One of the blessings of the modern time is the availability of venture fund to start a business or to upgrade your business. It has led to the growth of knowledge economy. Thanks for venture fund, now all you need is a sound idea to start your own business, as capital is not a problem anymore. But, despite easy availability of venture fund, not everyone gets his or her idea funded?
No, quality of the idea is not the issue. Many people have amazing business ideas, still most of them do not get funded, and it has more to do with the way idea is conveyed and little with the quality of the idea. Many ideas fail to fetch fund because they are not conveyed in the manner a venture capitalist (VC) wants to hear it. According to venture capitalists, ideas that fail to get funds are the ones that lack technical details in the presentation. The details which you need to incorporate to make your idea a hit with a venture capitalist are given below. Read it through the end and make sure you follow it.
Prepare a detailed business plan
Not having a proper business plan is the biggest problem of a starry-eyed entrepreneur. They may know the ins and outs of the idea, but in the absence of a proper business plan, he or she fails to communicate it to a venture capitalist.
A business plan is nothing but a medium through which you communicate your ideas to a venture capitalist, using the lingo that he understands. A business plan helps you communicate how your business is going to benefit an investor (venture capitalist in this case), and why you think it has a huge potential. You must prepare a business plan, and it should include the following:
Product development plan and timeline
Under this heading, you need to put the details of the steps you will need to take to bring your product to the market. Give him the details of each step with a side note of skills needed to accomplish that step.
Along with providing step-by-step details of product development process, you need to provide him a timeline as well. You should mention how much time each step will require to complete, provided everything else has been taken care of. Be realistic in assessing the time requirement. Do not try to impress a VC by providing a short time frame.
Do not forget to suggest the price point on which you will be selling the product, once complete.
Skills needed to complete the product
In your business plan, you also need to mention the skill set you think will be required to successfully finish the project. At this point, tell the VC about your team capabilities, as in what all your current team can do. And also talk about experts you need to hire to plug the skill-gap in your team.
A detailed marketing plan is necessary to convince a VC about the prospect of your idea. Include the steps you will take to promote your offering, once it is complete. Give details of the marketing channels and vehicles you will use and for what end. Write your marketing strategy in detail. If you can, provide two alternative strategies, and label them as Plan A and Plan B.
This is the golden part. This is what a VC is most interested in. Give him a realistic sales goal on a monthly, quarterly, half-yearly, and yearly basis. Do not bloat it out. Keep the goals real.
You need to give a venture capitalist a rough idea of sales target you think are achievable in short term and long term, provided product is developed the way you want to. This will be an estimated idea. A venture capitalist wants to see a forecast of up to 10 years, some may settle for 5.
This is related item, but the nature is different. You need to tell a VC about the money you are expecting from each unit. Also tell him about your monthly, quarterly, half-yearly, and yearly revenue goal. Tell him about the break-even point and profits in percentage term.
Like sale forecast, a VC wants to look at revenue forecast section in your business plan as well. This again should be derived for up to 10 years.
Entry term, percentage, and exit strategy
This point is very important. It tells a venture capitalist how he can participate in your business and how much he can profit from the money he will invest in your idea. Make it real, as this is going to cost your dollars. You also need to suggest the VC 2-3 alternative exit strategies. I suggest 2-3, but I think including just one exit strategy is going to be enough.
Prepare an elevator pitch
This is as important, if not more, as having a proper business plan. Think of it like a 10-second advertisement. The goal of a short elevator pitch is to give a gist of your business plan to the venture capitalist, whom you want to meet, and that too emphatically talking about the benefits the VC will have from the plan.
Do not take this lightly. Give some time and prepare a nice elevator pitch, and if you cannot do it yourself then hire a copywriter for the job. Practice delivering the pitch many times before the D-day.
This could be your only opportunity to impress a VC.
A venture capitalist will be very interested in knowing if there a match between the team’s ability and experience needed to run the project or not. He will also want to know about your academic background, professional qualification as well as your work experience. Show him your past work, or get recommendation from people you have worked for to show the VC your ability to perform the task you say you will. Do this for all your team members.
Prepare your books and get your accounts audited
This does not apply for a start-up that needs a seed fund for the business, but it becomes mandatory if you want money to take your business to a next level. Before investing even a single dollar in your business, a venture capitalist will want to see your books. Get one prepared and audited by a certified professional. This will add credibility to the document you will present. Books prepared by your internal account department will not hold much value for a venture capitalist.
Many small businesses that need venture fund fail to furnish this, as they see it as unnecessary expense. Many a time, this may cost you an opportunity to get funded. Won’t it be better to invest in preparing books then letting the opportunity for, once and for all?
Let’s do it
An entrepreneur often refrains from sharing the above information with a venture capitalist because he or she fears that he may be at loss by sharing the idea in totality. The VC may run away with the idea, and as he already has money, he can start a business with the stolen idea.
This line of thinking is wrong. A venture capitalist is not in the business of stealing idea, or starting a business. His business is to fund sound ideas like yours. Regardless of wads of cash he has, he lacks the resources, acumen, and training to diligently work on your business. Seeing the profit he makes from his business, it is highly unlikely that he will leave that for stealing your business idea. A VC is a busy person, often playing along with many entrepreneurs. So he hardly has time to steal ideas.
Having said that, I will agree that there are some imposters who take an innocent entrepreneur for a ride. You need to stay away from them. Hence, you should do a background check of a venture capitalist before trusting him with your idea, and once you find a reliable one, go all in.