June 26, 2010
As a new entrepreneur, you are probably very enthusiastic in your venture and you may be over optimistic on the profits or the success of your venture. This can cause you as it causes many new entrepreneurs to make three deadly mistakes that can kill their business plan. To avoid this trap, you should read carefully what I am telling you, because it can determine whether you get funding or not.
The first thing you need to know is that investors are risk takers. The other thing you need to know is that investors do not take any kind of risks. They take calculated risks. What they do is they look at a business plan and they assess the potential risk and the potential ROI, or return on their investment. This is key. Once you understand this, you can act accordingly. Furthermore, investors usually were either entrepreneurs or CEOs of big companies at one time or another, therefore they tend to invest only in the industries they know best. For this reason how you present yourself and your knowledge of the industry is crucial to winning that funding. The three deadly errors to be avoided are listed below:
1. Business plan or executive summary does not get the investors attention is the primary reason why you will never get a response when you submit your executive summary. Your executive summary is the key part of your business plan that can make or break your business plan. The executive summary is the face of your business plan and is the first part of the plan the investor sees. What he sees in the executive summary will determine whether he will be interested or not. So, how can you get the investor to show interest in your business plan and executive summary? Basically, marketing skills can play a good role here. Think of selling your venture to the investor, which is what you are actually doing. When you are seeking investments, you are selling a part of your companyâ€™s equity. Your investors will have some control of your company when they invest, because they control a fraction of your equity. Like marketing a product, you need to make your venture sound interesting. Write your executive summary in a way that it will show the key highlights of your business plan. Things that your investor would be interested in. Think about what investors would be interested in. Money and numbers. That is the most important thing to show, but you need to be careful not to hype it up. Be truthful and showcase projected profits and possible risks. If you have a product that can fulfill a need in your industry, showcase that. Use language that is specifically designed to catch the investorâ€™s attention, and that should even start in the teaser email.
2. Business plan and executive summaries that are over optimistic will turn off investors. Furthermore, you will appear either green or naive. You want to make sure that all your financial data is true and more realistic. This might require spending some money. When writing your business plan, it would not hurt to spend a few thousand dollars to hire a CPA, market analyst, and legal counsel to do all the math for you. You might also want to hire a good bookkeeper to accurately divide up how the funding will be spent and what amount of money goes to product development, manufacturing, executive salaries, employee salaries, and other business operations. Investors want to see numbers and they want to see numbers that add up. You can bet money that investors will have their market analysts who will look at your industry and they will tear your business plan apart, so you need to have your data backed up by sound market research and the best thing is to have it done by experts who can see eye-to-eye with the research of other investors. Legal counsel should also be hired, because a good businessman should have a competent attorney who knows business law. Furthermore, your legal counsel will also know how to best register your company. Investors look at this too. Most importantly, your legal counsel also knows how to draft nondisclosure agreements you will want for your investor to sign to avoid your intellectual property and trade secrets being revealed to your competitors.
3. Being a do-it-yourselfer may be great for home improvement or doing your landscaping, but when doing your business plan, it might not necessarily be that good idea. As mentioned in the above paragraph, you should seriously consider hiring a CPA, bookkeeper, market analyst, and legal counsel to help with having good market research and data. These people are professionals and know all the ins and outs of how a business plan should look like and most importantly, they know the math and what the investor is looking for. Furthermore, if you are not the type who is very articulate in selling your business, hire someone to write your executive summary in such a way that can articulate to the investor your venture that will catch his interest. Work together with the specialists you hire to study your industry. Investors want to invest in a company that has a competent executive team and who knows what they are doing.
Donâ€™t worry. You still need to do your own research and you still need to hire your own industry experts, but you have friends at VCgate. We can give you every thing you need from our Venture Capital, Angel Investors, and Private Investors Database; which can give you instant access to over 4300 funding sources worldwide and you also have access to other resources that can help you to get some of the funding from these funding sources.
The combination of the database and all the other resources we have available to you at VCgate can help you avoid these three deadly errors when you are writing your business plan.
All the best, and good luck!
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