Around one-third of startups fail due to a lack of funding, Oftentimes, it’s not the mistake of the company itself, or the idea behind it, but rather the inability of founders to learn how to get approach funding. It all starts from people’s skills, and creating a startup investment proposal.
While we are not experts in building people skills, we do know a thing or two about investment proposals, and how you can use them effectively. In this article, we will share our experience with regards to the process and help you understand what startup investment proposal should entail. So get ready for a quick information overload that could help you secure a new round of investments.
What is a Startup Investment Proposal?
A startup investment proposal is a document that helps founders increase their chances to receive funding. Simply put, it is a text document, PDF, or slideshow presentation that gives a complete overview of your company and its goals. By reading the document, investors are able to understand the “what”, “why” and “how” of your company, and get a better idea of the reason you are looking to raise a certain amount of money. It also helps investors who like to remain actively involved to understand whether the company is worth their effort or not.
Types of Investment Proposals for Startups
Before you decide which proposal you’ll use, it’s crucial to consider all the situations in which you may get the opportunity to use them.
1. Startup proposal presentation (pitching)
Pitch decks are usually the easiest way to grab investors’ attention. These brief presentations are made on Google Slides, Prezi, or Keynote. Founders can either host pitch meetings face-to-face or online, depending on their location and ease of participation. Pitches are commonly given during conferences, hackathons, accelerator-hosted events, and other types of competitions.
- This type of proposal is much more than written information. You will need to ensure that the presenter has great public speaking skills and engaging body language.
- Additionally, the structure of these proposals should make it easy for everyone in the room to understand and follow through your presentation without getting lost along the way. This is a common challenge for those that speak too fast or fail to realize that other may not be as well-versed as they are with the industry they operate in.
1-on-1 proposals (random or planned)
1-on-1 proposals are equivalent (but probably more forgiving) to elevator pitches. They need to be attention-grabbing, interesting, and compact.
These types of proposals are mostly used when attending a conference for networking purposes, or when visiting other investor hotspots. In case of an encounter, it’s essential to have a proposal ready and be able to deliver your key points fast.
When creating a 1-on-1 proposal try to imagine like you’re talking to a teenager. How would you explain your product using the simplest words, so that they can understand what you do in 5 seconds or less? In many cases this will require some upfront work and memorize 2-3 key points that make your offer unique.
Startup proposal via email
Email is one of the greatest and most personal tools to communicate for work purposes. Whether you’re sending cold emails or following up with interested investors, using this medium can be very rewarding, while saving you tons of money.
- Email proposals work best when you get an introduction from a colleague or your investor network, but cold emails can work as well if they are sent to industry-relevant investors.
- If you choose to use this method to introduce your company, try to keep your emails concise and straightforward. Lengthy emails are usually ignored.
- Only target industry-relevant investors that will actually take the time (which is just as valuable as your time) to learn more about your company. You want to maximize your energy output to the tasks that have the highest potential ROI.
How to structure an investment proposal
Here is a shortlist with all the different points an investment proposal should touch upon:
1. Summary of your project
Start the document with an abstract of your project and its purpose. This is the part that most investors will use to determine if they wish to continue reading. In it, make sure you discuss the key points that offer clarity to investors. These can include:
- What your company does and how its different from existing solutions to pressing problems.
- Existing market gaps and how your product covers them.
- The importance of your product in your industry and how it improves the industry.
- Existing resources and manpower, investment requirements and potential limitations.
2. Current performance of your company (including product description)
This chapter is essentially a more in-depth overview of your company. In here, you should point out what you are doing, how you are doing it, and what you are building:
- List your current assets and liabilities (if applicable). This will help investors understand your startup’s strengths and weaknesses. Break these down into current and non-current items. Current items have an expected life of fewer than 12 months.
- If your company is still at its ideation stage make sure you pair the proposal with an MVP presentation. If you are not there to present it, link to a video where you demonstrate the product’s use.
- If you are at a later funding stage it is also important to add a paragraph where investors can find out more about your financial reports. You could add the complete reports in the appendix or link to them if you are sending the proposal in digital form.
3. Existing investors, team & other partners:
- Briefly introduce existing business partners (including investors), their background, and the amount you have managed to raise from them. If applicable, enter the amount of funding rounds that your company has already been through and the amount that was raised.
- Briefly introduce the team, their background and skillset and a link for those who wish to see their complete CV and LinkedIn profile.
- Finally, give a short description of any and all external assistance and arrangements that your team has made up to this moment. This includes remote workers, freelancers, and agencies.
4. Information related to the existing market and sales goals:
- Describe the expected production volumes (if applicable), product pricing, revenue targets (And other KPIs), as well as a brief introduction to your projected marketing methods.
- If your business is already generating income, make sure you indicate and break down your revenue numbers as well.
- Introduce your target audience and which channels you plan to use in order to reach them.
- If applicable, briefly introduce third-party stakeholders that are elemental to the process (e.g. suppliers).
- Industry outlook over the next 5 years and the dangers/opportunities that this offers for your business venture.
- Legislative, governmental, and regulatory restrictions that could affect the distribution of your product.
- Briefly describe the results of your market potential analysis.
5. Operational feasibility:
- Describe challenges and limitations that relate to the technical aspects of your company and the team’s skillset.
- Briefly describe where your team works and how they communicate. If you have a remote team make sure your indicate the different timezones of the executives/founders.
- Create an overview of the projected operating costs by splitting them into different categories of expenditures.
- Describe the assumed operational costs of your biggest competitors and how these translate into their company’s growth (if applicable).
6. Company’s current valuation, Investment requirements, and expected returns:
- Start by pointing out the current valuation of your company and list the sources that derive to this conclusion. Make sure that your company’s valuation is made by a trusted third party.
- Based on the company valuation, describe the amount and type of funding you are looking to acquire, as well as the amount of equity you are willing to give up.
- In the same chapter, describe how the funds will be used, by creating a generic overview of the next steps (e.g. X amount will be used to improve the team, Y amount will be used to rent office space, etc.).
- Describe short, mid and long-term return potential for investors, as will as the critical factors that could affect your company’s profitability. Spend a lot of time on this one as it is the most important subchapter for investors and possibly the second point they will check after the Abstract. This is also where you will need to describe your exit plan, in case you have a good idea of where it is you’re headed.
7. Potential limitations and solutions:
- Are there any government-related regulations or other third party limitations that could affect the development and growth of your product? How do you plan to tackle these issues?
Startup investment proposal templates
A proposal template outlines what a successful proposal should contain. However, if you plan to use an angel investor proposal template, conduct some research on the investor before creating your proposal.
Here are a few template resources you can use:
- BestTemplates - BestTemplates offers a wide assortment of proposal templates. These templates cover email proposals, simple investment proposals, stock investment proposals, and more.
- Template.net - Template.net provides proposal templates specifically to appeal to angel investors. These templates offer founders outlines that encourage investors to believe in startup ideas and recognize the value of investing.
- Pitch Deck Examples - Pitch Deck Examples has proposal templates that founders can use to create presentations. These pitch deck templates give you something to display while you’re presenting an investment proposal.
How to convince investors to invest in your business through cold emailing
No matter how easy the process of cold emailing may look like, there are a number of different steps you need to follow to create a personalized and high-converting email.
Sending 100 copy-pasted cold emails in one hour: 1% conversion rate.— Sahil (@shl) January 25, 2020
Sending 10 unique cold emails in one hour: 80% conversion rate.
Plus you’ll have practiced your writing skills, and done more research on the people you’re trying to help.
In this chapter, you will learn the step-by-step section that will increase your funding odds when reaching out through email.
Step 1: Start by doing research
Before you send a cold email, research your recipient in depth.
- If you are reaching out to a fund, it might be better to explore its partners on LinkedIn and reach out to a junior partner instead of a senior partner.
- If you are reaching out to an investor, try to find more about their close connections and see if you can get an introduction.
Step #2: Use an attention-grabbing subject line
Your first email is the most important of them all. And in order to get it opened, you will need to come up with a subject line that is both intriguing, concise, and hard to ignore.
- If this is the first time you’re sending an email, make your purpose clear and avoid “gimmicky” titles that are meant to get more clicks. For example, your subject line could look like this: “[Startup Name] Introduction & Investment Opportunities”.
- If you're looking for capital, make sure to indicate this in the title as well (like the subject line above).
Step #3 - Begin with a brief introduction
Start the email by describing who you are in a single sentence. For example you could start as follows: “Hey there, my name is John and I am the founder and CTO or XYZ”. In this case, XYZ refers to the name of your startup.
Step #4: Briefly introduce your company and the problem(s) it solves
Try to explain, in a single sentence, what problem your company is trying to solve. Then shortly describe your product or service and explain how it is solving the problem. At this point you don’t need to provide details. A simple 2-3 sentence introduction is enough.
Step #5: Explain your USP and revenue model
After briefly introducing your startup, indicate why it is better than the existing competition by pointing out the type of value it offers. Also briefly describe how you plan to monetize your product. This is best done through a series of bullet points, which will make the investor skim through it quickly.
In these bullet points make sure to also add pointers to the growth potential of the industry you operate in, the size of your startup, how many funding rounds you have already participated in, and the level of growth you have attained. If you already have an MVP, make sure to mention it as well.
Step #6: End your email with a call to action
As the email comes to an end, it is best to end things with a strong (but reasonable) CTA. You are in no position to make demands at this point, so whatever you want to achieve, make sure you make it sound as inviting as possible. It might be a good idea to ask for a brief call, a 10-minute meeting, or even a discussion over a cup of coffee if you are located in the same area.
Step #7: Include a pitch deck
If you have already created your startup investment proposal in written form, make sure to include a link to it within the email, preferable before your call to action. If investors show interest in your business venture, you don’t want them to email you back and forth for this information.
Startup funding is a complex process that is all about human relationships. If you manage to understand how to find and connect with investors, you can increase the odds of your startup’s success.
The best way to break the ice and strengthen the potential relationship is by creating a value-packed and concise startup investment proposal. After reading through the chapters above, you should have a good idea on your next steps. Whether you are looking to create a proposal from scratch, or learn how to communicate more effectively, the information you acquired should enrich your knowledge and help you become more successful in your funding process.
Frequently Asked Questions
If you wish to understand whether or not you should be using a startup funding proposal sample and/or template, make sure to also read the questions and answers shown below.
Should I be using a startup investment proposal template?
Using templated outlines to structure your proposal can be a good or bad idea depending on your company’s needs and the type of investor you are looking to attract. In many cases, you may notice the proposal itself can get unnecessarily complicated and lengthy due to the addition of (sub)chapters that are not directly necessary to describe what you do and what you need.
This is especially true when using a venture capital proposal template, as you may need to describe the sector/industry and its background in more detail. If possible, it’s best to communicate with founders that have already received funds and ask to see their investment proposal for investors.
How can I make an investment proposal for startup funding more unique?
A startup investor proposal is the first contact you will have with people that have both the experience and funds to support your project. To stand out, it may be a good idea to enrich your proposal with more visual elements, making the reading process more enjoyable as a result. For example, you can convert a simple .pdf file into an artistic presentation made on Adobe Illustrator (graphic design tool), or add video snippets within the content to add more value.