Attracting angel investors is a challenging undertaking. The importance of a sound
business plan has been well documented, but the value of the accompanying cover
letter can not be over estimated. Learn the important elements to include in the
cover letter that will appeal to the potential investor.
Introducing Your Company
to Angel Investors and Venture Capitalists
Every entrepreneur who has
ever approached an angel investor or sought venture capital recognizes the importance
of a well crafted business plan. However, a frequently overlooked component of the
presentation process is the cover letter used to introduce the company and its concept.
This critical document is to the business plan what an appetizer is to the main course,
a satisfying prelude that piques the curiosity to explore further.
The components
for constructing a successful cover letter are relatively simple, but no matter
how the document is worded, it must almost always include several common elements.
After identifying your company and its desire for an investor, the reason for contacting
this particular investment entity should be clearly defined. The potential investor
should quickly be able to connect the dynamics of your venture with their own investment
models.
For example:
“We recognize your long standing commitment and investment
in alternative energy development, and believe our initiative will complement those
existing enterprises.”
-Or-
“We have a mutual colleague in John Anderson who is
very familiar with our concept and he suggested that I contact you.”
Whatever the
wording or the manner of introduction, the first step in a successful cover letter
is creating a connection with the potentialinvestor or private equity representative.
Establishing credibility is another important element to address in the cover letter.
Highlight characteristics of your company and the concept that will appeal to theinvestor.
Briefly and concisely list sales accomplishments, unique achievements or qualifications
of key personnel, or any other market advantage worth noting.
Confidentiality Agreements
and Funding Requirements
Use the cover letter to identify the benefits that the
potential investor will reap.
Illustrate any potential cross sales escalations that
might occur by coupling your company to an existing business within theinvestor’s
portfolio. Also use the opportunity to identify investment returns, particularly
if they are superior to industry standard. In short, present a compelling reason
why the investor should study your business plan seriously by identifying what is
in this for them.
The cover letter can also be used to reference an enclosed confidentiality
agreement regarding the contents of the business plan. To a professional investor,
this will be neither offensive nor inappropriate. They recognize the labor that
went in to developing the business or concept and will be eager to avoid potential
ambiguities as well.
Similarly, including a summation of the dollar investment request
and the proposed percentage ownership is also appropriate at times, particularly
with angel investors.
Often the investor wants this information up front and the
cover letter can serve as a convenient opportunity to do so. However, other venture
capital experts do not suggest disclosing this information in the cover letter,
preferring that the potential investor is familiarized with the business first through
the business plan, hoping to establish interest and enthusiasm for the concept.
Finish the letter with an appropriate gesture of thanks for the potential investor’s
time, and give them an invitation to contact you after review of the business plan.
The entire document should be no more than 4 or 5 paragraphs and include only that
information that will compel the reader to open thebusiness plan in earnest.
Resist
the temptation to include details that are more appropriately left for the business
plan itself, as well as overly effusive descriptions of the business, management,
or concept.
A sample cover letter can be
downloaded here. Feel free to download this document and modify it for your own business needs. [Download Sample
Cover Letter Here]