Every investment proposal is different, because every investment is unique.  However, a successful investment proposal will focus on and answer three basic questions for the investor:

  1. Is my investment safe?
  2. When will I get back my initial investment and profits?
  3. How much money will I make?

If an investor gets satisfactory answers to those three questions, he or she will most likely invest.  The harsh reality of today’s investment environment is that active investors are extremely busy and therefore you only get one shot to impress them.  If you misstep, it’s over.  While your proposal must be a complete and compelling argument, the shorter the better.  Most successful proposals are between 50 and 100 pages.  Every proposal must be digital and no more than 20 Megabytes because of email download limits on the investor’s servers. A successful investment proposal should not be extravagant or elaborate, but should be clean and professional in style.

So, to answer the investor’s basic questions, what should be included in an investment proposal?

Summary – A paragraph (no more than a half page) on the broad strokes of what do you want and what you will do if you get it.

Investment Highlights – Five or six key points about the investment.  If you could only tell the investor five or six key points that might attract them to your investment what would they be?

Project Overview – An overview and description focused on the project or asset.  It should include key asset or property details, measurements and statistics.

Investment Overview – An overview of the proposed investment. It should include the requested amount and type of investment proposed.  The size of the returns expected at the project level, not the investor level.  Use Return on Equity or Cash on Cash, rather than IRR at the project level.  Make sure you include an estimated value for any assets at the end of the investment period.  Estimated asset value should be based on capitalization rates of projected EBITDA or Net Operating Income rather than inflation or appreciation whenever possible.

Investment Exit Strategy – Every investment proposal must include the investor’s potential exit strategy.  What and when are the key points at which the investor can leave the investment?  It is important to note that this is a potential exit strategy, not a preferred exit strategy.  It does not mean that the investor will exit, but that they potentially can exit at certain points.  For instance, on a hotel development project, an investor may want to see a potential exit point once the hotel has been built and the income stream is stabilized, because that is the earliest point at which the sponsor can efficiently refinance the hotel.  Even though an investor may be planning to stay in the investment long term, they usually want to know when is the earliest practical moment they can exit if they wish or need to leave the investment.  Most investors want to see a potential exit strategy between three and five years.

Project History – A historical overview of the project up until today.  This should not be exhaustive, but rather a highlights reel.

Market Overview – An overview of the market in which the investment project will compete and a description of your potential customers.  This is a good place for charts and graphs.

Business Plan – What is your business plan moving forward?  What will make this investment project a success?

Timeline – What is your best estimate as to when things going to happen from the point at which you receive the investor’s money?  It is better to use estimates of number of weeks, months and years rather than actual dates, unless an actual date is key to the investment.  It may include key historical points if they are relevant to understanding the investment.  This usually a narrative rather than graphic.

The Sponsor – An overview of the investment project sponsor including his or her similar investment and project experience.

The Management Team – Who will manage the investment at the project level?  What is their experience managing similar projects or assets?  Profiles of the top three executives is all that is normally required.

Financial Data & Pro Forma – Each investment requires different financial documents to support the sponsor’s case for investment.  Depending on the investment, you might include: Historical Financial Information, Current Balance Sheet, Current Operating Budget, Acquisition Overview, Ten Year Cash Flow Projections, Construction Budget, Rent Roll, Debt Summary, Key Tenant Information, Lease Abstracts, Lease Assumptions, Tax Reports, Appraisal Summaries and Sources & Uses.  The idea is to include summaries in the actual proposal, then follow up with more extensive information as attachments.

Maps, Layouts & Photos – These can be scattered throughout the proposal or included in a separate section.  PDF files and photos tend to take up most of the file size, so be careful not to include too much.  Reduce the quality (and therefore file size) of your photos if necessary.  Your proposal might include: Interior & Exterior Photos, Aerial Photos, Floor Plans, Lot Layouts, Plot Maps, Photos of Surrounding Area, Competitor Photos, and Location Maps.

Market Data & Comparables – This should contain any market data not included in the market overview that builds your argument.  Sales comparables do not need to be exhaustive, but should have five or six representative deals.  If you are leasing a building as part your business plan, then you should include rent comparables.  Hotel projects should have comparable room rates from STAR reports.