A well written plan is one that can communicate the vision, strategies and tactics the team is planning for the company, and if done correctly, will ensure the best chance of attracting serious investors. – Mr Inderjit Singh, The Art and Science of Entrepreneurship.
The biggest challenge entrepreneurs come across in the process of earning footing for their fledging enterprise is the development of an effective business plan. Most entrepreneurs experience dread when the requirement of a comprehensive business plan is first broached. Entrepreneurs often conceptualize the business plan as a boring and dry document, trying their best to avoid formulating one. However, it is the business plan that, when done appropriately, can get the wheels rolling for capital raising.
How does one make the venture capitalist realize that the money he is going to invest is going to be backed up by team of professionals that may lack experience but have the desired expertise? This is where the business plan comes into the picture.
A business plan is typically a document that qualifies and narrates a commercial opportunity. The idea is to develop a business that gets results by setting the hook. In the earlier days, as an option especially when looking for larger amount of money, you could to introduce a middleman, usually an investment banker or consultant, into the scenario. This investment banker acted as a broker and assured that an entrepreneur go about the business plan development stage smoothly.
The idea would be based on the fact that the investment banker was well-versed with the business team’s aspirations and objectives. Unless and until the broker has a clear understanding of what an entrepreneur wished to achieve and what he wishes to compromise in the process, he cannot translate it into a document that best supports fund-raising endeavors.
The first question that comes to one’s mind is with such limited finances, how could one afford a broker? The solution was to hire a broker who not only has relevant experience but guarantees to take you ahead with the next round of financing.
It will be feasible to reach an agreement where the broker will only be paid a small amount initially with the remaining sum to be paid, given the condition that the broker succeeds in his negotiations with the venture capitalists. This way the broker will be motivated as he will know that the larger percentage of his fee depends on his success with the VC.
In the current market scenario, many companies have done away with this system. Choosing to prepare pitch directly to the investors. As sums of money being raised are of smaller amounts, it would be wise to take on the challenge yourselves. But they key idea remains the same, you have to understand what fundraising is all about and to whom you are pitching too. On the flipside, the investors also need to be able to grasp your business easily. It would be good strongly recommended to have an investment banker friend or a mentor to go through your business plan and pitch once so that they could guide you through successfully.
The truth is that investors and investment bankers have to brace themselves for the barrage of business plans that come to them each day. This establishes the importance of a business plan because if it fails to impress the VC immediately, your chances of securing any capital for your business from that particular VC are zilch.
Creation of an initial business plan is the phase that comes even before the team is assembled. The task is to create a business plan that actually works. The business plan should be a well- researched, well- structured, direct and robust document that conveys the business prospects effectively.
Here it is imperative to attest that a business plan is not something that can be accomplished over a couple of hours. Rather it is a perpetual account that evolves with the development of team to capture the proficiency of several minds. While only a few individuals are involved in the development of a business plan in the preliminary stages, it is the team effort put into it that actually makes the idea grab the capitalist’s attention.
The role of the broker comes into play here. He takes the first draft of the business plan and fine-tunes it. This implies that the business plan serves as a basic framework that communicates an organization’s goals to the investor. It is critical that the business plan is developed in a way that the targeted VCs get excited when they read it, absorbing the promising prospects that the idea has to offer.
It is an entrepreneur’s duty to affirm that the business plan lists all the relevant aspects in great detail so that nothing is overlooked. This is because all the VCs rely on the business plan as a basis for their decision making so the entrepreneur needs to ensure that it is a comprehensive, effective one.
A well-formulated plan is one that best expresses the team’s visions, tactics and strategies for the business. Once done correctly, if you succeed in devising a plan that can straight go to any VC and make an impression, you have done your business a favor by increasing its chances at success.
In a nut shell, make a plan that is professional, simple and concise with an attractive executive summary so that it stirs excitement and ignites interest among those reading it for the for the first time.