- December 12, 2021
- Posted by: Robert Brown
- Category: Investing
Did you know that the business plan you produce will be slightly different, depending upon who you are presenting it to? Yes it will and this is a good thing to remember when writing your business plan.
For a Venture Capitalist: These are high net worth individuals or companies who want to invest in a business and get out of the business taking a healthy profit. Typically a venture capitalist represents a group of investing companies and individuals backed by companies. It is rare that they use their own money to invest. They also tend to invest large amounts of money after carefully reviewing the investment risk appertaining to the company seeking investment. This means that they tend to seek out companies that are already established and seeking to expand or grow quickly. They expect a high rate of return for their investment, typically over 25% of their investment. A Venture Capitalist will expect a high level of control over the company and usually a seat on the board of directors as well as voting rights with their shares.
When writing a business plan for a Venture Capitalist it stands to reason that you should include their possible exit strategy – such as an IPO as well as your proposed contribution and involvement with your company.
When you go to an Angel Investor. These investors are more likely to invest in start up companies and those seeking a lower level of funding. They also accept a higher level of risk than a Venture Capitalist. Angel Investors typically invest in a type of company that interests them and often wish to become involved with the company as part of their investment. They are the place to go if you are seeking business mentorship in order to grow your business. They expect a lower percentage return on their investment but are still seeking 20% to 30%. The Angel Investor will expect shares for their investment but their control will usually take the form of managing the company alongside the other major share holders.
What this investor wants is involvement in a business that interests them. That is why it is important to highlight the attractiveness of your sector, of the business and how they can be involved in your company.
When we go to a bank. Banks do not lend unless it is almost definite they will get their money back. So when seeking a loan they are seeking a guarantee of some sort and the usual one they are seeking is a charge over either your or your company’s property. So if you have property, machinery etc. that can have a charge placed upon it, the business plan is where you emphasise this. Banks also do not lend large amounts of money to start up companies. What they are seeking within your business plan is the proof that you have thought long and hard about your business model and how you will be making a profit within a short while. They, just like the Angel Investor and Venture Capitalist do not lend money to pay wages whilst the company is establishing itself.
A few things to remember when writing your business plan.
• Your executive summary is vital and the first part of the business plan that is read. It should summarise the key parts of the business as well as pique interest to move to the more detailed information. As it is a summary, one trick is to write it in draft format at the beginning of your business plan writing so that it helps you set out your business plan. The executive summary should then be tidied up and completed after you have written your business plan and used as a check-list that you have included everything.
• Your business plan should hang together with logical links from one section to another. It should tell a story of how you are planning to set up, manage and expand your company.
• It should be well structured with an index and page numbers so that the different people who read the plan can easily get to their preferred section.
• You should write your business plan for two different types of readers – the technical person who wants detailed information and figures and the business person who wants to see how you are setting up your business and is looking for business credentials such as a great fulfilment process and adequately skilled staff becoming involved.
• Lastly you business plan is the foundation of your business but just as your business changes and evolves over time, so should your business plan.