Some like to suggest that the Business plan is dead – that “real” investors don’t read them anymore.
Just not so
All the investors I know, across the world, look for an executive summary to get their attention and a business plan to fill in the detail if they are interested.
Unfortunately, most investors also complain that the quality of the summaries and plans they receive are, at best “poor”.
Back in 1996 Grant Thornton a report “Loan and Equity Funding to SMEs in Central Scotland”, in which they commented that investors often received business plans that simply failed to express the value of the proposition –
“This was despite, or sometimes because of, the use of professional advisors to produce the business plan….”
In 2012 Inventors continue to receive propositions from entrepreneurs that have received poor advice, and that are terrible – that simply don’t address the fundamental issues of importance to an investor – how is this going to be a successful business – that will give me a return on my investment?.
I sit on the board of an early stage seed fund.
Last week one of the propositions we were asked to look at was seeking some funding to match a Feasibility Grant application. To Be Used to “define and evaluate their product”. They say the next step will be a Development Grant – and £800 k of equity funding – to “define the product better, look at manufacturing needs, and generate data for registration, as well as starting on some additional products”.
Not one word about market, customers, distributors, sales values, or anything else that addressed the issue as to whether anyone actually cares enough about what they were doing to pay for it commercially.
In contrast, the last two projects I have made modest contributions to – and by co incidence both were also seeking £800 k investments, – had not one word about the technology in their executive summaries. It was all about markets, sales channels, customers and margins –
Quoting from one summary:
“The company has made extensive progress implementing this marketing strategy at the same time as developing its technology. We have developed relationships with senior decision makers in over half of the worlds (potential distribution partners|). We are in the final stages of technology trial with (name) one of the biggest vendors in the world, and have reached price negotiation stage with a further 12 companies. We have also had our technology evaluated and endorsed by influencal US industry leaders, at( name of 3 hospitals).”
And from the second:
“our sales funnel is building well with our first 50 unit sales identified”. (about £500 k). And lists the customers.
Talking about the price they are charging they say this is based upon “feedback from potential buyers and resellers”
Their talk is all about customer benefits, named channel partners, named customers and margins to die for.
This is the detail that is now required to get the attention of investors.
And I have not yet met an investor who is interested in “social proof”, how many people are following you on “Angel List” or your ability to “pivot”.
What investors need to see is that potential customers care enough about what you are going to do to pay.