Professional investors look at hundreds of business plans each year, and they are looking for very special qualities that the business plan writers often overlook.
First, most plans are written without a clear goal in mind. Are you looking for a loan, or for an equity investment? How are you going to repay the investor back for the risk they are taking? What is the investor's exit strategy…and yours? How much is your company worth now (pre-money)? And how much will it be worth after the capital is invested (post-money)? Is the investor first in line for a pay-back, or are you?
Most plans are written exclusively from the entrepreneur's point of view, without regard to the reader. Business plans are full of, "I am going to do this…" and "I invented that…" While that may be the case, do not forget to include the investor in your grand scheme. You want to write a plan that is inclusive, not exclusive. Bring the investors into your family and ask them to help you build a better company, a more profitable enterprise and even a better world.
Investors have lots of money. If not, then they would not be investors. It is the prospect of building something lasting that really excites them. While investors remain profit motivated, it is not their primary reason for investing in you. Angel investors, private equity groups and venture capitalists are excited by the legacy created by their investments. The money is often secondary. They look to make smart investments with smart people. Some investors are willing to remain passive, but most, especially with start-up companies, expect to be very involved in your future success.
You need to carve out a space in your organization for the investor's participation, even if only on an advisory basis. Minority investors will not expect a seat on your board of directors, but larger investors certainly will, and may also want to put someone from their firm on your management team.
The scope of your business plan is critical. If you have a narrow focus and seek only to accomplish a small goal, then your plan will be viewed as too limited and not worth the trouble to invest in. If you shoot too high and look to conquer the world, then your plan may be considered too grandiose and dismissed as unrealistic. You need to make your goals concrete and achievable.
There is a trend in business plan writing towards brevity. Investors today want to see short concise documents about your business, your product, your market and your team. The days of the 50+ page tomes are over. Initial plans submitted to investors should be 15 to 30 pages in length.
Your business plan should display professional looking graphics, logos and examples. One cannot overstate the value of well prepared charts, graphs and graphics in the overall feel of the document. Financial projections are a must, and many investors want to see cash flow projections as well. A capitalization structure, a balance sheet and a schedule on how the funds are to be used are also vital.
Know thy investors.
It is important to profile the kind of investor you want. There is a demographic and psychographic profile for every type. You need to know your audience and speak to them in their language. Friends and family-type investors may be comfortable with a more folksy, casual approach, while professional MBA-types expect to see lots of charts and numbers in your plan. It is important to take the "I," "me" and "we" out of your writing. Address your company and your team in the third person. Say, "XYZ Corporation expects to do $1.8 million in sales in the first year." Not, "We expect to do…"
If you want to personalize your plan, write a personal forward to the plan in a heartfelt tone. Anticipate the concerns that your investors will have and try to address them in your document. One can never address all the questions that every investor might have, so it is helpful to get a friendly investor to critique your plan before you submit it to the market.
In every successful business plan there has to be an element of excitement and anticipation. What is the "big breakthrough," the "revolutionary technology" or the "exciting new market" aspect of your plan? As one venture capitalist put it to me, "What is your unfair advantage? You don't expect me to invest in something without an unfair advantage in the marketplace, do you?"
Investors do not invest in derivative projects. If you are battling a market leader, without a clear technological or marketing advantage over them, you will have little chance of attracting investment. Small improvements or coattail sales do not get it done. Also, do not expect to supplant a system or product in the marketplace that is working fine and has a cost advantage over yours. Utilize industry statistics from impartial third party sources to bolster the projections in your plan. If you can show the investors how other, similar companies have succeeded in similar markets, they will be more inclined to believe in your projections.
If you do have a clear advantage, your product or service needs to be defensible in the marketplace. If you cannot patent, copyright or otherwise protect your innovation from bigger, better funded competitors, you will have a hard time getting investors to put money behind it — no matter how good it is.
Last, your management team is one of the most closely scrutinized elements of your plan. It is the power behind your plan. Professional investors are always telling me that they "...invest in people, not products." What they are saying is that, while you need to have a compelling product, you must also have pulled together a team of professionals that can accomplish the goals set forth in your plan. Big stars in your industry sitting on your board or on your management team give comfort and security to the investors. Include complete and accurate biographies on each of your key team members. Savvy investors check on the backgrounds of your management team. If you have padded their resumes and credentials your entire business plan will fall under suspicion.
It is said that winners invest in winners. The more successful your team has been in past endeavors, the more likely they will succeed with your venture. And everyone wants to back a winner!
To summarize, it is important to write a business plan with a clear goal in mind and a clear investment strategy. You need to create a role for the investors to play and give them a compelling vision that can be accomplished. Your plan needs to be thorough, but not long winded. Focus on the objectives and the investors' main concerns. Know your audience and speak in a language that they will understand. Remember, it is not about "I"; it is about "us." Focus on your "unfair advantage" in the marketplace and address where you stand in relation to the competition. And last, highlight the experience that your management team has in this venture and how past successes will lead to future profits for all.