Friday, July 8, 2011
Recently I was contacted by an entrepreneur who wanted to raise funding for his startup. It was a compelling deal in a growing market space but it was also a fairly complex one with a great number of moving parts. So I decided to send it to the investors. I asked for the usual docs and information. When only the business plan arrived I pressed the request for more information --letters of intent, employer identification numbers, articles of incorporation, financial statements, references, etc. As it turned out they hadn’t event filed for a company entity. The letters of intent were still being written. The reference request sent them scrambling to find. There were no detailed financial statements.
Without key documents in hand to validate the business, there was no reason to pursue investors beyond an initial contact. If the investors are interested they will move into due diligence and will want to see all the documents related to the business including patent filings, contracts, and financial statements.
As a company moves into fund raising mode, I recommend the entrepreneur compile key documents into one place so there’s no delay in the followup process by gathering documents. And if you say you have a contract, you better have something that in writing to show it.