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.
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.