"Why do venture investors want an Executive Summary?"
"What should I do to write a super Exec Summary that attracts great employees?"
Those are two important questions from start-up founders that deserve good answers.
Let's start with the first: Why do the people with the money want an Executive Summary?
Here is a quote from one of the most experienced venture firms, Canaan Partners. It is from their document explaining their investment process:
Canaan Partners has created a set of guidelines that we use to consider an investment opportunity. To determine whether an investment fits within these guidelines, we can review a written business plan or open a conversation with one of Canaan’s investment professionals. When possible, you should contact us through a personal referral. If you are not affiliated with the firm, you can send an executive summary along with your plan via email. The due diligence process will generally take from four to six weeks, but can be significantly shortened if necessary. When Canaan decides to invest, we will then work with the company’s management and advisers to tailor investment terms specific to the transaction. In addition, we have extensive relationships throughout the venture industry and can provide, where appropriate, assistance in assembling an investment syndicate of highly capable investors.
Note the additional tips within Canaan's advice, particularly the value of a personal referral. But even that will not get you out of preparing your Executive Summary because the investors, VCs or angels, rely on it. For them it is the first step in reviewing what you are proposing to do. If it is not interesting, then they have not wasted their time reading a 40 page business plan to reach a reject conclusion. They do as much as possible to save precious time. If you help them with a superbly written Executive Summary, they'll appreciate you even more.
Can you avoid writing an Executive Summary? It has been my experience that you will cannot, even if you have gotten an audience with a Partner in a firm or with an experienced angel. They always seem to end those 1 on 1 meetings with "And send me something about your idea." That will be an Executive Summary. They will then use it to recall you and your idea (they are so swamped with other start-ups that they forget about you). Also, it enables them to email something on to other Partners or angels whom they meet with to discuss potential investments.
Now let's address the second question: What goes into a great Executive Summary?
Here is a brief guide from Sequoia Capital, one of the gorillas of venture capital firms:
"What kind of excutive summary format appeals to Sequoia? We like business plans that present a lot of information in as few words as possible. The topics that interest us the most in any business plan are a description of the market the company plans to attack; an overview of the company’s initial product and planned products; a description of distribution channels; a summary of the backgrounds of the management team; a five year summary of financial projections; and a capitalization table. We place more credence in a 15-20 page business plan than a compendious compilation with attendant appendixes. We are very skeptical about placing too much faith in detailed financial projections beyond the first 12-18 months of a company’s operations and have a jaundiced view of reams of financial data.
Their advice works well and is supported by serial entrepreneurs. It's central theme is "BRIEF." But short and crisp is hard, while long and wordy is easy. So plan to set aside more time than you expect to write an Executive Summary that gets an investor or key employee candidate excited.
"What should go into an Executive Summary?" Here are some specific tips I recommend based on what I've noticed the venture investor and key employee are looking for:
- 2-4 pages long, about 10% of a complete business plan.
- Follow the outline of your complete business plan:•Executive Summary•Customer Need and Business Opportunity•Business Strategy & Key Milestones•Marketing Plan•Operations Plan•Management & Key Personnel•Financial Projections
- Short and concise paragraphs only, don't waste words
- Include a "compelling" graphic, something you could talk about for an entire meeting.
- Write with calculated emotion, be determined to balance boldness with realism.
- Cite the status of your start-up and amount of cash you are seeking.
- I recommend you leave the company valuation for in-person discussions.
BOTTOM LINE: To get your money, to attract those key employees, you must stir their emotions. So your Executive Summary must be deliberately written. Keep it short, be complete, and aim at delivering excitement about your new enterprise idea. This may be the only written document you have a chance of using during the entire process, so write it well. When you can do that, you'll be on your way to building an unfair competitive advantage.
I wish you The Best on your Adventure!