Guest post by Alex Fraser of Invenfin
The golden rule for writing a business plan to raise funding is simple: The shorter, the better. If you send a 60 page document it will, at best, be skimmed through. Venture Capitalists receive hundreds of plans and simply don’t have the time to go through them in detail – so keep it simple. You should also remember that business plans are fluid documents: they should be updated regularly, and be tailored to the potential funder’s mandate.
Here is what your plan should cover:
1. Company Purpose/Executive Summary
- Define the business in a single sentence. This should be similar to your elevator pitch and should explain who you are, what problem you are solving and how you are going to make money.
- The “secret sauce” of your business may be your technology, your business model, strategic relationships or something else – but you must have some key ingredient that will give your business a sustainable competitive advantage.
- What is the burning need you will solve or are solving for your customer? Your business either needs to take away a pain or satisfy a desire for your customer or your customer’s customer.
- How are your customers presently addressing this issue and why are the current solutions not satisfactory?
- Why are you able to now solve this problem (e.g. new technology, changes in regulation etc.)?
- What factors or barriers to entry have prevented this problem from being solved until now?
3. Product or Solution
- Describe your product or solution and the “secret sauce” of the business.
- What is your value proposition to the customer?
- What stage of development is your business at? It should be post proof-of-concept.
- How has the product/solution been third party validated (user testing)?
- What further product development is needed? Set out the development plan and note the major development milestones.
4. Intellectual property
- Who owns the intellectual property?
- Has any of the IP been licensed from or to any third party/ies?
- How is it protected (e.g. patents, trademarks, copyrights, software libraries, trade secrets) and where is it registered?
- Has any work or development on the core technology or intellectual property been done in conjunction with, or by, a university or research organisation in South Africa or using funding from the South African government? In this case, the IP from Publicly Funded Research Act will apply.
5. Market Size
- Identify and characterize your target market. Be specific.
- How big is this market and what is your target position?
- Are you focusing on the local market, the global market or emerging markets?
- How do you acquire customers and at what cost?
- How many customers to you have and what are the conversion rates?
- Be very careful of making broad assumptions and over inflating your market size.
- List your competitors: Direct and indirect, local and international. There are never no competitors. A weak competitor analysis is often a major problem with South African start-up business plans.
- Provide a detailed competitor analysis based on the features of each product.
- How are you differentiated? What is your sustainable competitive advantage?
- You need to know your market intimately. The potential funder must be impressed by your market knowledge.
7. Business Model
- Describe how the business is going to make money (revenue model) and be specific. It might be best to have a number of revenue sources, especially if it is an online business which can be tried and tested.
- What will your average customer pay for your solution and how long will they be a customer for (stickiness)?
- How are you going to implement this plan, as well as find and reach your customers (route to market)? Who is going to sell your product?
- Major costs and cost drivers of the business? Are these fixed or variable costs?
- What market penetration are you planning and what are the key success factors and challenges which you will face in order to achieve this market share?
- Who are the founders of the business? What are their key skills?
- Who will manage the business and why are they the best person for the job?
- What are the current and planned organograms? Ensure your organograme covers all key disciplines required by the business.
- Who are your advisers or board of directors and what value do they add to the business?
- Financial statements (if available): Profit and Loss, Balance Sheet & Cash flow.
- Budget of projected costs (linked to development plan) and income for the next 18 – 24 months.
- How much money has been raised to date?
10. The Deal
- How much money are you looking for, and what percentage of equity are you willing to give up?
- What part of the business’s life-cycle does this funding address? How long will this funding last for (amount of runway)?
- You need to be frugal as this is the most expensive money that you will raise. At the same time, you need to have a realistic budget to reach the next major stage of your development, so that you can raise further funding.
- Early stage investors (angels and venture capitalists) seek equity, do not generally provide debt funding and tend to fund on a milestone basis.
- Consistency in your plan is vital. Gaps or holes in the plan will indicate to funders that the team is not clear on the direction and strategy of the business.
- Be careful of jargon! Can someone who is not familiar with the technology understand the business plan? Explain your “secret sauce” carefully.
- Get someone outside the business, and preferably unfamiliar with the technology, to proof read the plan before you submit to funders.
- From this business plan template, you can then very easily build a 10-slide pitch presentation for potential funders, with additional information covered in back-up slides.
The Art of the Start, Guy Kawasaki (Chapter 4: The Art of Writing a Business Plan) https://www.guykawasaki.com/books/art-of-the-start.shtml