Before writing a great executive summary, it is imperative to know what an executive summary is. Knowing what an executive summary is, and what investors are looking for in a solid executive summary are the keys to writing a great summary. After all, the objective of the executive summary is to eventually get your project funded. Before that, however, the main purpose of the summary is to get the attention of a qualified and interested investor or fund manager. Without getting the initial attention of the right investor, your project has no real chance of arriving at the funding stage.
What is an executive summary?
In short, an executive summary is a condensed business plan that usually includes information about the project principals (managers and/or owners), the background about the project, the need or niche in the market if applicable, the financial proforma (or projections), and any other supporting documentation for the validity of the business project being submitted for funding.
How important is a great executive summary?
The Executive Summary is vital to getting a project funding in most cases, where the applicants or principals do not know the funding source directly and must utilize a strong and concise executive summary in order to get the attention of the funding source or private investor. Essentially, the executive summary is the brief advertisement that gives a private lender a “first impression” of the project and the people standing behind the success of the project and its operations. There’s a reason why cliches stick around for a long time, and the old cliche that says, “You only have one chance to make a great first impression” is undoubtedly true with the presentation of your executive summary. If the investor or fund manager does not like the impression they get from your executive summary, they may never be interested in taking the next step, which may be asking for more refined information about the project or its principals, or even better, a conference call with the private investor or private lending source. Just like every good advertisement has a solid headline, every good business plan starts with a solid executive summary, as it is most often the teaser or document that secures the meeting with the private investor. In the advertising world, a great headline can get 2 to 20 times the ROI with the same exact advertisement wording or “copy” as it is called, versus that same ad with a poor headline. Why? The correct headline captures the attention of the right person. A poorly written headline will not entice the targeted prospect to read further. Likewise, a great executive summary will not only pique the interest of the right person (the investor with the funds or the investor’s choice brokers or liaison), but it will also cause them to want more information or to take the next step toward engagement and funding. With that in mind, what is included in a great executive summary? A great executive summary will have a clean and appealing cover sheet containing the title, the company, and the date at minimum. The purpose is to draw the investor’s interest in without wasting their valuable time. Inside, the executive summary should have a 1 page summary highlighting all of the strengths of project and the principals, as well as the amount requested and a synopsis of the ROI or exit strategies. The first, inside page should be essentially a summary of the summary, and should give the investor or fund manager a great first impression of the entire project in 1, concise page.
The rest of the executive summary must focus on: The principal / management team and their experience. . . That experience should prove to the private investor that his or her monies are going into very qualified hands. Investors love certain projects, but more importantly than the idea of the project, they need to know that their money is being put into the hands of responsible people who can give them the best assurance of a solid ROI. Investors, in most cases, do not typically want to collect the asset of the project. . . (although some unscrupulous investors known as vulture investors may) they want a solid investment so they can gain a fair return on their money. There’s a saying in the investment banking world, “I’d rather be in a bad project with good people than be in a good project with bad people.” Great executives have the ability to take a mediocre project, or road blocks and hurdles, and can turn a lemon into lemonade. Poor executives can take the greatest project and run it into the dirt. Investors are not going to invest in a project with shoddy or unqualified principals unless the business or funding structure arrangement can guarantee their ROI in the event that the principal team is unable to execute the plan. Remember, a great executive or management team equals a sound investment. Use your executive summary to prove it. The rest of the summary must show, with supporting expert reports where needed, that the financial projections of the plan are not only feasible, but realistic. There must be a clear exit strategy or strategies that gives the team and the investor several exit scenarios. The summary should also highlight any previous challenges and solutions that have been implemented to overcome the obstacles. Investors like to know the history of the challenges of the project, as it gives them a sense of what has been done, what the principal or management team has already faced, and how they have overcome the obstacles. It also might enlighten them to certain aspects of the project that they have faced before and have the contacts or expertise to solve if they decide to fund the project. This might require that the investor has the project restructured to make it a financially sound deal. What many entrepreneurs and executive teams seeking capital also do not understand is that many private investors, investment bankers, and fund managers or private equity consultants often have to pay to have the actual business project restructured in order to make it a sound and/or legal investment. This is often why investors will not work with any applicants who do not have the ability to pay due diligence fees. Additionally, private investors have a personal business picture that their clients do not understand or have access to, and for good reason. They are in the business of lending money to make an income, and they are often employing different funding structures to balance out their own portfolio and risk, as well as considering how their income is structured for tax purposes. Most applicants who are applying for private financing do not understand the other side of the business, and therefore do not realize that in most cases, getting funding from a private investor or fund is not as simple as a wealthy individual taking a liking to a project or it’s executive team and writing a check. Although this does happen from time to time, it is not the norm.
Sophisticated investors employ various methods, businesses and funding structures to not only maximize their return, but minimize their risk as well as their personal tax burdens. This, among other reasons, is why private investors, investment bankers and fund managers usually require due diligence fees. Due diligence fees accomplish several things for both parties. Due diligence fees weed out the applicants who are not serious or not ready to see the project through to the funding stage. It is not the investor’s goal to fund their next project, as that is the entry point. The investor’s goal is to ensure that their money works in that project over the next several years to bring a solid return while mitigating the least amount of risk. Every private investor or investment banker understands that the due diligence process protects both parties because it allows both parties to commit to reaching the same goal of funding and operating a successful project, whether it be gas and oil forays, acquiring a multi-unit apartment complex, expanding a technology company, or building a medical complex. What applicants also do not often understand is that during the due diligence process, the investor has to allocate time and resources to vett the project and the principals, as well as restructure the funding mechanism or business plan in order to make the project a sound investment. Almost every project submitted via executive summary and business plan is not structured properly to make the project palatable to a private investor or structured properly to qualify as an investment vehicle for a private fund or hedge fund. What often happens behind the scenes during the due diligence process is that the investor or investment banker hires individuals to prove or verify the facts about the principals and the project. This takes time and money. Included in these fees sometimes are geological reports, fesibility studies, appraisals and updates on other official documentation to verify the validity of the project claims. What applicants often do not understand is that the investor also employs professionals when necessary to figure out how to properly structure the business as an investment so that it will be palatable to the particular method of funding they are employing. Sophisticated investors don’t just read a plan, do a background search on the principals, and cut a check once everything checks out. They often work with a network of private funds, banks, joint ventures, and many other mechanisms in order to get the project funded in a way that is not only great for the success of the project, but wise in terms of the method of funding for the investor’s risk modeling and personal risk mitigation. In summary, be sure that you, as the applicant, are prepared to adjust and persevere through the due diligence process as many aspects of the business plan, structure, or method of funding may change to create the best scenario between the principals and the investor or fund. Both parties want the same end goal. . . a successful project. Keeping that in mind and being willing to persevere and gain a little education along the way, with a smidge of humility and patience will give your project and team the best chance at getting your projects funded through private means. 5th Avenue Capital and our international partners are interested in helping your business or project gain the appropriate funding and funding structure to help you best execute your plan successfully. To being the project funding process, please fill our our project funding form and one of our partners will contact you promptly.
