What do investors look for in a business plan?

Submitted by douglas on Mon, 04/05/2009 - 1:48am

What do investors look for in a business plan?” is a bit of a tricky question.  The term ‘investors’ covers a very wide range of institutions and individuals, ranging from billion-dollar venture capital funds making multi-million dollar investments to friends and family putting a few thousand dollars into a new company.  For the purposes of this article, I am going to use what I consider the average venture investor – ranging from the sophisticated angel investor to a VC fund.  Although even within this group there will be some variation.  Some investors will weight some elements differently; some may ignore some of these, some may add in their own which are not found in the following list.  But if your business plan:

  • includes each of the key elements listed below,
  • follows the detailed business plan outline (available on this site), and
  • answers the business plan questions (included in the business plan outline available on this site),

You will be well on your way to satisfying the requirements that most investors have for a business plan.  This in itself does not mean that you will receive investment, but it does mean that you are unlikely to be eliminated from consideration for investment because your business plan does not meet the investor’s expectations.

Key elements for success

  Develop an innovative product – Innovation.  Have something proprietary, new and useful underlying your business plan.  This can be a technology, a business model, a process, etc.  Solve a problem for customers – Value proposition.  Solve a painful problem for customers.  You want to have a “pain-killer” versus a “vitamin” value proposition, meaning you want to be a customer “must-have” rather than a “nice-to-have”  Identify your customers – Market identification and analysis.  Address a fast-growing market, which will be large enough to support the required scalability of your business.

  Reach your customers – Marketing strategy.  Have a strategy for reaching your market.

  Compete when others enter - Sustainable competitive advantage.  Have IP and competitive strategies to create barriers to entry for followers and large potential competitors.

   Make money – Business model and financial plan.  How much money do you need, what will you do with the funds, how will you make money, how much revenue can you generate, what type of returns can you deliver?

  Team – A team or B team.  A strong team can succeed with almost any plan; a weak team will fail with the best plan in the world.  The strength of your team, individually and singly, needs to come through clearly in your plan.

But isn’t media different?

Many media entrepreneurs believe that their businesses are “different” from the typical businesses that equity investors consider, and that therefore they cannot raise equity funding for their business.  They are right and wrong at the same time.  Their business are different, but all businesses are different.  Media has typically not been a large percentage of VC and private equity portfolios, but that does not mean that they cannot raise equity investment.  The media industry itself is changing rapidly, and many of these changes make it more interesting to investors.

 Contech in Singapore

The media entrepreneurship community in Singapore has been divided into four segments:  traditional media entrepreneurs whose business are built around 1) content or  2) media-related services, 3) new media entrepreneurs whose businesses are built around emerging media content and 4) IDM entrepreneurs whose businesses are built around media innovation, including technology innovation and business model innovations.  The first three segments can be loosely described as “Content” entrepreneurs and the last segment as “Tech” entrepreneurs. 

Although there are many potential synergies among the four groups, to a large degree they operate in silos, and in the process miss out on opportunities to benefit from synergies among the groups.   New media and IDM are closer to the traditional industry segments that equity investors have focused on.  Content entrepreneurs too can increase their chances of raising funding and successfully growing their business by looking for opportunities to expand into less-traditional spaces and by partnering with companies in the non-traditional spaces who are looking for content.

Category: 
Entrepreneurship
Venture Capital

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