Today I’ll continue with my series on the Entrepreneur’s Guide To Venture Capital.
The Grandmother Test
Most people never get into see venture capitalists because their business plan doesn’t get read.
Why?
The executive summary is poorly written. The executive summary is the two to three pages at the beginning of your business plan that gives an overview of what’s in the document. Your business plan might be 30 or 50 pages and the venture capitalist doesn’t have time to read it if they don’t think they will make a potential investment. If your executive summary doesn’t compel the investor to read on… she won’t. Your plan will end up in the garbage can and they’ll move on to the next deal.
Here’s an example of the first paragraph of a poorly written executive summary that came across my desk a few years ago. I’ve blanked out the company name for confidentiality purposes:
“ _____ has developed collaboration applications that are based on a flexible, modular, and extensible software framework. Our products are ideally suited to cross-enterprise, cross-platform applications. Our system architecture gives us a strategic advantage for deploying collaboration to many platforms – including the latest generation of wireless hand-held devices – while providing organizations with strongly encrypted collaboration capabilities, fine grained security and access control.”
So what the heck do these guys do? I came from a software background and it took me three reads to try to understand it. If you’re not technical then forget about understanding this company’s value proposition.
Remember that VCs will not understand your business and your industry to the extent that you do – you’re the industry expert and if you put in too much technical jargon and don’t answer the simple question of: “Why is this important?” then you’ll lose most of your potential investors right from the start.
The Grandmother test is a great tool to use to help you get funding. It basically means show your executive summary to your grandmother (friends, family, people who don’t really know what you do) and see if she can understand the value. If your grandmother gets it then chances are the VC will to. If it’s too technical for grandma, rewrite it and put it into plain English.
Matthew Toren is an Award Winning Author, Serial Entrepreneur, and Investor. He Co-Founded YoungEntrepreneur.com along with his brother Adam. Matthew is co-author of the newly released book:Small Business, Big Vision: “Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right” and also co-author of Kidpreneurs.
The Grandmother test is an excellent suggestion. I tell my startup clients that the first paragraph should include a simple statment of the problem (for grandmother), as well as a description of the solution provided.
In the example provided (I have seen many like it), it looks like the startup has a “solution looking for a problem.” Potential investors ditch these immediately.
On my web site, I have published an article called “Touched By An Angel”, which outlines 10 tips for successfully preparing for Angel investors. If you are concerned about avoiding the garbage can, you should read it also.
Marty Zwilling
CEO & Founder
Startup Professionals, Inc.
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