What Does a Venture Capitalist Look for in a Business Plan?

As venture capitalists are high risk investors a higher rate of return is what they expect. Venture capitalist firms review hundreds of business plans and zero in on just a few of them. Individual venture capitalists or VC firms extend equity funding to new business start-ups or an existing business. They can either take a minority stake or a major shareholding. Some of the factors that VC’s look for in a business are management bandwidth, customer base, corporate governance structure, investment structure and the exit plan.

Writing a professional Business Plan

The business plan should convince the venture capitalist and give confidence to them about the expertise and experience of the management team in achieving the business objectives within a defined timeline. An effective high rewarding business plan should cover up the following essentials:

– Executive Summary

The most important part of any business plan is the executive summary and is often best written last. It is an initial interaction between the writers of the report and the VC. It summarizes a longer report or proposal or a group of related reports in such a way that VC can rapidly become acquainted with a large body of material without having to read it all. It must be short and to the point with proper recommendations, justifications and a conclusion.

It is recommended to address the following questions in an executive summary:

• Do you have a unique partnership?
• Do you already have customers and traction?
• Do you have patents or technology?
• Is your marketing plan special in a certain way?

If the product or service is technology oriented it has to be explained clearly with proper product description, its competitive comparison, unique selling proposition, technology to be used and future innovations in order to help the VC understand the whole concept. Stages and development of the products or services should also be mentioned (seed stage, early stage, expansion stage).

– Market Analysis

The analysis of market potential separates the pure investors from a real entrepreneur. Many a time good products are not successfully commercialized because their inventors don’t understand the market or they not assemble the management team necessary to capitalize on the opportunity.

This section of the business plan will be scrutinized carefully; market analysis should therefore be as specific as possible, focusing on believable, verifiable data. Market Research should contain a thorough analysis of the company’s industry and potential customers. Industry Data should include growth rates, size of the market, recent technical advances, government regulations and future trends. Customer Research should include the number of potential customers, the purchase rate per customer, and a profile of the decision-maker. This research drives the sales forecast and pricing strategy, which relates to all other strategies in marketing, sales and distribution. A realistic SWOT also attracts venture capitalist. Finally, comment on the percentage of the target market the company plans to capture.

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