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The Investor’s Point of View

Notes from MIT Enterprise Forum’s

 Business Plans that Win $$$

 

 

In considering business plans, investors are looking for:

How the investor can cash out in 3 to 7 years with appropriate capital appreciation.


Previous success by owners (reduces risk to bet on a winner) and complementary skill sets.


Maximum returns, minimum risk.


The plan must be easily and concisely explainable in a well-orchestrated oral presentation.


The plan format must be easy to read, following fairly strict organizational guidelines.

 

Investors are specifically looking for these elements in a business plan:

Evidence of customer acceptance of the product/service.


Appreciation of investor needs through recognition of their particular financial-return goals.


Evidence of focus: concentration on only a limited number of products/services (maximizing company’s strengths, rather than spreading too thin).


Proprietary position in the marketplace: patents, copyrights, trademarks, exclusive rights.

 

Business plan turn-off’s for investors:

Owner’s infatuation with the product/service, rather than familiarity and awareness of marketplace needs (ergo, devote most of the text to the market, not the product, per se).


Financial projections at odds with accepted industry ranges.


Unrealistic financial growth (either too high or too low).


Custom engineering per product application (the more custom work necessary, the less return).

 

The articulation of business and personal objectives are important:

In discussing management’s objectives, investors are interested in their personal objectives.  This is important because their objectives need to match what the investors are looking for.  Questions to answer:

  • What do the founders want for themselves?*
  • What for the company?**
  • How well do the founder and company objectives fit with the experiences of other businesses in the venture’s industry?

 

*Often asked in the investor interview: “What do you want for yourself out of this venture?” (Must speak about it in business terms, leaving out “passion.”)
 

Sample answer: “I want to guide the company to $X million in sales after three years, at which time I expect to bring in seasoned professional managers who know more about managing maturing growth companies than I do.  I’ll move into the role of__________.”

 

**Looking for how the founders’ personal-financial goals can be transformed into a realistic venture.  Among the alternatives are to go public, become a giant, be acquired, be a niche company, and be a cash cow.  Investors will question how realistic these objectives are in terms of what ordinarily occurs in the venture’s industry.

 

The bottom line with business plans:

Must satisfy financiers’ goals.  How well do the venture’s goals mesh with investor financing criteria?  Investors must obtain specific investment returns, and lenders must ensure repayment of loans.  

 



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