Doesn’t matter whether you are an entrepreneur or an Intrepreneur, presenting a well rounded business plan is a must to get it funded from a Venture Capitalist or from your Corporate Office. Recently I attended a guest lecture by Mr M.J. Arvindh, Investment Advisor of Artiman Ventures (http://www.artimanventures.com/team.html). Artiman ventures has significant presence in India and US.
As a VC advisor he shared details on what a Venture Capitalist firm look for in a Business Plan to get it funded. The broad key must to have components of a business plan are below
- Problem definition
- Opportunities & Threats
Problem definition is a must and without that defined in detail, no VC would keen to sit and listen the rest of story. Under problem definition detail out
- The impact of the problem
- Extent of pain
- Cause of Pain and
- Benefits of relief
All the above should be supported with good quality of data from multiple sources and validated as a real pain by potential customer. An easy to comprehend example could a drug manufacturing firm attempting to discover a molecule that could provide relief for patients suffering from some new infection.
Next comes the solution. As part of Solution, explain
- The approach
- Alternative solutions available / possible
- Reason for you to select a specific solution and
- Extent of relief that a potential customer gets from the solution
One interesting point to be noted in solution definition is if the extent of relief from your solution is only incremental or if your solution is not differentiated from others (say by patent protection) or solution cannot be inserted into the market in a plug and play mode without any disruption to the current ecosystem or it requires evolving new technology standards to implement it, it may not be of interest to a VC
Under markets define
- Addressable market
- Industry growth rate
- Barriers to the competition
- Customer readiness
- Expected market share
One subtle point to be noted is every product would have a competition in some form or other. Even if it is a completely revolutionary consumer product like iPhone / iPad the competition would be the other product which takes a share in your wallet like a washing machine or refrigerator. So while defining the market parameters ensure you don’t miss out the competition. Similarly you aiming for a smaller market share in a bigger market is of interest to VCs than a larger market share in a smaller market as the second carries a higher downside risk if thing doesn’t go well.
From team stand point, the key parameters are below
- Number of co-founders between 2 to 5 (one is not preferred as if that one founder gets into some trouble there won’t be any one to run the business)
- Collective work experience of more than 20 years
- Relevant work experience in the same domain / market
- Team balance to handle various aspects like sales & marketing, finance, operations etc
- Prior start-up experience (He values failed start-up experience than successful ones as he would have learnt a lot to handle it better next time whereas one who was successful could be lucky by chance)
- Interplay between members with 1 consensus building leader
- Idea VS Goal (Mix of people who can sketch big picture as well as able to do meticulous detailed planning)
On opportunities and threats stand point, VCs preferences are below
- A solution for un-regulated markets (no government restrictions)
- No monopoly vendor
- No gorilla competition (not fighting against Microsoft or Google in their space),
- Time to market (shorter is better) and
- Potential applications of solutions across multiple domains
Though financials are least important in your first meeting with the VCs , ensure you have reasonable answers on the below aspects
- Milestone based cash flow needs
- Return on investment
- Expected market share
- Spend outlay (late loading is preferred) and
- Detailed costing assumptions
Though there are no strict weightage defined for each of the categories and sub-categories the emphasis on quality of team and VCs comfortness in sharing the board room with the entrepreneurs over 5 to 8 years duration is a key parameter carrying higher weight. In rate cases a single impressive parameter can completely outweigh the rest depending on the situation / context.
Services based business plan are of least interest to VCs unless you have some key differentiation factors that are tough to imitate easily by others.
In net I felt these are very useful inputs for anyone who likes to become an entrepreneur or grow as an Intrepreneur in an Organization. Share your thoughts / experience if any ….