Posted by: Madhavi CN | February 8, 2011

What the VC is looking for in your business plan?

Ideas worth a great business many times fizzle out, all for the lack of a compelling and credible business plan. 

The reasons for the failure of a business plan:

  1. Lack of knowledge on ‘how to write a business plan’
  2. Insufficient market study
  3. Shortsighted SWOT analysis
  4. Ignoring the reality check on risks and assumptions

It is not about how elaborate or how pithy your business plan is to attract the attention of the investor. When it comes to making a business idea into a success, it is all about the solidarity, reality and reliability in how you are ‘planning’ to implement the idea to generate business and what is the timeline you are seeing ahead in terms of both results and sustenance. To go a little further into this, we must understand what a Venture Capitalist (VC) would look for in a business plan, especially because your business plan runs the risk of not being read till the end if you fail in any of the critical areas. 

Areas of utmost importance to a VC/investor:

1.     What is the real need?

They are not interested in your solution, even if it is very innovative or state-of-art. They are keen to know the pain point that you are aiming to answer. Your cutting-edge offerings would cut no ice if you failed to define the compelling or latent problem that is real.

2.     How credible are the numbers / projections?

VCs look for evidence as much as a Judge demands for it. Mention the source of data. Get the secondary data supported by primary data.

3.     Why the assumptions?

Assumptions are not made to cut the long and tiring data collection process short. Assumptions are neither made with regard to the financial projections or the problem identification or solution conceptualization areas. Assumptions need to be made only with regard to factors which are ‘usually’ predictable or commonsense. However minor they are, they need to be validated.

4.     Where is the actual business in your spreadsheet?

Investors think about why it may not work rather than just soak up on why it would all work as per the fantastic spreadsheet you put across. Be wary of what your spreadsheet is ignoring.  

5.     What are the pitfalls/success factors in the industry?

If you are seeing only the rosy picture in your business plan, then it may be trashed by the VC because it is severely skewed. Every industry has its some critical success factors and vital downsides that are unique to it. Identify them all to show that you understand the industry that you are intending to operate in.

In the next post, I will give you the simple process of how to write a business plan that gets the action you look for from the investor.

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