Planning, Startups, Stories


Tim Berry on business planning, starting and growing your business, and having a life in the meantime.

Q&A: The Perfect Letter to Potential Private Lenders 0

This is another question received in my ask-me form on my timberry.com website:

I’m hoping you might be able to help direct me in finding the perfect letter that I need to send out to potential private (mainly friends) lenders for a start-up I’m involved.  I need this letter to spell out the details of the lending terms, conversion, etc.  I’m a numbers person (CPA) not a writer but I need this letter to be very appealing to convince them to lend us the start-up capital we are seeking.

My answer:

You’re focusing on the wrong thing. People don’t invest or not because of the perfect letter. Get the details right and the letter will follow. If you’re a CPA you’ve got an education and you can write the facts in correct English. Or, if you have money you don’t know what to do with, pay somebody to write a perfect three-paragraph letter.

The best a letter can do is communicate facts quickly and easily. The facts sell your deal, not the letter. what matters isn’t the letter but the startup, the team in charge, the product-market fit, the deal itself, and of course (as you suggest) the details of the lending terms, conversion, etc.

Start with a conversation, not a letter. Don’t ever think you can find startup investors by sending some letter out to a lot of people. You need to pinpoint the right people, and communicate well. A letter might be useful for following up, but think of it as a cover letter to a legal document. It should be no more than three paragraphs, hit the highlights legally, and that’s it. Then you have all the legal documentation your people will have to read and understand and, eventually, sign.

What you do need, by the way, is to check with an attorney about anything you say, or write. There are a lot of banking and fraud rules related to these deals. It’s pretty easy to break the law if you don’t know it. And the wrong terms on a letter to potential lenders can screw up your chance for angel investment or venture capital later. Now there’s an expertise you might really need for the letter, and, more important, the loan documents.