Business Plans 101- What are investors looking for in promising startups?
Starting a business is exciting. But before you run, you need to learn to walk and the first step in the journey is to create a business plan. You can’t expect investors to pump money into your company on goodwill and promises, you need to show them you mean business – literally.
Wondering how to catch the eye of an investor? We’ve put together five key points to consider when creating a business plan:
Bring something new
Investors want to put their money into something unique. Your business will have its own narrative and products that set it apart from the rest. Showcasing what you can offer that isn’t already out there or meets customer needs where other products don’t will be your competitive advantage. This will make your business attractive to investors. Just think of phone releases; there are lots of phone options out there but each one offers something slightly different.
Show your plan in action
If your business is established, showing an investor your performance to date can help demonstrate that your goals, timelines and financial projections are realistic and achievable. If you don’t have a demonstratable track record, outlining your financial projections and key future milestones in detail will help investors gauge when they are likely to see a return.
Know your value
Equity investment involves giving away a share of the ownership of your business in return for cash to grow and develop the business. It is vital to have an indication of the current value of your business before beginning negotiations with an investor. Going in too high could scare off investors; going in too low suggests naivety and a lack of belief in your business (as well giving away too much equity!). Getting the valuation right, however, suggests that you have done your homework, are clued up in the market in which you operate and are realistic about the current status of your business.
Have an agreement ready
An investment in your business will be governed by an agreement outlining the terms and conditions of the investment. Beginning the drafting of an agreement before reaching out to a potential investor will show commitment, readiness and drive to get the ball rolling.
Think like an investor
Put yourself in their shoes and think ‘If I was investing in a business, what would I want to know?’ Asking yourself this question will help identify gaps in your business plan, as well as ensuring that you are better prepared if and when questions arise.
From an investor’s perspective, a business plan should show them how they will make money by investing in your business. The best way you can demonstrate this is by outlining exactly what you plan to do with the investment; where it will go, why it is going there, what it will do for the business and, most importantly, when the investor is likely to see a return. It’s a two-way street; you want to protect your business and investors want to protect their investment. Show them you’re on the same page.