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03 Aug 2010

10 things that VC investors want to see in your business plan (part 1)


Every technology start-up needs to have a business plan. This document serves as a road map for your business – strategy, goals, measurable milestones, and the overall picture of what your business is and where you want to go.

One of the most important uses of a business plan is to use it as a way to attract investors. If you are trying to win funding from venture capital investors, you need to be able to show them – in clear, compelling writing – what the value proposition is for them. VC investors want to know how your company is going to grow, and how they can make money by investing with you.

VC investors are bombarded with business plans from start-up companies seeking investment. If you want to stand out from the crowd, here are 10 things that your business plan needs to include to keep VC investors interested:

  1. Simple, compelling Executive Summary. Investors need to see an immediate picture of what your business is about. If they don’t understand your business (and aren’t intrigued by it) by the end of the first page, you’ve lost them.
  2. Show what is special about your company. VC investors want to know “why you?” What is so special about your team, what is unique about your career background, what is the competitive advantage that your company has to offer? Why should they care?
  3. Prove that you know your market. Your business plan must prove to VC investors that there is a viable market for your product or service. There’s the old saying, “hope is not a plan.” You need to use specific, credible, verifiable sources backed by data – and all of your information needs to reinforce the overall message of why your company will succeed (and why your company is a good investment).
  4. Demonstrate a sophisticated, detailed understanding of your customers. Be specific – show your VC investors exactly who your customers are – demographics, decision-making process, any other data to show past trends and future projections of exactly who will be buying from you, and why, and in what quantities.
  5. Know your competitors. You’d be surprised at how many start-ups write business plans that seem to assume that they have no competitors. This is not good. After all, if no one else in the world has seen fit to try to sell to your market, then an investor will think that perhaps this market is not really viable. No matter how brilliant and innovative your ideas might be, the fact is that you still have competitors. List your competitors’ key advantages and weaknesses – you should have analysed your competition thoroughly; you need to understand your competitors’ businesses almost as well as your own. Finally, be sure that your business plan can demonstrate a sustainable competitive advantage. How will your company survive in this market? How can you be better than your competitors? What barriers to entry are in place to keep other competitors from flooding the market and driving down your profit margins?

These are all some of the ideas and concepts that VC investors will be looking for when they evaluate your business plan. Look for more in part 2 of this series.

About the Author

Michael is an investment director and provider of growth capital to small and medium sized businesses. He is also a corporate finance advisor with a chartered accountancy and management consulting background having worked for both KPMG and PricewaterhouseCoopers. If you would like to buy a business, sell your business or grow your business, and need help with finance, negotiations, or strategic direction, then call Michael on +61 (0)488 073 175

2 Responses to 10 things that VC investors want to see in your business plan (part 1)
  1. Looking forward to Part 2

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