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 the investor’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 the business 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 found in our Entrepreneurship Media Gallery. Feel free to download this document and modify it for your own business needs.