Learn how to craft an investment-winning business plan with all the moving parts investors look for in a business plan
But, what exactly do investors look for in a business plan? you asked.
Investors lookout for a couple things when trying to decide whether a startup is worth investing in or not.
Your business plan is one of them.
This means, having a well-written, detailed business plan is crucial, and essential if you want to bring home that investment cheque.
It is essentially the document you’ll present to investors when making a case for investment money. Your business plan should tell the investor everything they need to know about the business.
However, having a business plan – irrespective of how good it is – is not enough to attract shrewd investors.
Investment decisions depend on several factors, besides good business plans, and these include:
• Your business team and their track record
• The services or products you intend to sell
• The competitive advantage you have over your competitors in the market
• Your target market and how large it is, and so on.
So, it is crucial to have it at the back of your mind that your business requires much more than a business plan to kick off.
Moreover, you should realize that not all investors are the same. There are more than a couple of thousand venture capitalists at one end whose job it is to work for a few hundred venture capital business organizations.
At the other end, are your family and friends. And, in-between these two ends, are hundreds of thousands of private Angel investors.
You need to understand how each class of investors think; so you can strategize on how to gain the necessary attention and hopefully get them to invest in your business.
Of these, the venture capitalists are the most difficult and somewhat hard to please. They are only interested in financing a handful of businesses in a year – the thing is, they work with other people’s money and so work to minimize risks as much as possible.
Keep in mind though, they are likely not going to consider your venture except someone helps you get your foot in the door by introducing you to them first.
They come across so many proposals that direct introduction is the only way to carry out the screening of these business ventures.
Take note that they are not bad people or sharks; far from it. They are professional managers, and they know their onions.
They will also never think of stealing your idea because that will put even more burdens on their already weary shoulders.
Besides, it does not make any sense to run on a business idea when there are no capable hands or a well-trained team to implement it.
What Investors Look For In A Business Plan
So, the following are what Investors look for in a business plan when searching for investment vehicles:
A Management Team with Proven Track Records
Venture capitalists are not going to ‘waste’ their resources on your business if you don’t have the experience to run the company; or, if you haven’t managed to bring together a top-notch management team.
So, it is either you have chalked up valuable experience somewhere else, or you have a great team in place with the necessary experience and skillset.
If you fall short on any of these fronts; don’t bother approaching these guys. Instead, turn your attention to Angel investors, and or your family and friends to fund your business.
A Hot Product with A Competitive Advantage
Service-based businesses rarely get funded by venture capitalists, the reason for this is because it’s challenging to predict their successes. Of course, there is the occasional odd one out that goes on to succeed. But, they are incredibly rare.
So, if your business is a service-based one, then do not waste your time looking for investments from venture capitalists.
A Well-defined Statement of The Investment Offering
You may want to get in touch with a lawyer for legal assistance here. They will help you to check the legality of your offering.
Your attorneys can also help you check how much equity for how much money you have in mind to offer this time through as well as the projected future dilution for subsequent rounds of investment.
A few other things that may catch the attention of venture capitalists include:
• A business plan that requires at least a $3million investment. As a matter of fact, the higher the amount needed for investment, the better and faster it will attract them to your proposal.
But you need to ensure your business plan is well-detailed with step-by-step analysis on how the money will be spent.
• A business plan that has garnered the interest of other investors who are ready and willing to put their money in your business.
There is safety in numbers, and this is a code that venture capitalists live by. They do not like being the only investors in any deal.
• An explicit exit strategy. Investors love it if they find that you have already thought in advance how they can get their money back.
As for Angel investors, they are even harder to predict. These are either small groups or wealthy individuals who invest in different ventures.
They also consider the same factors that venture capitalists look at before making any investment decision.
However, a few of them may consider smaller investment amounts, while some go-ahead to invest even if they are the only investor onboard.
Angel investors, in most cases, often specialize in a particular or specific type of business – such as technology, retail, etc. – because they possibly know that sector exceptionally well.
Remember though, to keep your attorneys up to date about your business startup. Get them in the loop at all times so that they can advise you accordingly.
On a final note
Writing a business plan that highlights all the parts investors look for in a business plan is a sure way to get funding for your startup.
Of course, business plans alone does not guaranty you’d get the check; but a well-written, detailed one sure improves your odds.