As I discussed in the article The Power of Using OPM…Other People’s Money, most entrepreneurs get lost in the maze of figuring out what makes an investor bite and thus fund one business plan versus another. The people with the money have a set of rules and invest in things that the poor and middle class are not even aware of. To successfully raise money, you must understand the rules that the rich use to make their investment decisions.
If you wanted to find the formula or rules that the rich use, the best way to approach this problem is for you to write the following down on a piece of paper: “I have $10,000,000 to invest and I MUST invest it.” Now, suppose I bring you a deal and I want you to invest in my new company. What questions will you ask me? What specific issues will you want addressed? What are you looking for? What would be important for you to learn from me that will give you confidence that I have a shot at making this deal work?
The answer to these questions should be addressed in a well thought out, comprehensive business plan. Your business plan is a great sales tool and is your road map to your new venture. A well thought-out business plan should answer/address fifteen key points:
- Who are you? Who are the players, the management? What is your experience? Have you done this before?
- Where are you? What is the status of your venture? Do you have a working prototype or has anyone tested your product/idea?
- Where are you going? What is your goal?
- What is it? What is your product or service? This must be very easy to understand, even if it is complex. Investors will not invest in something they do not understand.
- Who wants it? Who is your target market?
- Why do they want it? What is the problem being solved? What itch are you scratching? What is your value add proposition?
- How many might want it? What is your potential market size?
- How do you know they want it? What testing/research/studies have you done that confirm your belief that “if you build it, they will come”?
- How will you tell them about it? What is your marketing plan?
- Who else has it? Who is your competition? Don’t ever say that you have no competition. If you have no competition, you have no market.
- How are you different? What is your niche? What will keep your competition from duplicating your idea and crushing you?
- What are the risks? What could go wrong?
- What are the rewards? This is where you talk about the numbers/projections.
- What do you want? What is the deal? You should propose a deal and an amount of money…enough to get you to the next significant milestone. Good = we need $3 million to reach our next milestone. Bad = whatever you give us is fine.
- What is the exit? How does an investor cash out of this deal?
It is not at all uncommon to spend six months researching and preparing a business plan. Remember, your goal in raising capital is to get funded. You will not even receive a return telephone call, much less get a face to face meeting, if you haven’t done your homework. The key to raising money is to prepare a first class well thought out succinct business plan. As American Express would tell you… “Don’t leave home without it.”
Best,
Keith J. Cunningham
