Preparing an Effective Business Plan to Raise Capital
Preparing an effective Business Plan is the first step to raising venture capital. If done properly it will take a good deal of time and effort to get the job done properly.
Don't rush through this step in the process, otherwise the months you spend meeting with angel investors and venture capital sources will be a waste of time, effort and money.
I have read many Business Plans that clearly lacked preparation, were poorly written and probably did more harm than good when it came to raising capital.
Every hour of preparation and research you spend on this first step to raising capital will save you months of time in the long run.
Your Business Plan should be professional, well planned, edited and then re-edited several times before you have your final version. Have as many business people as possible read it and question you on it before you send it to potential investors.
What may seem clear or obvious to you may not be necessarily clear and obvious to someone reading it for the first time. I advise clients to use an Executive Summary to break the ice with potential investors, then have a phone conversation to get a feel for the investor.
Here's an important drafting tip: START OUT STRONG. The first section that an investor reads is your Company Description section. You need to make an impact on the reader, grab their attention and make them want to read every word. The best place to start is right at the top with your Company Description.
In addition to a good company description, a good customer list and marketing plan is important to an interested investor. How do you access potential customers? Do you just wait for customers to come to you and simply rely on word of mouth marketing?
Hopefully you have several methods of attracting customers. Mentioning several methods in your business plan, including direct mailing lists, is a good idea.
Regardless of whether the investor is a strategic partner, Angel Investor or Venture Capital/Private Equity firm you need to identify the reason for their interest in your company.
Are they looking at investing in the industry in which your company will focus? What size investment do they typically make? What percentage of a company do they take when they invest, i.e. do they need over 50% for control purposes? Have they invested in companies that could be viewed as your competitors? How long is their review process and do they require board representation?
These are just some of the questions you should ask before you send potential investors information about your company. In other words, you have to separate the REAL INVESTORS from those who will waste your time.
One of the most difficult tasks entrepreneurs face is not the running of their business or even dealing with competitors. It is raising capital. If your company is established and profitable it is clearly a much easier task to find the money sources and raise capital. But if your company is new and you are not yet profitable or, worse yet, if you are a start-up company, the road to raising capital is long and difficult?
Trying to get financing from venture capital or private equity firms can seem overwhelming at times and you should not undertake such a mission if you do not have any other sources of income.
Your Business Plan should be treated like it is sacred. Don't just give it out to anyone. It is perfectly acceptable to prescreen investors, and in fact you should. Let them know that there was a great deal of time and effort that went into drafting, research and due diligence before the Business Plan was finalized. It is also a good idea to let them know how many people worked on the Business Plan and that it was developed and revised over a period of months.
Also, if you really feel the need to disclose confidential or trade secret information in the Business Plan DO NOT give it to anyone unless they sign a confidentiality agreement. I always advise clients not to put such information in the Business Plan because there really is no need to provide such information until you have a very serious investor at the table.
Once you have a very serious investor at the table then you can disclose the confidential information, but again, only after a well-prepared Confidentiality Agreement is signed by them. This approach reduces the number of people that see confidential trade secret information that you have developed and worked hard to create. This lessens the chances of such information falling into the hands of one of your competitors.
Like I said earlier, raising capital, especially for a start-up company, is extremely difficult. Your capital raising efforts will drain you physically and emotionally, and if you don't start off with a great Business Plan your chances of raising capital will be greatly diminished.
Don't rush through this step in the process, otherwise the months you spend meeting with angel investors and venture capital sources will be a waste of time, effort and money.
I have read many Business Plans that clearly lacked preparation, were poorly written and probably did more harm than good when it came to raising capital.
Every hour of preparation and research you spend on this first step to raising capital will save you months of time in the long run.
Your Business Plan should be professional, well planned, edited and then re-edited several times before you have your final version. Have as many business people as possible read it and question you on it before you send it to potential investors.
What may seem clear or obvious to you may not be necessarily clear and obvious to someone reading it for the first time. I advise clients to use an Executive Summary to break the ice with potential investors, then have a phone conversation to get a feel for the investor.
Here's an important drafting tip: START OUT STRONG. The first section that an investor reads is your Company Description section. You need to make an impact on the reader, grab their attention and make them want to read every word. The best place to start is right at the top with your Company Description.
In addition to a good company description, a good customer list and marketing plan is important to an interested investor. How do you access potential customers? Do you just wait for customers to come to you and simply rely on word of mouth marketing?
Hopefully you have several methods of attracting customers. Mentioning several methods in your business plan, including direct mailing lists, is a good idea.
Regardless of whether the investor is a strategic partner, Angel Investor or Venture Capital/Private Equity firm you need to identify the reason for their interest in your company.
Are they looking at investing in the industry in which your company will focus? What size investment do they typically make? What percentage of a company do they take when they invest, i.e. do they need over 50% for control purposes? Have they invested in companies that could be viewed as your competitors? How long is their review process and do they require board representation?
These are just some of the questions you should ask before you send potential investors information about your company. In other words, you have to separate the REAL INVESTORS from those who will waste your time.
One of the most difficult tasks entrepreneurs face is not the running of their business or even dealing with competitors. It is raising capital. If your company is established and profitable it is clearly a much easier task to find the money sources and raise capital. But if your company is new and you are not yet profitable or, worse yet, if you are a start-up company, the road to raising capital is long and difficult?
Trying to get financing from venture capital or private equity firms can seem overwhelming at times and you should not undertake such a mission if you do not have any other sources of income.
Your Business Plan should be treated like it is sacred. Don't just give it out to anyone. It is perfectly acceptable to prescreen investors, and in fact you should. Let them know that there was a great deal of time and effort that went into drafting, research and due diligence before the Business Plan was finalized. It is also a good idea to let them know how many people worked on the Business Plan and that it was developed and revised over a period of months.
Also, if you really feel the need to disclose confidential or trade secret information in the Business Plan DO NOT give it to anyone unless they sign a confidentiality agreement. I always advise clients not to put such information in the Business Plan because there really is no need to provide such information until you have a very serious investor at the table.
Once you have a very serious investor at the table then you can disclose the confidential information, but again, only after a well-prepared Confidentiality Agreement is signed by them. This approach reduces the number of people that see confidential trade secret information that you have developed and worked hard to create. This lessens the chances of such information falling into the hands of one of your competitors.
Like I said earlier, raising capital, especially for a start-up company, is extremely difficult. Your capital raising efforts will drain you physically and emotionally, and if you don't start off with a great Business Plan your chances of raising capital will be greatly diminished.
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