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BUSINESS PLANS

What size market interests potential investors?

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Writing a Business Plan mentor Rhonda Abrams responds:
If you're looking for money for your business, one of the key things investors want to see is that you're serving a big enough market. But what does that mean?

First, let me commiserate with you. You may have a great idea for a new service or have invented a wonderful new product, and you think that should be good enough to raise money. It's not. Sorry, but unless you need only a small amount of money, investors need more than a great idea; they want a great market, too.

If you are seeking a substantial sum of money from venture capital firms, you're going to need to show that you have a very large market. After all, these investors want to know that your business can grow big enough to build a company that can go public and return their investment many times over.And because venture capitalists often invest millions of dollars in a company, they're apt to look for markets with a total size of at least hundreds of millions of dollars.

Realistically, venture capitalists look for companies serving markets in excess of $1 billion. In fact, the size of your market will be a key factor in deciding whether a venture capital firm will seriously review your business plan. If you don't have a huge market, venture capital is probably not for you.

But other funding sources (such as private angel investors or friends and family) don't need such stratospherically sized markets. They just want to see that your market is large enough and competitive enough for you to be able to gain a foothold and build a profitable company. In fact, if your company is new or small, trying to reach a big market may be ill advised. After all, it's expensive to advertise and promote your company in a large market. Instead, choosing to serve an underserved niche market may be a better approach. But investors still want numbers. So find the data to support your claims as to the size of the market.

Answer Copyright © 2000 Rhonda Abrams

Last updated: Jan 18, 2001




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