What does it take to make a business plan attractive to venture capitalists?
Writing a Business Plan mentor Rhonda Abrams responds: Most new entrepreneurs think that a great idea is what captures a venture capitalist. But VCs see thousands of great ideas, and chances are that whatever idea you're sending them, they've already seen that concept in one form or another. In fact, some of my VC friends tell me that they often get plans for very similar businesses from four or five sources at about the same time -- something in the environment just makes things ready for that idea to gel.
A great idea is just the beginning. Venture capitalists want to see indications that you have a realistic chance of succeeding. What are those indications? First, they prefer to back entrepreneurs, especially a team of entrepreneurs, who have a history of success. If you haven't been successful, at least they like to see people who've had experience starting a company before. As one VC told me, "I like to fund people who've made mistakes and learned from them -- on someone else's dollar."
Next, VCs look for indications of market acceptance. Securing strategic alliances with key players in the industry, distributors, vendors, etc., show venture capitalists that others trust you and want to work with you. Of course, having important customers already lined up definitely increases VCs' confidence. If your strategic partners or customers are big-name companies, VCs really start to salivate.
Finally, VCs are looking for big opportunities -- they want to know that your business will serve a big market and possibly become a market leader. So if you intend to build only a small company, you'd be better off courting angels or other investors rather than professional venture capital firms.