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What investors look for in a plan


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To find angel investors, you need to strategically plan how you are going to go about it, Get quality information on how to develop a plan that is sure to get investors on your side. Discover the entrepreneur in you! Visit http:/ for more.

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What investors look for in a plan

  1. 1. What investors look for in a plan What investorslook for in a planTo raise capital, angel investors are key to yourbusiness. Find out how you can develop a strategicbusiness plan that will help you source funds frominvestors. Read More
  2. 2. What investors look for in a planAlthough you definitely need a business plan to find investors,your plan alone--no matter how good it is--isnt enough to attractinvestors. The investment decision depends on a lot of otherfactors: the business team and its track record, the product youllbe selling, the competitive advantage you have and what yourmarket is, among others. By itself, your plan is like an automobileengine--the car wont go anywhere without it. But the enginealone isnt enough to make the car go, and you need to recognizethis from the beginning.Another important point to understand is that investors are not allthe same. At the high end, there are a few thousand venturecapitalists working for a few hundred venture capital firms. At thelow end, you have friends and family. And in the middle, thereare tens of thousands of private investors called "angels."The venture capitalists are the most demanding. They fund only afew thousand plans per year, and they have to reduce their risksbecause theyre investing other peoples money. They probablywont consider your venture unless youre introduced to them firstbecause they have no other way to screen and process all theproposals they get. They arent sharks or bad people--theyre justprofessional managers doing their job. They wont steal your
  3. 3. What investors look for in a planidea: The last thing they want is another business idea without ateam to implement it. Therefore, when they search forinvestment vehicles, they look for the following:  A management team with a proven track record. Yes, that often means they wont fund your plan because you dont have experience, but you dont have experience because they wont fund your plan. Deal with it. If this is the case, look for angel investors or friends and family (and keep reading).  A defensible product with a competitive advantage. Its easier to predict the success of a tangible product than it is a service, which is why service businesses are rarely interesting to venture capitalists. Of course, there is the occasional exception, such as Netflix, the popular home delivery service for DVD movie rentals, for example.  Reasonable valuation. Divide the amount you plan to take as investment by the percent of ownership youre offering to give in exchange. For example, offering 50 percent of a company for $5 million means youre valuing your company at $10 million. An outrageous valuation shows investors you may still have your head in the clouds.
  4. 4. What investors look for in a plan  A clear statement of the investment offering Check with your attorneys about the legality of your offering, including how much equity for how much money youre planning to offer this time through, and the planned future dilution for later rounds of investment.Other things that interest venture capitalists include:  A shot at increasing the value of the company from whatever they think it is now to about 100 times that in three to five years.  A plan that requires at least a $3 million investment--in fact, the more the better. Your plan has to show that the money is carefully planned and really needed.  A plan that has several other similar investors ready to invest at the same time. Venture capitalists find safety in numbers so they dont want to be the only investor in a deal.  A clearly stated exit strategy. Investors like to see that youve thought ahead to how theyre going to get their money back on the deal.Angel investors are harder to predict. Theyre usually wealthyindividuals or small groups who invest in different ways. Most of
  5. 5. What investors look for in a planthem look at almost the same factors as venture capitalists. Someof them, however, will consider lesser investment amounts andwill even invest alone. They often specialize in a specific type ofbusiness, such as retail or technology, perhaps because theyknow that sector well. Read more
  6. 6. What investors look for in a planAbout this AuthorTim BerryTim Berry is the president of Palo Alto Software Inc., based in Eugene, Ore., which producesbusiness planning software.