November 8th, 2007
Summary: Don’t send long business plans to investors. Don’t ask for NDAs. Don’t share information that must remain confidential. Understand that investors care about traction over everything else.
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In Parts 1 and 2 of ‘What should I send investors?’, we covered the elevator pitch and deck. In this article, we present a few dos and don’ts of sending collateral to investors.
Don’t send a business plan.
“Nothing slows down a VC as much as a comprehensive business plan.”
Don’t send a 50-page business plan to investors. Nobody reads them and nobody executes them. Investors who want a long plan look bad—so do companies that generate them.
The milestones slide of your deck summarizes the company’s plan for the next 1-3 quarters. Document your detailed plans on a napkin, wiki, spreadsheet, deck, to-do list, or whatever. Share it with investors sometime around your second meeting and make sure they generally agree with your plan.
But don’t send investors a 50-page sales pitch that you call a business plan—an elevator pitch and deck are sufficient. You don’t need an executive summary either—an elevator pitch and deck are sufficient.
Don’t ask for an NDA.
“Because of the large number of business plans… that we review, and the similarity of many such plans… we cannot accept responsibility for protecting against misuse or disclosure of any confidential or proprietary information…”
Getting an NDA from professional investors is almost impossible. It can happen (like a rainbow!), but you shouldn’t bother.
Investors don’t sign NDAs because they don’t want to get sued over them. Competing companies tend to get started at the same time because the market timing is right. Investors don’t want you to sue them if they fund your competitor—so they don’t sign NDAs. Read Why Most VC’s Don’t Sign NDAs by Brad Feld to learn more.
Asking for an NDA creates a barrier to getting funded—aren’t there enough barriers already? And this barrier is insurmountable: your request will be declined or, worse, ignored because you haven’t done your homework.
Accept the fact that your elevator pitch and deck will contain information that you don’t want printed on the front page of the Wall Street Journal. Fortunately, they won’t get that far.
Write “Proprietary and Confidential. Please do not distribute. Prepared for Blue Shirt Capital,” on the cover of your deck (some folks write it on every page). They’re less likely to forward it if their name is on it. And ask any recipients, in writing, via email, to kindly not distribute the deck outside their firm.
And if you must keep something absolutely confidential, don’t email it to investors and don’t mention it in person. Investors often look at several similar companies at once. Your plans probably won’t get to your competitors, but you should assume they will.
Traction rules. #
“Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital—whatever is required.”
Whether they’re reading an elevator pitch or listening to a presentation, investors care most about actual traction in a seemingly large market.
If you have incredible traction in what seems to be a large market, you can raise money no matter what the product and team look like—although a good product and team will improve your terms.
If you don’t have incredible traction but the market seems large, your product and team are both critical to raising money.
If the market doesn’t seem large to them, investors won’t care about your product or your team.
Traction is demonstrated profit, revenue, customers, pilot customers, or users (in order of importance), and their rates of change, and the rates of change of the rates of change, and the rates of change of…
Read The only thing that matters by Marc Andreessen to learn more. Also see Brendan Baker’s post on traction.
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