Thursday, November 3, 2011

Investor Preferences in the Business Plan

So what is that investors look for in your business plan? The may be a number of opinions on what a investable business plan is. Depending on the investor I'm talking to their is normally a range if different responses. Everything from "as long as the opportunity is clear' to 'I really invest in the person behind the business more than the opportunity itself' Truth be told it probably a combination of the previous two for me, but in the table below I tried my best to summarize the key issues in the business plan that needs to be included to ensure you are really communicating what the investor is looking for.

Too many entrepreneurs limit their opportunities by writing weak business plans. Great ideas are common; much rarer are businesses with the people and products to enter a market and take share or dominate. Only 1 % to 2% of all business plans presented to angels or VCs receive funding. 

Companies don’t build themselves. People build companies. Ultimately, an angel investor is selecting a management team. A great team can make even a mediocre company achieve reasonable success, whereas a company with the best technology will not be successful with a mediocre management team. 

Some of the key factors of a business plan that improve the success potential of a startup are shown below.

Success Factors 

• Years of operational experience in a similar industry 

• Startup experience with a similar business model that led to a successful exit 

• Willing to be coached 


• Addressable market that is fragmented and growing 

• Customers already lined up 


• Patent protected 

• Creates strategically defensible position 


• Shows that company has some competition, regardless of product or service 

• Clearly summarizes competitors and key threats 

Business model 

• Similar to one or more used by successful companies 

• Demonstrates that customers have real pain that product or service solves (“must have” vs. “nice to have”) 

Exit strategy 

• Identifies target acquirers 

• Shows deal history of acquisitions and IPOs with key financial multiples and ratios 


• Objectively assesses risks and describes actions to reduce, mitigate or eliminate them 

Financial projections 

• Shows conservative, expected and targeted figures with assumptions for each 

• Focuses on cash flow and profitability 

Capital structure 

• Detailed 

• Preferrably shows ownership by founders and only small numbers of unprofessional or inexperienced investors 

Investment desired 

• Places an offer on the table - indicates valuation 

• Shows uses of funds in detail 

• Details expected future rounds and uses of funds from each round 

1 comment:

  1. Thank you for posting this impressive content.