If you want to receive funding from venture capitalists, your business plan must answer three key questions. Here they are:
What are your funding requirements?
Don’t just toss out any figure. Instead, specify the amount you need, but be prepared to operate your business differently, depending on the amount of funding you actually raise. If you prioritize the essentials for your business and identify what can be eliminated, you’ll be prepared to answer a common venture capitalist question: What would you do if you raised less capital than you’re requesting? Make your case for your funding needs in your Financial Plan, using realistic underlying assumptions. By realistic, we mean utilizing the deep research you’ll be conducting for various sections of your business plan, including your Competitive Analysis, Company Analysis, Customer Analysis (target market), and Industry Analysis (the trends and best practices of your industry sector).
What is the valuation of your company?
This question is asking for an assessment of your company’s worth. Your company’s valuation can be pre-money (the worth of your company without a substantial capital infusion) or post-money (your company’s value after funding). Your business plan should not specifically state the valuation of your company, but it should include numerous hints. Some examples of these hints include discussing facts relating to the size of your company’s market, its needs and growth rate. Explaining that you intend to let investors decide the value of your company is the best way to respond to this question. To do this, you’ll need to approach many venture capital firms at the same time. This strategy will create demand for your company and enhance its value.
What is your exit strategy?
An exit strategy involves an anticipated liquidation event, which may be a merger, a buyout, or an initial public offering. Investors typically receive their payoffs when a company is acquired or taken public. It’s impossible to predict the occurrence or timing of a liquidation event, but you can control how you grow your company. You can prepare for any event by knowing your company thoroughly, and you can prove your preparedness in different parts of your business plan.
You also need an excellent understanding of your overall industry and your competition. That understanding will enable you to describe the companies that are likely to buy your company once it fulfills various milestones, as well as those companies that are likely to stay away. Your Operations Plan and Financial plan will specify those milestones.
A Persuasive Business Plan Requires Three Key Elements
Persuasive business plans are based on hard facts, not business concepts. Some might be surprised by this statement, because entrepreneurs are known for their creativity. Even so, an entrepreneur must be able to handle anything, and successful ones are skilled at locating the research that’s necessary to support their concepts and prove that they’re worth funding.