This article is presented from my personal perspective as an investor, and a founding member of one of Texas' angel (investor) networks. 

As an investor, I probably saw 200-300 business plans a year. As a Vice President of Corporate Strategy for a technology company, involved with acquisitions, I saw another 100-200 a year. I needed to develop a quick ability to snap judge a new business plan. I'm not alone. Other investors have to develop the same skill. 

In his book Blink, Malcolm Gladwell described the process of "gut feel" and how it works. Investors use gut feel to make investment decisions. Here's the deal: we don't have time to read everything you thought was important. We don't understand it as well as you do, and we don't know the market as well as you do. Explaining the intricacies of the market dynamics and the subtleties of your technology will not get you any closer to getting funded. Here is what will:

  1. Do something different. Fundamentally different. Don't build a better mouse trap. We are not looking for a 10% improvement. We are looking for something that adds a new dimension of value. We are looking to cross a barrier that wasn't crossed before. Bring Taxi services to your phone. Make space flight affordable. Create a flying car. Build a completely different electric motor that consumes 80% less energy. Remember that you have an uphill battle, and you will not win it with 10% improvement over established competitors. 
  2. So what, who cares? Once you offer a fundamental differentiation, you will need to identify those potential customers who care about this difference the most. One of the biggest mistakes you can make it to aim at 1% of the entire market. You should identify the 1% of the market which you can serve better than anyone else, because they care for the exact things that make your product unique. 
  3. Why will you win? How will you maintain your competitive advantage? Will first-mover advantage work? Do you have substantial and defensible patents? Is your product based on exclusive market or resource access that only you have? How can you prevent Google from entering the market with a competitive product as soon as you come out with yours?
  4. What's in it for me? This question needs to be answered on 3 levels: what's in it for the customer? what's in if for your company? and finally--what's in it for me, the investor? Customers have to perceive that they are getting more value than they are paying for. Your company needs to be profitable to sustain itself and grow. The investor is simply there for the money. A good rule of thumb is to generate a 40%+ annual return on investment (or return 5 times the investment over a 5-year period). 

This is what investors care about in your business plan. The rest is just detail. 

For more detail beyond this article, see my udemy online course: Business Plan through investors' eyes

Published on: Mar 23, 2016
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