Home > Entrepreneurship, My Thoughts, Start Up, Strategy, Venture Capital > What Venture Capitalists Want in a Business Plan

What Venture Capitalists Want in a Business Plan

{This article was originally published in Chief Mentor section of Wall Street Journal’s online edition: http://blogs.wsj.com/indiarealtime/2011/05/24/chief-mentor-what-venture-capitalists-want/}

A venture capitalist will, on average, receive hundreds, if not thousands, of business plans every year, but just a handful make it to a detailed review and even fewer get funding.

Investment decisions vary from one venture capitalist to another. To a large extent, they depend on the portfolio the venture capitalist is building. Still, there are a few things that every venture capitalist would like to see in a business plan.

Based on my interaction with investors and entrepreneurs, I have compiled a list of points that can increase the chances of getting support for a business plan:

Idea, its Viability and Sustainability: The most important ingredient of a business plan is the idea.  The combination of a unique idea and an identified and expanding market is something that interests every investor. The entrepreneur should be able to prove how to make the idea viable and sustainable, and include an execution plan and timelines for achieving major milestones. A venture capitalist would be much more comfortable funding a venture if it is clear how the money will be spent.

Progress till date: A venture capitalist is always more interested in projects where some groundwork has already been done. If you have a running prototype of the business, share the data on investment, customers, revenues, products, services and challenges faced. This would give a fair idea about the returns the venture capitalist can expect from an investment. Generally, businesses that are up and running, or even pilot projects, have a greater chance of attracting funding than plans that have yet to take off.

The Team and Business: A venture capitalist would like to see and meet the people who will actually handle an investment. To some venture capitalists, the people are more important than the plan itself because market conditions might change, meaning the plan might change. What is less likely to change is the team involved, and their passion, drive and expertise. If the venture is planning to have partnerships and collaborations (which any venture should) they need to be spelled out clearly. The success of a venture also depends on what kind of partnerships it has in place.

Value Proposition for the Investor: It doesn’t matter how much money the investor has, a venture capitalist still wants to invest in attractive propositions. Understand that the venture capitalist is investing for returns, so it’s well worth demonstrating what the assured and practical returns will be.

Challenges and Risks: Entrepreneurs rarely expose weaknesses in their business plans, but it is still very important to identify the challenges and risks the business might face. This also helps assure the venture capitalist that you have thought about the factors affecting and influencing the plan. If possible, share a mitigation plan for these identified risks.

Exit Strategy: The venture capitalist will want to know about the founding team’s exit strategy. An initial public offering would generally be the best way to exit an investment, but not many ventures reach that stage. If you have a plan to sell out of the business, the venture capitalist would be interested in knowing when you might make such a move.

There is no Holy Grail to make your business plan succeed in getting funding. If there was, every plan would have evolved into a multi-billion-dollar business. The inclusion of the points listed above doesn’t guarantee success in getting funding, but it should be a step in the right direction.

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