Equity Investors and the Business Plan
Equity investors come in a number of forms. For purposes of this lecture, let’s look at angel investors and venture capitalists. These investors have similar interests and expectations with regard to the business. See our Business Planning resources for a detailed analysis of what equity investors are looking for in a potential business investment. Below is a brief summary of how to approach a business plan to attract investors.
- Spend extra time on the executive summary.
- Sometimes this is the only thing that gets read by an angel or VC.
- It should contain an explanation of the business, the value proposition, and the opportunity in less than one page.
- The next important section is the management team.
- Experience and well-rounded management can make all the difference when it comes to success of a business.
- This section should be comprehensive, citing the background, education, experience, skill-sets, and responsibilities for every member of the team.
- You may also include information on the outside professional that you will utilize, such as your attorney, accountant, management consultants, etc.
- Don’t forget to provide information on your advisory board or team.
- Next the VC flips to the financials:
- The first thing that should stand out is the potential return on investment.
- This is usually a product of the revenue and potential valuation of the business in 3-5 years.
- A VC will likely be familiar with the industry and have and idea of what a business of this type with a given annual revenue will be worth at some point in the future.
- If there is a potential of high growth and a high return on investment, then the investor may be interested in your business.
- Lastly, the exit strategy.
- You need to explain your intended business exit strategy.
- Remember, the VC seeks to make its money back at some point in the future (3-5 years) when the business is either sold or goes through an IPO.
- The exit strategy may also be a plan for the business to purchase the VCs equity share though retained earnings or a bank loan.