vc funding for early stage concepts
DESCRIPTION
What do investors look for in a business plan?TRANSCRIPT
Understanding the concept of venture capital
Prajakt RautEntrepreneur & Entrepreneurship Evangelist
Collateral free financial capital –
investor takes equity in the
company
Investor shares risks
Typically for funding early-stage
concepts/companies
venture capital
venture capital is not just about the money
Value that a good investor delivers:
•Knowledge
•Access
•Resources
•Operational guidance
Three classes of investors
1.Angel investors
2.Venture Capitalists
3.Private Equity Funds
venture capital
Stage
Scale
Different stages of the venture carry different risks
Risks at early stage
•Concept risk
•Execution risk
•Scale-up risk
Risks at early stage
•Concept risk
•Execution risk
•Scale-up risk
Risks at growth stage
•Execution risk
•Scale-up risk
Risks at early stage
•Concept risk
•Execution risk
•Scale-up risk
Risks at growth stage
•Execution risk
•Scale-up risk
Risks at mature stage
•Scale-up risk
Risks at early stage
•Concept risk
•Execution risk
•Scale-up risk
Risks at growth stage
•Execution risk
•Scale-up risk
Risks at mature stage
•Scale-up risk
• Proving concept
• Jugaad
• Flexibility
• Fine-tuning offering
• Processes
• Focus
• Operational efficiencies
• Increasing profitability
• New markets/new
capabilities/new concepts
Angel Investors/Seed Stage
Funds
Venture Capitalists
Private Equity Funds
A document to convince investors/stakeholders that
1)What you want to do is sensible
2)How do you plan to do it is sensible
3)You are better than others at doing it
What is a Business Plan?
What do investors look for in a business plan?
1) Will this team deliver
2) Does the concept address a real customer need
3) Is the market size large
4) Who is the competition
5) Is there a Sustainable Competitive Advantage
What should you include in a business plan?
1) Concept overview/business description
2) Team – current and ‘in discussion’
3) What issue / pain point are you solving
4) What is the size of the opportunity
5) Product / Service Overview
6) What is the value proposition/positioning
7) Business model / financial model
8) Competitive landscape
9) Risk factors
10) Funding objective and use of funds
11) Exit potential
Concept overview/business description
• No more than one short, unambiguous paragraph
– Reader should not need to read it again to understand
– Capture the essence in a one crisp line
• Use simple language
• Sell the potential
Team - the most important ingredient for VCs
• “VCs prefer A-Class teams with mediocre business plans over
B-Class teams with great business plans”
• Diversity of skills, domain expertise critical but with similarity
of passion
• Include profiles of those who are ‘sort of willing to join’ too
What issue / pain point are you solving
• Are you addressing a real consumer problem?
– Don’t force fit your solution to a problem
• All ‘what if’ scenarios need to be thought through
• Get your friends and well-wishers to ask you hard questions
What is the size of the opportunity
• Break it down to last detail
– Total market size
– Addressable market size
• What price point and how does that translate into revenue
• Test the assumptions
Product / Service Overview
• KEEP THIS SIMPLE – VERY, VERY SIMPLE
– Assume that the reader does not know your domain at all
• Critical points to highlight
– Uniqueness
– Specific benefits
• Other criteria
– Scalability
– IP protection
– Replicability
Value proposition
• What are you positioning this as
• Why will the consumers buy it
• Do a ‘Benefits Barrier’ exercise
Business/financial model
• Three key questions– How much will you sell at
– How many will you sell
– Where will you sell… and how
• Who will pay for it – [user and buyer could be different]
• Translate the above questions into a financial model – Entrepreneurs should focus on the questions
– Get experts to do the financial modeling
Competitive landscape
• Who will you compete with? [current or in future]
• Why would someone choose you over them?
• Why do you have a chance to be a dominant player?
Risk factors
• Market risks?
• Financial risks?
• Competitive risks?
• Business model risks?
• Execution risks?
Funding objective
• What do you need the money for
• How much do you need
Also mention any fund raising history, if any
Exit Potential
• How is the investor going to earn a good return?
Sale to a strategic investor
Exit by selling stake to a growth stage investor
IPO?
[Note: Exit does not mean that the entrepreneurs has to
Exit]
In conclusion
• This is not easy
• This is not a one time exercise – iterative process
• Share it with friends, get feedback, rework
Different documents for different uses
Summary Plan (8 - 10 pages)
• Initial presentation to showcase concept and business case
Full Business Plan (15-40 pages)
• Typically for financing purposes
• Operations and projections presented in greater detail
• Usually presented after the investor(s) have indicated initial interest
Operational Business Plan (usually in excess of 40 pages)
• Usually the business plan on which entrepreneur & investor will agree before
funding
• Blueprint for company operations
• Source of guidance to top managers
Prajakt Raut
Prajakt has over 23 years of experience as an entrepreneur, marketing
professional and business strategy consultant. Prajakt primarily consults
early stage companies on strategy, focusing on business model &
monetization and on creating processes to prepare the company for
growth.
Prajakt is the co-founder of Orange Cross, a healthcare services
management company and an internet based venture, currently in stealth
mode.