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Preparing a Cover Letter for Angel Investors and VCs

written by: William Busse•edited by: Michele McDonough•updated: 7/7/2010

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.

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    Introducing Your Company to Angel Investors and Venture Capitalists

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    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 potential investor 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 the investor. Briefly and concisely list sales accomplishments, unique achievements or qualifications of key personnel, or any other market advantage worth noting.

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    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.