What do investors look for in your business plan? – Start up financing

What do investors look for in your business plan? – Start up financing

A good business plan does not guarantee funding but definitely increases the chances for a start- up to get funded. Start-ups, which are getting a new momentum in our ecosystem, have a need to develop a strong business plan to catch the investor’s attention. Business Plan gives an insight into the past, present and future of the Start-up Funding. No two business plans are same, even if they cater to the same sector or offer similar products or services.

Here are some of the key highlights that investors look out for in a business plan:

Business Overview: Business plan must include the exact product or service start-up is planning to offer in their target market. A business Plan needs to explain the core features, the product on offer as well as the competitive edge the product has over other competitors’ products. Investors will be convinced to invest in an idea that can cater to a good market potential and have competitive advantage such as intellectual property protection, exclusive licenses, exclusive marketing and distribution, etc.

Team: Entrepreneur looks for investors that are the right fit for their business, and investors look for essentially the same thing in reverse. Investors don’t invest in a company but they invest in the people working in it. Competent teams are required to turn the ideas into reality. A business plan should explain about the founders, the key members and their relevant domain experience. The investors will invest only if they are convinced that the team is capable enough to execute the company’s business plan.

Industry Sizing: Sizing the market is a necessary task for all start ups, especially those that seek third-party financing such as venture capital (VC). Even though their investment philosophies may differ, but most VCs and angel investors would like to know that they are investing in a market with a large potential size. Estimating the size of the market, and then predicting how much revenue the start up can achieve and at what growth rate is indeed a tricky exercise but crucial.

Competition: Every start-up has certain competitors. A business plan should provide necessary information regarding potential competitors that exist in the target market and what unique features the entrepreneurs plan to offer in their products to get an edge over their competitors.

Revenue Model: The clarity of the revenue model and its unit economics are the key to a business. This is one of the most important aspects of a business plan as a company will start to display its strategic value as soon as it begins to generate profits. Different types of investors seek different attributes from a business plan.Investors are interested to know if a company can repeatedly acquire customers for $X and generate more than $X as gross profit from each customer.

Traction: Start-ups need to demonstrate impressive traction in order catch investors interest. Traction could be relating to business metrics (number of site visits, conversions, repeat orders, etc for an ecommerce company; number of app downloads, monthly or daily activity ratio, uninstalling app rate, etc for a mobile app company) or financial metrics (revenue, gross margins, EBITDA margins, etc). It is crucial to demonstrate right traction metrics and explain relevant trends.

Growth Potential: Extensive research should have been done to substantiate the business case. A business plan without proper research has no rationale. Adequate Industry research and competitor analysis must be a part of the business plan. Not only research but what degree of scalability the idea holds is also important. Investors will always look out for ventures which have the potential to achieve exponential growth in their target industry. It justifies the risk reward mechanism; a typical investor would be interested in.

Adequate amount of time and energy has to be invested while drafting a robust business plan, as a poorly drafted business plan can pull down an excellent plan while an excellently drafted business plan can pull up an average plan.