If you are planning to seek venture capital or equity investment, here are some things to keep in mind when developing your business plan and contacting potential investors.
Investors will be interested in your business opportunity if it has:
1. Evidence of customer acceptance. How can you demonstrate that someone will buy your product or service? Do you have any actual sales? Do you have purchase orders or letters of commitment? What other evidence of customer feedback do you have?
2. Evidence of focus. Every business has many opportunities, but the most successful businesses have focused on one or two things.
3. Proprietary position. Investors understand that patents, trademarks, copyrights, and trade secrets don't guarantee success, but they do reduce the risk of competition somewhat. Investors look for what is special about your product or service; what makes it unique?
4. Management. Investors want to know about a management's ability to make the company a success. Management is everything. Good management is more important than good ideas.
5. Return on investment. Investors want to know why this company will make a lot of money. The business plan must therefore contain believable financial projections, with key data explained along with the assumptions.
Conversely, investors will be turned off by:
1. Product orientation. Excessive infatuation with the company's product or service is a turnoff. The emphasis should be on the market, on the needs of potential customers.
2. Projections that deviate excessively from industry norms. Each industry has a range of accepted or standard financial norms. Don't get too far away from those norms. Significant deviations from industry norms suggest the entrepreneur has not done his homework and is being unduly optimistic.
3. Unrealistic growth projections. This is probably the most common characteristic of unsophisticated management.