Questions & Answers
What are the key qualities that make a Business Plan ready for investment
It is not easy finding good investments and almost every team, idea or business has a number of weaknesses that need to be carefully considered. No business is perfect. For example an entrepreneur might have a powerful idea but struggle to build traction for the concept. Or the entrepreneur is really far along in the business but lacks the management skills needed to carry the project through. Or maybe the idea is great but the team has decided on the wrong business model and they now risk losing incredible amounts of time and energy. There is always something that could be better from an investor perspective. Certain weaknesses can be compensated, but what are the ‘deal breakers’ so to speak? What are the essential qualities that have to be there no matter what the circumstances? What are the key elements that make a business plan worth reading and potentially viable for an investment?
This was the question for this week’s VC4Africa poll. What is the most important factor in assessing a potential business. Is it having the right management team, paying clients or a proven business model? Is the difference made in the professional presentation or clear market positioning and USPs? Granted all of these points, and others, are of great importance but clearly a few stand out when compared to the rest. Respondents to this weeks poll identified having the right management team as the single most important factor in determining whether or not to invest in a new business.
This point was followed by building on a proven business model and having ‘skin’ in the game as other essential factors. Investors also want to know the entrepreneur has identified a unique solution when compared to the market alternatives and rated having a good idea as another essential factor in their analysis. It is important to know the entrepreneur has identified a real need and offers a solution better than what’s currently available. At the same time, it is important to see a proven business model at work. Especially when targeting a new market or introducing a new solution. Finally, if the team is really serious about getting the business off the ground than the investor will want to see they have already made the commitment and invested whatever resources (time, energy, network and money) they have into the project. An entrepreneur investing their own resources shows they are convinced, committed financially and wont give up easily.
Ken Chanda from the University of Zambia says, ‘Yes those are some of the key factors to deal with when presenting an investment plan to your investors!’ Another respondent expanded, ‘I would not submit without having all of those points addressed. The project also needs to be dynamic and the business model should match the nature of the beast being presented.’ Offering some additional advice one respondent points out, ‘My biggest note of what is missing is the utter importance of 1st page presentation. People with $ don’t want to wade through heaps of paper unless their interest is piqued.’ Another respondent continues, ‘Well all of these points are key in building a successful business and unless the business has REAL potential NO investor will put their money in.’
Mainza Nama, a Marketing Executive at Zambia International Trade and Investment Center, closes, ‘As the investment market for Africa is still relatively small we do see there are an increasing number of people looking to invest in the continent. The above checklist is intended to help improve Africa’s image for investments and attract more legitimate investors to Africa. These qualities are key to a “realistic, risk-cognizant” approach to higher returns on investment.’
What is your opinion?
3 Answers
A great sounding idea, with a team of good looking resumes, and promising financial projections is a business plan that is ready for study. A business plan that is ready for investment is one where the venture is already in motion and needs money to reach the next milestone.
There are several things that are good about such a situation.
First, the venture has already done something, beyond talk and writing down their ideas. They are ready to take the next step but cannot because they have no money.
Second, they have no money but they have some specific goal that will require some deterministic amount of money. The investor knows what the investment will buy and what is to be accomplished. Then the investor can see if the venture reaches the milestone because of the investment. It is also easier for the investor and business to agree on the size and type of investment and how much the investor will charge for their money.
Third, progress becomes easier to measure. If the venture fails to reach their goal the investor can measure just how far the management team got. Did they underestimate time? Money? Are they not as talented as the investor assumed? This information gives the investor confidence to either invest again or abandon the deal. Failure at this point is hardly a disaster if the team is “close enough” or has learned something very significant about the market, the technology, the business, etc. The point is, because investments at this phase are more measurable, investors can make them with greater confidence and continue to finance the company with further rounds of investment, with confidence.
Forth, a venture which has reached this stage is out of the “research and development” phase of the business and on to the commercialization or expansion phase of the business. These are less risky phases in which to invest and this also means the management team has managed to get to the lower risk phases so far; always a good sign.
This does not mean that all investors avoid the earliest and more risky phases. It is just more difficult to make money investing that way and many more investors will be interested in companies that have gotten themselves past at least a few hurdles.
Every company seeking financing should try to “do something” with the resources they have, in order to position their venture as being already out of the pure idea phase and somewhat down the road to success. The more you have really done, the better off you will be trying to raise money.
A Venture is a business enterprise or speculation in which something is risked in the hope of profit; a commercial or speculation. A Venture Capitalist must then one who risks their Capital on an ENTERPRISE, they may want to see the following check list worked through:
1) A Proven business model going for NEW MARKERTS.
2) A UNIQUE SOLUTION for a REAL NEED when compared to the alternatives in the marketplace
3) The ENTERPRISE is already running, the entrepreneur has invested their own resources (Time, Energy, Network and Money) and they have “SKIN” in the game.
4) The right MANAGEMENT team that needs investment for a SPECIFIC activity with clear MEASURABLE Key performance indicators (KPIs)
5) The Venture is at the COMMERCIALIZATION or EXPANSION stage.
People may have difference views on whether what is available measures up but you should at least something of each of the five to talk about.
