEO [name]
and Chairman [name],
has deep knowledge of the [industry
name] manufacturing industry. They also have significant
expertise in supply chain management and optimization within this
industry. [Company name] marketing and
sales team, including [name]
and Vice President of Sales [name],
have top level experience in [industry
sector]. This broad industry experience provides the know-how
to develop the licensing of “in-line” manufacturing modules to be located
in the facilities of [industry]
and equipment manufacturers as part of a streamlined electronic products
supply chain.
- Patented Technology Creates Competitive
Advantage – The patented technology of [company name] represents a
significant advance in [specify]
technologies. This technology has the potential to change the nature of
the [market] business by
significantly reducing cost, weight and size implications in a range of [product] applications. The
patented technology acquired and developed by [company name] presents a formidable barrier to
entry to competitors and gives the Company a distinct advantage to capture
a significant portion of the [specify]
market.
Investors examining the business plan and the table of contents will
immediately read the section of the business plan called “The Investment
Thesis” because it stands out and demands the first read, even before the
executive summary. By immediately framing the Raison d'être you
positively influence the investors attitude towards your opportunity.
Make sure the Investment Thesis is perfect and
you will be on your way to securing investment.
