If you want to get funding for your start-up idea, you should know what investors look for in a business plan. You need to show them how you’re going to make a profit. Or in other words, how are you going to bring in the money.
Venture capitalists screen business plans. That’s what they do. The business plans are coming in at them every day, and they’re the ones that have to make a decision. They either arrange a meeting with you or say politely that your business idea is not good enough.
You need to understand that 99% of the business plans that venture capitalists receive are declined.
These are the things that get the most attention from venture capitalists during the business plan evaluation process:
1. Investors want to see the executive summary
The executive summary of your business plan is the first thing that the investors look at. Nobody has the time to read a 50 or 60 page business plan novel. Venture capitalists want to see those 3 to 4 pages at the start. These pages help them to get a grasp of what are you planning to do with your business.
If investors can’t see the opportunity here and if they can’t understand what your business is about immediately, your business plan will end up in the bin.
An investor can’t know your business better than you. That’s why your business plan, and especially the executive summary needs to be clear and concise. It should be clear in a way that even your grandmother could understand it. That’s how venture capitalists will recognize the opportunity that you’re offering to them.
The other thing that investors look at is the team, more specifically, your management team. Yes, the idea itself is of huge importance. But even more important is the team that is going to carry out the idea to accomplishment.
Venture capitalists see dozens of companies daily that are pitching the same or similar business idea. But the question remains which is the best team one that is going to execute that idea and bring the results?
You have to have a team of experts that know their job and this has to be showcased in your business plan too. That’s how investors see what you’re talking about. As a start-up, it’s understandable that your team might still not have the experience to add up to their expertise. For that reason, at this point, it is recommended to get some help and advice on how to present the management team.
At the end, it’s all about the team. Make sure you pick the right team. If you have credibility and you trust your teammates, you’ll gain credibility with the investors and they will trust you too.
3. Investors want to see your financials
If venture capitalists love the executive summary and your team, they’re moving on to the part that most interests them, financials. They want to see numbers. Not just numbers, but numbers that make sense. After all they want to see how they’re going to make their money.
This is not the romantic section. Also, this is not the big dreams section either. You’re not going to be the next Google in two years so leave your thoughts in your brain for this one. You have to be careful whether the amount of funding that you’re asking for can bring them a profit, as well as salary for you and your team.
How you’re going to use the money has to have logic. Investors have to see some return. Angel investors, for example normally expect around 30% in return every year. They want to see the value of your business, even the perceived value in the future if another company wants to purchase your start-up.
So an executive summary, good team and management and firm financial projections will reassure investors to pick your idea for funding. These are the things that every investor is going to look at when evaluating your business plan. There’s no other way around it. Even if you’re friends with a venture capitalist and he does a you favor by scanning the plan, if you fail with the executive summary, your plan goes straight to the bin without any emotions whatsoever.
Having a business plan is important because it will help you set realistic goals for your start-up. It will also serve as an excellent tool to secure investor funding and to establish the financial forecasts for your business and Return on Investment (ROI).
To be considered as a strong candidate for receiving investment funds, you must prove that you thoroughly understand every aspect of your business. And you must prove that you know how to create a profit from it.
As a first-time entrepreneur that has a great new idea, we advise you to not jump into business waters without a plan. There are important questions that need to be answered first before you even start the company. The BizzBee team of experts is here for you to help you answer all those questions. We are here to guide you through the process of successful business planning.