Partner Article

One in ten get the cash

Why do people expect to get investment cash with such poorly prepared business plans and un-rehearsed presentations? Truth is I have no idea. My experience in the venture capital and angel investor world is that only around 1 in a 10 plans sent to the likes of me gets the investment. It’s not that so many are bad ideas. The problem is you can’t tell from the plan or even from the presentation whether the business is worth investment or not.

Actually, venture capital managers and experienced investors are used to pulling out the essentials from poorly communicated, badly written, over wordy documents but we would rather have get the information clearly. When we meet the prospective entrepreneurs we are, on the whole I think, kind, and try to draw out what we need to know. Still, why make my life hard, or more importantly why reduce your chance of getting the cash?

Even the banks and Crowdfunders need to see the business plan well prepared. In the chattering net-founder twitter sphere it’s become trendy to say plan documents are “not needed and out of date the minute they are written”. Well the last point is true but, and its a big but, you need to communicate your idea to others or they just won’t get it and certainly wont want to invest.

I’m passionate about this as I actually believe so many entrepreneurs let themselves down before they even start.

So what do we look for and what should the plan say? What investors look for varies a lot. My advice on that is research the investments a firm or individual has already made and what the focus is of their fund. A place to start is their own website and also places such as the BVCA (British Venture Capital Association) website ( www.bvca.com ). Although they charge for the Members’ Directory it might be a worthwhile investment on your part. Also, you can ask the local law firms and accountants who know and deal with the investors near them.

There are some things you need to communicate clearly that will help the investor make their mind up and save you getting an early rejection. Here are my top 10 pointers:

1. Explain how the business works, don’t just describe the product and the market

2. That means describe the business model, how do you make money and from whom?

3. Decide what you think the business is worth, investors will certainly disagree but know your worth and be clear how you got to the number

4. Understand the finances (cash in cash out at least) and show you know how the numbers work, don’t just rely on the accountant or an advisor. It’s your business not theirs

5. Add a one page executive summary to your plan and make sure it covers your business model, the cash you are looking for and potential exit route (how I get my investment back out)

6. Say what you intend to use the investment for, so few seem to bother!

7. Give details of the management team; who are they what their experience is and their respective roles in the business. If it’s just you the “Founder” plan out the team you will need to build

8. Outline the key risks in your business and how you might mitigate or deal with them; things can and do go wrong. Plan for them (at least a bit so you are prepared just in case) and you stand a better chance of succeeding

9. Project your sales, costs and resulting profit for 5 years; also year 1 and 2 should have more than guess work to underpin and justify the numbers

10. Show you have explored the main assumptions in the business model and also test whether you can survive if you undershoot your sales projection by a wide margin. Most people miss their year 1 sales… don’t run out of cash because you do too.

Anyway, this is not intended to be a comprehensive list of everything you need to put in the plan and presentation, but if you cover these points you are at least on first base. Good luck and from now on I expect only excellent plans and clear presentations, OK?

This was posted in Bdaily's Members' News section by Rivers Capital Partners .