InvestmentProposal

Investmentproposalisadocumentintendedforfamiliarizingpotentialinvestorswithyourideasand
prospectsofbusinessdevelopment.Thisimportantdocumentprovidesforanopportunityof
professionalinteractionofbusinessmenandinvestors.

Differencebetweenthebusinessplanandtheinvestmentproposal

Thereareseveralkeypointsofdifferenceintheuseofthebusinessplanandtheinvestmentproposal:

Thebusinessplanisusuallyusedasaninternaldocumentofthecompany,on
the basis of which the objectives are defined and the results obtained by the
company are assessed. The business plan is usually a complex and detailed
document, which is focused, in a greater extent, on the companys operating
activity,strategyandmarketing.Atthesametime,thebusinessplan,aswellas
the investment proposal, describes the current performance of the company
anditsfutureprojectedposition.However,itis,aboveall,thedocumentwhich
presentsindetailshowtheseobjectivesaretoberealized.
Thebusinessplanisworkedout,firstofall,forseniormanagementandowners
ofthecompany,beingtheguideforactionforthem.
The investment proposal is worked out for potential investors, and,
consequently, it should contain information, on the basis of which an investor
willbeabletoevaluatetheefficiencyofthecapitaltobeinvested.
Theinvestmentproposalismeantforsolvingaspecifictaskfundsraising.The
investment proposal may be elaborated on the basis of components and data
fromthecompanysbusinessplan.However,itisnotnecessaryforthebusiness
plantocontaintheinvestmentproposal.

Requirementstotheinvestmentproposal

Attentionshouldbegiventothefollowingquestions,whentheinvestmentproposaliselaborated:

Investororiented approach. Understanding of investors requirements,

mechanisms and criteria of taking investment decisions will help you identify
thescopeofinformationneededandthedegreeofdetailingofyourinvestment
proposal.
Clarity,brevityandreliability.Theinvestmentproposalmeetingsaidcriteriawill
providefordrawinginvestorsattention.
Persuasiveness.Theabilitytofindsuchargumentsandsupportingpoints,which
apotentialinvestorcouldnotbutbelieve.

Investment Proposal
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Foreignlanguage.Takingintoaccountthatthemostprobablesourceoffunding
today is an international investment community, the investment proposal
shouldbepresentedbothintheRussianandEnglishlanguages.
Properform.Executingthedocumentinaproperformisalsoanimportant
factor,assuringsuccess.

Whentheinvestmentproposalisprepared,itisnecessarytothinkoftheinformationneedofa
potentialinvestorandtoprovideforavailabilityofinformationintheinvestmentproposal.

Yourreputationandreliabilitydependsonthefollowing:

Reliabilityofsources,fromwhichfactualinformation,presentedinthe
investmentproposal,isobtained;
Referencetooppositionalviewsandcomparisonofadvantagesand
disadvantagesofyourplan;
Tactfulexpressionswhendescribingcompetitors;
Confirmabilityofyourinformationthroughindependentauditors.

ContentsoftheInvestmentProposal:
ExecutiveSummary
CompanyHistoryandOwnership
Productsand/orServices
ManagementandLabour
Industry
Market
CompetitivePerformance
CompanysOperations
FinancialHistory
StrategicPlan
FactorsofRiskandRiskReductionStrategy
FinancialForecast
FinancingRequirements
CorporateManagement
GovernmentSupportandLegislation,Licenses,Permits
FinancialProposal

Investment Proposal
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ProjectSummary
Annexes

SUMMARY
InvestmentProposalSummaryisabriefdescriptionoftheinvestmentproposalanditsmostimportant
part.Itmustcatchattentionofapotentialinvestorsothathewillbecomeinterestedincontinuingmore
detailed familiarization with your company. It should be noted that potential investors, as a rule, are
tied for time to study new investment opportunities, and, consequently, they are likely to read the
summaryonly.
The summary must describe in brief all essential elements of the investment proposal and be built in
suchawayastoallowthepotentialinvestortofindanswerstokeyquestions.
Investorsgivepreferencetothosecompaniesthathaveconsiderableexperienceindoingbusinessinthe
marketandintheindustrysector,whereyourcompanyplanstofocusitsactivityinfuture.
Before considering future position of your company, a potential investor will certainly study the
companyshistory,startingfromthedateofitsincorporationuptothepresent.
Itisnecessarytoindicatethesignificanteventsinthecompanyshistory,including:organizationaland
legalchanges(forexample,privatization,merger,acquisition,corporaterestructuring,etc.);important
events connected with release of a new product, successes in the market; financial events (capital
raisingbymeansofshareissue,obtaininggovernmentsupport,etc.).
Thissectionoftheinvestmentproposalshouldnecessarilycontainthefollowinginformation:

Descriptionofexistingproductsand/orservice(theirkeyfeatures),marketing,
systemsofpromotionanddistributionofproductsand/orservices;
Significant competitive advantages (better consumer properties and higher
quality, prices, delivery terms, etc.) of your products and /or services, which
assure success in the market. It should be clear for an investor, on what your
visionofthecompanysfuturesuccessisbased;
If you create your products and /or services on your own, it is necessary to
describetheprocessofnewproductdevelopment.

MANAGEMENTANDLABOUR
The overwhelming majority of potential investors feel certain that the key factor in the companys
successisthemanagerialteamqualification.
Investors,arrangingfundingforRussiancompanies,attachsignificantimportancetomanagerial
competence.

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

+7 909 468 79 43;

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Email: nsassoc@list.ru

Ontheotherhand,themostimportantcriterion,wheninvestingintotherealestateprojects,willbe
theirlocation.Ifinvestorsconsiderthepossibilityofinvestingintoagrowingbusiness,thesuccessof
whichdependsonthequalityandefficiencyoftransactionscarriedout,thenthemanagerialteam
qualificationwillbethemostsignificantcriterioninassessingthepotentialofsuchacompany.

Thissectionshoulddescribeexperienceandcompetencelevelofeachkeymanagerofyourmanaging
company.
Thefollowinginformationmustbegivenhere:

Briefdescriptionofexperience,abilitiesandqualificationlevelofkeymanagers
inyourmanagingcompany(includingtheirbriefCVs).FullCVsshouldbe
includedintheannex;
Descriptionofweakpoints(drawbacks)ofyourmanagingcompany,specifying
howthesedrawbackswillberectified.Insomecases,investors(forexample,
strategicones)willalsoassistyouinincreasingefficiencyofmanagement;
Organizationalstructureofthecompany,showingtheworkofkeymanagers
andemployees,theirbasicfunctionsandareasofresponsibilities;
Systemsofincentivesandremuneration.

A potential investor hopes that, after reading the investment proposal, he will have a better
understanding of the industry sector, in which your company operates, sales markets, and the
competitionlevel.
This is very significant information, on the basis of which a potential investor will be able to make a
conclusion,whetherthecompanyiscapableofexploitingsuccessfullyitscompetitiveadvantagesinthe
market in accordance with the business plan, and consequently, of ensuring profit and increasing the
companyvalue.

INDUSTRYSECTORANDMARKETFORTHEPROJECT
Describing the industry sector, where the company operates, it is necessary to pay attention to the
trends of changes that may influence the companys standing in future. It is necessary to have a
thoroughanalysisofmarketopportunities,evaluatethemarketpotentialanddevelopment trends,as
wellasthreatswhichmayhaveanegativeinfluenceonthecompanysbusiness.
Firstofall,oneshouldpresentbasiccharacteristicsoftheindustrysectorsuchasthemarketpotential
andgrowthrates;scopeofcompetition;purchasingabilityofproductand/serviceconsumers;presence
of integration forward or backward; directions and rates of technological changes; the ease of
entering and leaving the industry sector; a possibility to save on scope; significance of experience;
intensityofcapitalinvestmentsandtheprofitabilitylevelinthissector.
It is necessary to evaluate the influence of different groups of factors drivers, including: economic,
social,technological,political,andecological.

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

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Descriptionshouldcompriseacleardefinitionofmarketsormarketsegments(includingdemographical,
geographical,functional,andothers),specifyingtrendsandsignificantfactors,determiningtheshiftin
demandinthesemarketsandsegments.
Thissectionshouldcoverthefollowing:

Determinationofthemostimportantgroupsofconsumers(includingbuyersof
industrialgoods,buyersofconsumergoods,governmentagencies,etc.),
specifyingtheirmaincharacteristics
Descriptionofhistoricalandprojectedgrowthofthemarketandmarket
segments
Determinationofgeographicalcharacteristicsofexistingmarkets(regional,
national,international)andfuturemarkets(inconnectionwithopportunitiesfor
futuregrowth)
Descriptionofmethodsofpromotionofproductsorservices,andmethodsof
stimulatingthedemandsforeachtargetsegment
Descriptionsofmethodsofproductdistributionineachofthetargetsegments
Descriptionofspecificandothercharacteristicsoftargetconsumersandareas,
whichdetermineopportunitiesforgrowth(includinginfluenceofsuppliers,
barrierstomarketpenetration,seasonality,periodicity,currency,etc.)

COMPETITIONANDCOMPANYSOPERATIONS
Apotentialinvestorperceivesnegativelythecompany,whichisincapableofdemonstratingarealistic
viewoncompetition.Information,containedinthissection,willhelpthepotentialinvestormakea
conclusiononprobabilityofthecompanyssuccessinthemarket.
Thissectionshouldcontainthefollowinginformation:

Whoareyourcompetitors?
Whataretheirstrongandweakpoints?Whataretheirmarketshares?
Whatisthebasisforcompetition(keyfactorsofsuccessinthemarket:pricing
policy,productquality,reliability,qualityofcustomerservice,behaviormode,
image,productpromotionsystem,etc.)?

MarketStanding
Apotentialinvestorwillbeinterestedinunderstanding,howyouassessyourpositioninthemarketor
marketsegments.Afteryoudesignateyourtargetgroupsofconsumers,youshoulddescribe,how
competitorswillrespondtoyourappearanceinthemarket.Investorswillcertainlywishtounderstand
howyourstrategyandmarketingplanimplementationwillallowtoachievesuccessindealingwith
competitors.

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

+7 909 468 79 43;

NSA
Email: nsassoc@list.ru

Information,whichwillbepresented,shouldhelpapotentialinvestorgetanswerstothefollowing
questions:

Whatmarketsharewillyourcompanyhaveinaperiodoftime,specifiedinyour
marketingplan(businessplan)?
Willnewmarketsbecreatedasaresultofrealizationofyourstrategy?
Willnewclientsofyourcompanybereceivedasaresultofagrowthofthe
totalmarketcapacityorwilltheyberecapturedfromcompetitors(specify,
whichones)?
Whatwillbeyourcompetitorsresponsetoyourexpansionorexittothemarket
ormarketsegment?Howwilltheyreact?
Cannewcompetitorspenetrateyourmarketsasaresultofyouractivity?How
willyourespondtoappearanceofnewcompetitors?

Thissectionshouldincludeinformationwhichshowshowyoubusinessfunctions.Itisnecessaryto
explainhowyoumanufactureproductsorrenderservices,howyousellthemanddelivertocustomers.
Asinprevioussections,descriptionshouldbeclearforthosewhodonothavespecialknowledgein
thisfield,andmustcontainthefollowinginformation:

Description of the companys production process (for industrial projects),

includingmajortechnologicaloperationsandbusinessprocesses,opportunities
forqualityimprovementandexpansionofmanufacturingcapacities,including:
thedistributingsystem;thepatentingandlicensingprocesses;thetechnological
level of production; types of the equipment used; production capacities; key
suppliers of raw and other materials, component parts; employee skill
requirements; owned or leased premises and land; key advantages of used
processes; technological constraints (including power limitations) and how
theserestrictionscanbelifted.
Forthecompanyrenderingservices,thefollowinginformationisrequired:
a)methodsofcustomerserviceprovision;
b)continuingeducationrequirements;
c)factorslimitingthepossibilitiesofservicerendering.

FINANCIALHISTORYANDSTATEMENTS
This section includes the companys financial performance over past periods, including the balance
sheet,theincomestatement,thecashflowstatement(optionally).
Thisinformationisusuallytakenfromexternalfinancialstatementsofthecompanyandisreducedto
theformat,correspondingtotheinternationalformat.Thepotentialinvestorneedsthisinformationin
ordertoevaluate,howefficientlythecompanyoperatedinthepast.Investorswillusethesestatements
toanalyzehowrealistictheforecastoffinancialperformanceis.

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

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It is desirable to add brief comments to the statements, from which it will be clear, what events
influencedtheobtainedfinancialresultsineachpresentedyear.Commentsshouldexplainchangesin
thesalesvolumes,grossmargin,operationalprofit,workingcapital,debtobligations,etc.
Thus,aninvestorwillbefurnishedwiththeinformationonpossibleprospects,basedonearlierobtained
results.Itwillenabletheinvestortounderstandthevolumesofthecompanysfinancialoperations.You
should also explain all possible inconsistencies between previous financial results and future
expectations,presentedinastrategicplan.
Completefinancialandauditreportscanbegiveninannex.

STRATEGICPLAN
Strategyofthecompanysgrowthisthemostimportantquestion,theanswertowhichshouldbegiven
intheinvestmentproposal.

Whatarethebusinessgrowthexpectationsbasedon?
Whatisthemainideaofdevelopmentinthefuture?
Doyouplantoraiseeffectivenessofthecompanysoperationbyintroducingnewtechnological
equipmentorthesystemofmanagement?Ortoensurethegrowthofsalesvolumesbycreating
newcompetitiveproducts?Maybe,youhavedecidedtocreateanewsalesnetworkorenter
newmarkets?

Thestrategicplanenablestheinvestortounderstand,howthecompanyplanstocapitalizeits
potentialforgrowth.

Thus,itisnecessarytoincludethefollowinginformationinthissection:

descriptionofthestrategicplanofthecompanysdevelopment,portfolioand
competitivestrategy,growthpotentialandmechanisms,bymeansofwhich
theycanbeensured;
descriptionofparticularactions,whichwillberealizedintheprocessof
implementationofthestrategicplan;
descriptionoftheexpectedimpactfromtheseactionsonmarketingandsales,
costs,funding,humanresourcesandproductionfunctions.

Thisinformationmaybepresentedindifferentforms.Forexample,thegeneraldescriptionofactions,
specifying the impact for each functional area. The table, containing specific objectives for each
functionalareas,anddescription,howtheseobjectivescanbereached,includingwhatresourceswillbe
neededforimplementingtheplans.Theplanshouldbeinagreementwithotherpartsoftheinvestment
proposalandlinktogetherallassertionsmadeinprevioussections.

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

+7 909 468 79 43;

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Email: nsassoc@list.ru

FACTORSOFRISKANDRISKREDUCTIONSTRATEGY
This section should cover the risks, which the company may face in the process of the project
implementation,includingcommercial,political,social,natural,criminal,etc.
Itisalsonecessarytoindicatethestrategyofriskreduction.Thepotentialinvestorshouldbeshownthat
youarearealistandadmitthepossibilityofappearanceofoneoranotherrisk.However,admittingthe
possibility of appearance of risks, you should provide for specific measures to prevent risks or reduce
thelevelofpossibledamagefromtheirappearance.

FINANCIALFORECAST
This section describes the financial forecasts of the companys state in future periods. Forecasts are
madegiventhatthecompanysstrategicplanwillbesuccessfullyimplemented.
Apotentialinvestorwillevaluatetheexpectedreturnoninvestedcapital,basedonpresentedfinancial
projections and calculations and the conviction that the company will really be able to reach the
objectivesinview.
Thefollowinginformationisusuallycontainedinthissection:

Thecompletesetoffinancialforecasts(profitandlosses,cashflowsaccording
toIAS)forthenextfiveyear(minimumtwoyearswithaonemonthstep,the
subsequent years by years), showing the results of the strategic plan
implementation.
Inadditiontotheresultspresented,itisalsoimportanttohaveadescriptionof
all major original data and assumptions, which were used for calculating
financial forecasts, including, but not limited to, the following: the growth of
sales volume and market share; prices for products and services; investment
costs; operating costs; taxes and dues; currency exchange rates and inflation
forecast;allothercostsincurredbythecompanyasaresultofthestrategicplan
implementation; forecast of financial ratios and criteria of discounted cash
flows.
Besides,theforecastofcapitaldemandshouldbegiven.

Financialforecastsshouldberealistic.Oneshouldrememberthattheymayelicitskepticalresponseof
potentialinvestors.Anysignificantdeviationsoffinancialprojectionsfromindustryaverageparameters
shouldbethoroughlyjustifiedandexplained.Detailedcalculationsmaybepresentedtoinvestorsata
laterstage.
Itisalsoimportanttofurnishpotentialinvestorswithresultsoftheprojectsensitivityanalysis.

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

+7 909 468 79 43;

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Email: nsassoc@list.ru

FINANCINGREQUIREMENTS
This section of the investment proposal describes in details the companys demand for funding. The
demandforfundingisdeterminedbyestimatingthecashflowforecastanddeterminingthescarcityof
fundsatdifferentperiodsoftime.
It is necessary to define the most preferred structure of capital (borrowed / equity) on the following
grounds: availability of sources of funding and required provision; conditions of funds raising;
maximization of return on capital; ensuring of solvency acceptable for lending financial institution;
ensuringofflexibilityoffinancing;ensuringofthestrategyofexitfrombusinessforinvestors.

CORPORATEMANAGEMENT
Principles of corporate management, which the company will adhere to, are of great importance for
investors.

DescribeinbriefthecompanysmanagementbodiestheManagingBoard,theBoardofDirectors,the
Supervisory Board. How will the powers be separated between these management bodies and the
GeneralDirector?

Describebasicmechanismsofinteractionwithinvestorsandhowtheirlawfulrightswillbeprotected,
including:

mechanismsofprotectionoftherightsofminorityofinvestors;
withwhatperiodicityandbywhatmeansshareholderswillinformofthe
companysperformance;
whetherinvestorswillhaveapossibilitytoreceiveareportonfinancial
performanceofthecompanyinaccordancewithIAS;
howshareholderscaninfluencethedecisionstakenbymanagement;
howthecompanysauditwillbeprovided.

Thecharter(articlesofassociation)ofthecompanyandotherinstrumentsofincorporationmaybe
givenintheannex.

GOVERNMENTSUPPORTANDLEGISLATION,LICENSES,PERMITS
Governmentsactionscanhavebothfavourableandnegativeimpactonthecompanysprocessof
development.
Thus,itisimportanttostate,whetheryourprojecthassupportofthefederalorregionalgovernment.
Applicable laws, which can have favourable or negative impact on the results of the project
implementation,shouldalsobedescribed.

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

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Thissectionshouldcontainthefollowinginformation:

howyourprojectfitinthegeneraleconomicorinvestmentstrategyofthe
state;
possiblemechanismsandmeasuresofthegovernmentregardingsupportto
yourprojectonthefederaland/orregionallevels;
estimatedcontributionoftheprojectineconomicdevelopmentofthecountry
(budgetary,social,technological,ecological,etc.);
peculiaritiesoftheRussianlegislation,regulatingyourcompanysactivities;
limitationsofconvertibilityofruble,conditionsofcapitalimportandexport.

FINANCIALOFFER
BusinessAppraisal:
Therearedifferentopinions,whetheritisreasonabletofurnishpotentialinvestorswithinformationon
thecompanysvaluationoritisbettertodoatthelaststageofnegotiations.
The structure of financing, proposed by you, can be referred by investors to attractive investment
opportunities.
Thiscandeterminethefinalpriceforsharesandhavesignificanttaximplications.Ontheotherhand,
thiscanleadtonegativeresponseofinvestorsiftheyconsidersuchevaluationexaggerated.
Having included the range of valuations, which exceed the expectations of potential investors, in the
investment proposal, you may discourage all investors. Thus, the range of valuations, despite some
advantages,canleadtoweakeningofyourpositionsduringthenegotiationswithinvestors.
In any case, when determining the value of your business and transaction structure, you should be
realistic.Theproposaltoinvestorsmustbefair.
TakingintoaccountthatmostRussiancompaniesdonotquotetheirsharesinthestockmarket,andthis
makesitimpossibletodeterminetheirmarketvalue,itisnotunreasonabletofurnishinvestorswitha
particularfinancialoffer,whichcontainthebusinessvaluationortherangeofvaluations.Thevaluations
shouldbebasedonthecompanysfutureincome.
The discount dividend method is the most popular method, which can be successfully applied in
businessevaluationinRussia.
In order to perform the companys evaluation using this method, the project initiators should build a
detailedfinancialmodelofthecompanyandmakerespectivecalculations.

10

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

+7 909 468 79 43;

NSA
Email: nsassoc@list.ru

PROJECTSUMMARY
Itisnecessarytoformulatethefollowingintheformofaseparateparagraph:

briefcharacteristicofyourbusiness
highproficiencyandabilitiesofmanagement
qualityandcompetitiveadvantagesofproductsand/orservices

ANNEXES
Asalreadymentionedabove,detailed(additional)datashouldbepresentedasschedulestothebody
textoftheinvestmentproposal.
Annexesmayinclude(withoutlimitedto)thefollowingdocuments:

11

financialstatements
marketingplan
appraisersopinions
advertisingbookletsofthecompany
detaileddescriptionofproductsand/orservices
CVofseniormanagers
significantagreementsandcontracts
informationofthemanufacturingprocess
investmentproject
marketresearchreport
auditorsopinions,reports,corporateappraisal
extractsfromimportantlegislativeinstruments
licenses,patents,permits,otherdocumentsoftitle
otherdocuments

Investment Proposal
Phone/fax: +7 861 273 05 96;

2009
Mobile.: +7 905 475 38 32;

+7 909 468 79 43;

NSA
Email: nsassoc@list.ru