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Top 7 Things Venture Capitalists Look for In a Business Plan

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Some startup entrepreneurs succeed despite having written a business strategy.

  • Excellent timing.
  • Outstanding determination. 
  • Or maybe it’s just a lot of luck. However, those entrepreneurs are likely to fail.

An outstanding startup business plan can help you surpass those odds (especially if it’s written six months to a year after you launch your company). A strong business plan also assists venture capital firms in identifying the best companies to invest in.

So, what do investors look for in a business plan?

Different investors bring a variety of points of view, experiences, and objectives to the table. Like with most things, the key is to know your audience and personalize your pitch and your business plan to them.

how to get investors for your business plan

Here are some essential elements venture capitalists look for in startup business plans.

1. proof that you value your clients highly

According to Golden Gate Ventures’ Michael Lints’ “Putting the customer first implies you’ll spend every single dollar making sure your customers are happy… When I look at the financial model, I ask myself, “Where does every single dollar go in terms of your customer?”

Successful startups only spend money when it truly benefits their clients. They understand that customers define success, not fashionable office spaces or great amenities.

And by the revenue and profits generated by prioritizing the consumer.

How does that look in your plan?

  • The Products and Services section of your business plan should clearly identify the value clients will receive.
  • the Financial Analysis section should show the precise purposes of your expenses and the revenues and profits that will arise.

2. the evidence that you have a broad vision

The scope of your ambition—the dimensions of your idea—is critical. Sequoia Capital had the following to say about the Airbnb business plan:

“It was their ideas, their clarity of thought, and the breadth of their ambition.” We enjoy working with founders who are adamant about realizing a vision that common opinion says is unachievable. And we prefer to collaborate early on, when a concept is fresh and has the most potential for growth.”

Your vision must vastly improve on the currently available option. Quality, pricing, service, dependability—your vision must be dramatically enhanced.

What is the significance of “tremendous?” Small, incremental improvements are vital (and can provide the groundwork for a firm), but venture capitalists seek the possibility of significant transformation that can result in massive revenues.

VCs understand that not every investment will be a home run. But they go into every investment hoping for the best.

how does that look in your plan?

  • Your company plan’s Overview and Objectives section should outline the scope of your improvements.
  • The Market Opportunities section should explain why a significant improvement is vital to potential clients.

3. evidence that you’ve nailed five essential points

Henry Wong, a venture capitalist and the founder of CNet Technology Inc. (as well as many other firms), recommends entrepreneurs to focus on five essential points:

  1. Team
  2. Market
  3. Technology
  4. Customers
  5. Unique connections

Why? Nobody achieves remarkable things entirely on their own. It is critical to put together the right team.

Understanding the market, the technology required (whether you will build or adopt it), and your customers are all important.

And so is describing the people, firms, partners, mentors, and so on who can help you succeed. What people do you know, and how can they assist you?

When it comes to startup success, it takes a village. The correct village.

how does that look in your plan?

  • Incorporate the five points into your business plan’s Management Team, Market Opportunities, and Product and Services sections. 

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4. demonstrate that you’ve polished your business idea till it sparkles

A 100-page business plan may be impressive when compared to a one-page business plan. But that doesn’t automatically make it better or more likely to attract venture capital money.

Dropbox founder Drew Houston’s application to Y Combinator application to Y Combinator is a prime example.

While he did have a minimally viable product, he did not yet have a team. He didn’t have any money. He did, however, have an initial proof of concept and an idea of his exit route.

Most importantly, he had a clear vision that clearly stated how Dropbox differed from what was accessible at the moment. 

Furthermore, it might be described in two sentences:

“Dropbox syncs files across all of your/your team’s computers.” It’s far superior to uploading or emailing because it’s automatic, integrated into Windows, and fits into your existing workflow.”

While that may not sound revolutionary today, it was in 2007.

And it is for this reason that Dropbox is now worth billions of dollars.

how does that look in your plan?

  • Your vision should be communicated directly and clearly in the Executive Summary section and remain consistent throughout the company plan.

5. evidence that you have something to say

Guy Kawasaki believes that a business plan only requires ten slides.

That, and a working prototype. “If a picture is worth 1,000 words,” Kawasaki claims, “a prototype is worth 10,000 slides.”

“It’s about demonstrating your idea,” says Kawasaki. “If you don’t have a prototype, you won’t be able to sell the idea.” And if you nail the prototype, you might never have to pitch.”

Remember that a prototype does not have to be a minimal viable product or even work. The goal is to show what clients will see and how they will utilize your product or service.

Don’t just say what you’re going to do. Demonstrate what you intend to do.

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how does that look in your plan?

  • Include application mockups, physical product models, and planned workflows throughout your business strategy.

6. evidence that you don’t merely “believe” in your notion. you continuously put everything to the test

“Your early ideas are assumptions built on assumptions,” explains DreamIt Ventures partner Maureen Rinkunas, “so you have to test these assumptions.  assumptions.” When you first start, the risk is really high, and investors want to see how you’re lowering that risk for them.”

Startup founders believe in their instincts. Successful startup entrepreneurs trust their instincts as much as statistics. They are confident in the process of verifying a company’s idea. They believe in the power of testing.

Investors enjoy concepts but prefer knowing that your firm will work tirelessly to refine, adapt, and improve an initial concept. And make it fantastic.

Which no startup can do until it embraces a testing culture.

how does that look in your plan?

  • The items and services section should describe past items and A/B testing outcomes. How you got to where you are now should provide insight into how you and your team think and operate.
  • Explain what you intend to do if some of your assumptions, predictions, or forecasts prove inaccurate. While you are not required to specify how you will pivot, you should be able to outline how you will adjust.

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7. evidence that you have a well-defined exit strategy

Even while many VCs are willing to take long-term holdings, they all want to see a return on their investment at some point.

That is, they anticipate profit someday.

“Be sure to provide comparable examples of firms that have successfully exited,” advises Dave Lavinsky of Growthink. This planning is desired by the investor in order to understand better the management team’s drive and commitment to creating long-term value.”

how does that look in your plan?

  • In the Financial Analysis section, describe exit strategies. (If you’re feeling particularly daring, hint at your exit strategy in the Executive Summary section.)

While you may expect to operate your firm for the rest of your life, once you attract investors, you must also accept their aspirations and vision. (After all, you’re all in this together now.)

Accept that fact.

More significantly, if you want to attract investors, keep it in mind while you write your first business plan.

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