Yesterday I wrote about pitching ideas to money-men (or women, but the alliteration of money-men sounds better), ie. raising capital. If you manage to spark the interest of a money-man you may either get the opportunity for a quick pitch (see previous post) or they will request a business plan.

When they ask for a business plan, they don’t want a tome. Try and keep it to 12 pages. Why 12 pages? It’s a nice number, 10, 13, 9, whatever. Keep it short.

Here are the components of those pages broken down (hint: they are in a meaningful hierarchal order, the most important is first..):

1. Executive Summary – super tight executive summary that will, in 1 succinct page, explain what it is you’re doing, who will buy it and why.

The Executive summary is your advertisement; it must be concrete and compelling. It’s the pull element of your marketing piece (biz plan). It’s like a header on an ad, if it doesn’t pull the reader to read the rest and convince them to take action, you’re done. If other parts of your business plan are weak, you might get by, but if your exec summary is weak, you’re sunk.

Think in terms of the money-man — Why should I, the VC/angel, read the rest of your document? Make me interested, make me drool, make me want to turn to your other sections and actually skim them. Or better, I’ll skip reading and call you immediately and setup a meeting.

2. Management Team – who they are and why they can accomplish the goals set out. Identify any gaps and how these will be addressed. So they read the exec summary and the instantly turn here. Money-man is thinking “who am I dealing with here?”

Again – a business plan to raise capital is a sales pitch. Write it with benefit statements, you’re selling yourself, why is the team going to kick ass? Have concrete examples of past performance, any job and experience etc. that might support the new venture.

Do you have any partnerships, a board of directors, a board or advisors, or other element established? Put it in! You need credibility – if you don’t have it, piggy back off someone who does and drop the names (with their blessing of course). The easiest thing to do is think of high profile people who would have very impressive resumes who would sit on a board of advisors for a start-up.

3. Financials – this includes an analysis of the market potential, cost structure, and revenue projections. Also what are you using the money for, will you need more, when? What other financial instruments will you use? Cash flow issues? Lease-hold improvements? Capital purchases? Inventory? Min. manufacturing orders, etc?

Have 1 and 3 year projections, any more is frankly impossible to predict at a startup. Actually even 1 and 3 is blatant guess work, but be conservatively aggressive. You don’t need a PhD in economics to figure this out, just a few nice tables and graphs. You don’t want details to how many Bic pens you’re buying and the coupons you’ll use to save cash, summarize it all. Ideally get an accountant to help you. Or CFO preferably. If you can’t afford the former and don’t know the latter, head to the nearest university or college campus and find a 3^rd year or later business, commerce or accounting student. Buy’em lunch, get their help. Pitch it as a great resume piece for them.

4. Competitive advantages – self explanatory? Describe what sets you above the competition. IP? Patent? Trademarks? First mover? Why can’t someone simply copy you? How long would it take to duplicate your business?

Read the book “Blue Ocean Strategy”. Then create a strategy canvass (I prefer calling it a “Blue Ocean Graph”). Map out your enterprise and the competition. Include it in the business plan as 1 of the 12 pages. A worthy page.

5. Product/Service – NOW you get to describe what you’re doing. What do you have to offer, to whom and why would they buy it? Focus on the pain you are solving – why will the market buy this? Why is the opportunity ripe now? What signs point to this?

What is the trend you’re projecting or riding? How long will it last? Is it a fad or does it have staying power?

Focus on the pain and the solution with benefits. I don’t care about features, unless they are within context of why I should care about that. Ok, so your new can opener widget is made from solid gold. Why do I care? Oh, you’re targeting a high end market with a “pimp my kitchen” accessory line. Ah ok.

6. Marketing plan – How do you plan on selling this? Distributors? Sales team? Direct to consumer? Strategy depends on type of product, biz-biz or biz-consumer. Do your research, talk to existing individuals in that market space.

7. Support materials – include letters of reference from professionals (your lawyer, accountant, your banker, any high profile people you know who will endorse you and your idea, etc). You can go over 12 pages with this stuff. As long as the testimonial letters are reasonably short and are copies of originals.

Here are some helpful hints dealing with VCs. They want to see a prototype, they want to see some customers signed up or at least have letters of interest or intent to purchase, they want to see partnerships established, they want to see a very strong team behind the company. If you’re an online play, do you have a strong mailing list to start your word-of-mouth grass-roots marketing? Do you have a way to tap into a wide range of potential instant-adopters of your new tech? If you don’t have a combination of those, then raising VC/angel capital is tough.

And the final tip is to look for investors that play in your target arena. They’ll come educated, knowledgeable, and you’ll able to get more detailed quicker with what you’re doing and why it’s such a great thing.

There you have it, some basics to start with. Good luck and happy financing!

So my brother emails me asking what he would need to present a business idea to raise capital. And this is part 1 of my reply to his query…

Part 1: How to get an investor to cut you a check on the spot

Ok, I’ve raised some cash in the past, angel money mostly, some bank loans, and negotiated with VCs, but never closed that loop. So here’s what I know, a mix of theoretical and practical knowledge.

You need a business plan. But it’s not really a biz plan, it’s more of a sales pitch. Asking for money is the ultimate sales pitch, you’re not asking someone to take a chance on buying 1 widget, but to invest money, time and energy in the business. So for any good sales pitch, you need to have your act together.

30 second pitch. Also known as the elevator or phone pitch. It needs to be hard hitting, concrete and credible. You’re not even talking about what your widget (could be product of service) is, you’re talking about what problem its solving; what’s the pain, who has it, and why would they buy your solution to it?

15 minute presentation. Get your Power Point cued up.

• Put it on your laptop, on your PDA in micro version.
  
• No more then 10 words per slide, use images.

• First few minutes establish your credibility, who are you, and why am I listening to you?
  
• Describe the pain, if you can get the investor to associate with it even better (“Have you ever experienced/felt/etc”) but make sure you know the answer first, or that could blow up in your face.
  
• Who has the pain? This is a rough calculation of market size. What’s the opportunity here? Are we talking about a billion people willing to line up all night to spend $100 on your widget?
  
• Now you finally get to talk about your widget. Benefit statements only. I don’t care if it comes in black, green and blue and has the best features on the market. Keep it to the WHYs.
  
• What is your competitive edge? Patent? Trademark? Complexity? And finally, why you?
  
• Sell you and your team. VCs but especially angels, they don’t invest in businesses, they put their money into the people behind the businesses.
  

Demo time.

• Can you demonstrate your widget? VCs are tough now. They want to see a demo or prototype. They want to see skin in the game.
  
• Do you have an inclusive distribution deal?
  
• Do you have any customers yet? If not, any one willing to sign a letter of intent to purchase?

Now you answer questions – tough questions, make sure you have answers. Remember, your 15 min presentation won’t cover everything, just the basics, leave the holes open where you’ve prepared your hard-hitting responses.

• Answer with concrete benefit statements.
  
• You need bucket loads of enthusiasm and passion.
  
• Sell baby, sell.
  
• Don’t forget about Glengarry’s ABC – always be closing. Engage the money people. Make it their problem you’re solving, try and get under their skin, ask them questions and get them emotionally involved with what you want to do.
  
• Make it real for them.

Selling the money people is critical, they want to know you can sell. If you can sell them, you should be able to sell others; and thereby generate revenue.

Brief leave behind. Forget the massive paperweight business plan; have a 12 pager with a 1 page tight executive summary and leave it behind. Paper clip some items to it:

• letters of reference
• resumes of principles
• board of director profiles, if you don’t have a B.o.D. then at least get an advisory board together
  
• You want a letter from your lawyer, your accountant, your banker.

You want people you’ve worked with testifying to your capability. Testimonials are a powerful tool. Find the highest profile people you know or can access. Convince them of what you want to do, get them to endorse you with pen and paper. Piggy back on their credibility. This is essential if you have none, and unless you’ve already raised capital, built a multi-million dollar business, and sold it for a huge gain where investors were all smiles, then you have none. Trust me, that lesson comes directly from my experiences..

Tomorrow I will post Part 2: How to write a knock-out 12 page business plan.