What an Investor is Looking for in a Business Plan
The emergence and popularity of the TV show "Shark Tank" has helped to crystalize the thought processes used by potential businesses to evaluate investment opportunities in early stage or start-up businesses.
I've received business plans on a napkin (really!) and business plans that are hundreds of pages.
It's really quite simple to grab an investor's attention with the right mix of quality information about your business or start-up.
First, we need to clearly understand what it is the business does? Can this be described in a few sentences? If not, work on it. Secondly, does the business have any revenue or profits yet? If it doesn't it certainly isn't a deal killer for me personally, but my focus is on startups whereas many investors focus on later stage funding. Revenue and profits help however, because it demonstrates there is at least "some" demand for the product or service and there is "some" evidence you can deliver it.
Next is how much are you looking for? I'm not a bank, so a deal that involves straight debt (repay with minimal interest) doesn't excite me. There is a very high risk in start-up venture funding, therefore, even if there is a debt repayment component it has to include some equity.
Be very clear how much of the company you are willing to exchange in equity for the investment you are seeking. If you watch "Shark Tank", you will see where most entrepreneurs fail on this point. They simply overstate the valuation of the business making an investment by an investor impossible. The challenge always with a startup is to assess "potential" valuation without any existing revenue or profit. This is why projected revenue & profit forecasting is important. Projections forward like this are called "Pro Forma Financials" and come with certain assumptions which much be carefully thought out. The less proven revenue you have the more equity will have to be offered to get the desired investment.
Many times I get quoted certain figures an entrepreneur wants for an investment in his or her company but can't tell me in detail how they would use those funds. Many investors will want proof that any funds were spent on the mutually agreed use of those funds. Deals that involve salaries to the owners immediately as any part of the use of funds will typically kill my interest. In many of my ventures I never took a salary during early startup periods. I'm rarely excited about someone quitting their job to go full time in their new venture without proven revenue, otherwise the owners' financial problems start to impact my investment and increase the rate of failure. Have a demonstrable plan on how YOUR finances stay intact during a startup.
A definitive marketing plan should be part of any presentation. An investor needs to understand how customers will find your product or service? Is there funds budgeted to market properly? Key strategies with social media, websites, packaging and branding can't be afterthoughts.
Finally, I look at the entrepreneur. Have they had other successes in their life? It doesn't have to be as an owner of a business but a record of achievement, integrity and reliability go a long way. Is the entrepreneur stable in their personal life and personal finances?
The bottom line? If communicated properly, a one page document that answers these questions in a concise and succinct manner can be enough for me, as an investor to go to the next step in the process.
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