What do investors look for?

The most important thing you can put in your Business Plan is believability.  Once I was writing a bio for myself and had my brother (the marketing guru) critique it for me.  He immediately balked at the phrase “thousands of IPOs” saying that it smacked of hyperbole.  I, of course, protested!  During my twenty years on Wall St., I had worked on at least two hundred to three hundred new public issues of bonds, preferred stock, and equities each and every year.  Add them all up, and you get thousands.  Right?  Wrong.  There may have been thousands of IPOs in reality, but no casual reader of my bio would accept that as a realistic statement.  It just doesn’t sound right.  It sounds like I am exaggerating my involvement.  So, we re-wrote the statement to read “hundreds of IPOs” which people found very impressive even though I was secretly cringing at the image I knew would mean that I had been a real slacker on the job, if it had been true.

All your facts, claims, and figures should seem reasonable.  You do not want to claim to be the first, the best, the only, or the premier anything.  Even if your figures suggest that you will indeed make $20-billion in profits in Year 1, do not say so.  Never use the B-word when referring to your revenue projections!  It is an automatic disqualifier.  Always sound humble, but do not be stupid about it.  If you have a question as to whether your claims sound reasonable or full of hyperbole, pay some outside consultant to give you a professional opinion.  Do not ask a friend or your Mom to critique your document.  They will tell you it is good even if it is terrible because, quite naturally, they don’t want to hurt your feelings.

One of my clients, a delightful middle-age woman well known in Hollywood social circles, brought me the Business Plan that she had slaved over for months.  She wondered why this gorgeous example of graphic design and digital artistry was not attracting the attention it so richly deserved.  When she showed it to her friends, they all raved about what a wonderful Business Plan it was.  When I looked at it, I saw a document with lots of inappropriate pretty pictures and a lot of unproven claims based upon the old ‘as everyone knows’ bit as well as lots of ‘feelings’ such as “I feel this would be a good thing for World ecology” and “We all have a hole in our lives that this will fill while making our investors millions of dollars.  How could one go wrong investing in XXXXXXXX?”  The amazing thing to me was how this intelligent worldly woman could wonder why Venture Capitalists weren’t anxious to give her the $10-million she wanted.

Another important thing is to make sure all the people you list as Advisors actually know they are Advisors!  Investors just might call them up to ask them why they are involved in your company, and it helps if they recognize your name.

I once started a consulting gig for a young woman who had an interesting idea that involved online promotions of romance books with eventual television series or movie production in goal.  Everything looked reasonable until I got to the Board of Advisors section where she had listed some very big Hollywood names.  Oddly enough, I happened to know a couple of these people personally, so I got on the phone to check out what they thought of my client and not one of the people I called had much recollection of her.  “Oh yeh.  Is she a tall redhead?  Has some idea for an online book thing?  Kinda spicy stuff?  Yeh.  She invited me to lunch so I went.  Terrible idea.  Both the lunch and her project!”

In fact, everything you put in your Business Plan should be supportable.  If you mention that some expert said that a person who could figure out how to produce a product like your product would be likely to make a $-zillion, then you should put in a footnote explaining where you got the quote.[1]  If you are using an article that strongly supports your views, you might want to include it in the Appendix.  However, do not do this unless the article is of vast importance.  You do not want the Appendix to rival the New York City Yellow Pages in size!

You also do not want to talk about future dreams.  If your intent is to start out making widgets, do not go into describing how you will grow your widget making business into a medical equipment company and then in a few years into a major defense contractor.  One of the major horrors that keeps venture investors awake at night is entrepreneurs who seek money to finance Idea A and then end up spending it on Idea B.  This happens all the time and usually ends up in a very messy legal battle.

Stick with the basic business and prove in your document that such a business can indeed make a profit that will enable it to expand into other related markets.  Keep everything short and simple.  Keep it easy to understand.  Do not add feelings or emotional assessments of how important your company will be in achieving world peace.

[1] This is what a footnote looks like.  You can find it under INSERT > FOOTNOTE .

Who wants to see your Business Plan?

It is always important to remember that the people who will look at your Business Plan do not want to be entertained.  They want to see a serious document that describes a serious business.  They do not care if there are colors or artistic formatting.  They are probably more comfortable looking at a Wall St. style Business Plan than at a document that looks as though it has been produced by an advertising agency.  It is always a good idea to use a serif font like Garamond (the Wall St. favorite) or Times New Roman.  If you use a non-serif font, Ariel is best.  Your document and headings should be left-justified, and you should use an outline-type numbering system (see sample plan) for your headings so that the reader can easily know where s/he is and can refer to a specific section in communications.

You will find your Business Plan document is extremely useful for a variety of things, so you might want to prepare both a ‘private version’ and a ‘public version’.  Do not title your files using ‘private version’ and ‘public version’ because you will probably be sending the document out in digital file format via email.  So, unless you want the attorney you are planning to hire asking you what ‘public version’ means and why you didn’t send the ‘private version’, simply call the public version ‘Business Plan’ and the private version that will be given to investors ‘Venture Plan’. 

You will be showing it not only to employees of The Bank, Angel Investors or Venture Capitalists, but you will also be showing it to your attorney, your office landlord, your equipment leasing company, your business consultant, your accountant, your new managers, your Web developer, your marketing guru, and anyone who needs to know about your company.  It can be edited to provide copy for your marketing materials.  It can be expanded into an Operational Business Plan.  It can be cut up, annotated and given to your managers as a ‘things to do’ document.

Today, a Business Plan is an ordinary document.  It saves time and money when you are breaking in a new consultant or provider of professional services such as an attorney or accountant.  Any new manager will want to see your Business Plan before deciding to come to work for your company.  Because so many different people will be looking at it, you should write it to be as simple and informative as possible.  Do not use obscure technical terms or archaic academic prose.  Even the most sophisticated reader of Business Plans will drop your document at least to the bottom of the pile, if not into the trashcan, if it takes any effort or time to read and understand.

What can a business plan do?

A Business Plan cannot get you funding.  The quality of your company or your idea will do that.  The Business Plan should bring out the highlights of your company in a responsible-seeming manner so that it is believable.  The only thing a Business Plan can do for you is either get you through the door of opportunity or into the circular file of rejection.  Oh, if it is ridiculous enough, it can be passed around from one snotty critic to another with a note attached saying “Hey!  Take a look at this idiot!  What a hoot!”   I am sorry to say it has been done in far crueler ways.  You don’t want that to happen to your Business Plan.

How To Save Your Biz Plan From The Circular File

Don’t over-design your document. It doesn’t need to look like a magazine — it must look serious. Don’t add graphics and photos that have nothing much to do with the business idea you are pitching.

Don’t add graphics and photos that have nothing much to do with the business idea you are pitching.

Don’t use hyperbole. No matter how brilliant your idea, it is not poised to become the next Unicorn — particularly if you haven’t launched it yet. Never use words like “the best” or “the leading” or “will become outstandingly profitable” or “soon to be a key player in the industry” or “creating a lot of buzz in the Venture Capital community.” You get it. Stick to the basic facts. Hyperbole never achieves what you think it will. Professional investors see it as amateurish.

Do insert a disclaimer right after the title page. It doesn’t need to be very exciting. It can be a simple paragraph stating that the document is a confidential description of your business idea and it is for information purposes only. It is not an offer to buy or sell securities. The information included in the document is based on the research, planning, and assumptions of Management. Even if all assumptions prove to be correct, there are many things that could negatively affect this business in real-life operation. Google “business plan disclaimers” and find one you like. Keep it simple.

Don’t expect an investor or banker to sign an extensive Non-Disclosure Agreement. They ordinarily aren’t looking to copy your idea and will feel it necessary to run the NDA past their attornies. This usually means they will refuse to accept your business plan.

Putting the word “CONFIDENTIAL” in the header or footer probably provides as much protection as an NDA under most circumstances. The value of an NDA is to demonstrate in court that you have informed the recipient of your document that it is confidential and should not be circulated irresponsibly.

If you have a business plan promoting a medical or technical breakthrough of importance, file a preliminary patent to protect it and have your attorney involved in presenting your business plan to potential investors.

My own disclaimer is that everything I say is based on my research and experience and should be taken with a grain of salt and its truth and value verified by your own attorney.