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Writing Business Plans that (Really) Matter

Business plans are not all alike and neither are angel investors, venture capitalists and loans. Then why do so many business plans seem like carbon copies of each other? Rubber stamping, so to speak, a business plan and only changing the names isn’t going to generate much interest among savvy investors. How many small businesses are ready to become the next corporate success story, but can’t seem to get investor interest? There are plenty, and many will never get a chance to find success because their business plans don’t pique the interest of angel investors or any other investor for that matter. The business plans are just too ordinary and fail to convey the uniqueness of the new idea, concept, product or service.

If you took a test and it said to name the most common mistake made on business plans, would you know the answer? The answer is: The business plan begs for money but doesn’t beg for understanding. A business plan is much more than a plea for money. It’s a driver’s manual that defines goals and objectives while providing the road map to a new destination. If the directions are clear and point right towards what makes your idea market unique, investors can’t get lost on their way to the endpoint. That’s where the financing waits. Focus on what makes your concept unique and prove you have carefully thought through the components of success – people, opportunity, context or relationship to industry and market, risks and rewards. In other words, write a business plan that really matters and not just one that fills in the blanks and makes a pitch for money. Don’t be ordinary…be unique. It’s what entrepreneurship is all about.

More detailed information and useful advice can be found at http://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

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Meeting the Expectations of Venture Capitalists

Entrepreneurs seeking venture capital often approach the market a bit naively. Though there are similarities to applying for funding through traditional lenders, there are also some differences. For example, venture capitalists can set any terms they want whether they fit traditional funding models or not. For example, a bank may require returns that are 5 times within a 5 year period. The venture capitalist may require 8 to 10 times within that same time period.

Successfully obtaining venture capital requires being fully prepared to meet the special demands of venture capitalists. Since these are private lenders, they can set the bar high in order to lower risks. The venture capitalist wants to know if you are going to make money, how long it will take to see investment returns, what kind of track record or related experience you have, and whether the company management team is competent, innovative and forward thinking.

If you can answer these questions successfully, there’s a good chance you will attract funding. However, matching the company with the right investor is critical. Term sheets detail the proposed agreements and at this stage it is critical that each side ask the right questions, come to a full understanding of expectations, and agree to valuation. There should not be any major surprises during the final negotiations once the term sheets are agreed upon.

Keep Your Deal Sweet and Not Sour

As odd as it may sound, you can select the wrong venture capitalist if you do not clearly explain your business model in terms of how you plan on operating and what your long term goals are for success. It’s not a matter of fabrication, but more a matter of clear communication. A deal can go sour really fast if the venture capitalist discovers during final negotiations that the company management really plans on taking a different growth path than was explained or has plans that were not divulged and could potentially adversely impact operations.

Viewing End Goals Through Valuation

If this seems obvious then you would be surprised how many negotiations fall apart even after terms sheets have been agreed upon. One of the main areas of contention is business valuation. Business valuation is normally figured by determining the discounted cash flow and then adding the residual value of the business. The projected cash flow will extend to the end of the agreement because that is the period in which the venture capital funders expect to get their money back.

Of surprise to many businesses applying for venture capital is the fact the venture capitalists will value their business much lower than the business believes is accurate. However, the venture capitalist viewpoint is one of minimizing risk and earning a profit while a business is anticipating growth and profits and is willing to take risks to achieve their goals. The business and the venture capitalist have the same end goals but will approach valuation differently while deciding if it is possible to reach those goals. Want more info or assistance? Visit http://www.funded.com

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Control and Angel Investors

As you consider the various types of funding for a new businesses or business expansion, one of the important questions that arise concerns control. How much and how often will the angel investors get involved in your business once the funding is approved? The answer depends on a lot of factors including the negotiated terms and the success of the enterprise that is funded.

Many angel investors aren’t interested in having a say in day-to-day operations. They simply want you to accomplish what the business plan said you would accomplish and earn the investment return that is expected.  The investors know what progress is being made because you will have to submit financial and performance reports on a pre-established basis. This is true for all types of investors whether they are angel investors, equity partners, venture capitalists or banks giving business loans

Security Issues

Control issues really come down to how secure the angel investors feel about the success of your enterprise.  Though it goes without saying that investors approving start up funding or business funding for expansion believe the projects will succeed, they are savvy enough to know there is always a degree of risk. The higher the risks, the more control the angel investors will require.

A solid business plan will be realistic and a profit must be shown at some point even if not the first year or two. The best plans though are not guarantees the initial forecasts will be met. The types of control angel investors may require include the following:

  • Passive investing in which investors providing business funding rely on the quarterly, monthly and annual reports and have virtually no contact with the business management or board of directors
  • Passive investing in which investors are available for consultation when requested
  • Active investing in which angel investors sit on the board of directors and have full voting rights
  • Active/passive investing in which the angel investors advise the board of directors as mentors
  • Active investing in which the angel investors assume an executive management position like Chief Executive Officer

The Full Gamut of Control

As you can see, angel investor control runs the full gamut from no participation to running the company.  Some investors will take control of the majority share of stock to gain full control of the company like equity partners; however, that is not the preference of most angel investors. They are not investing to become business owners, but rather to make money. In addition, if there is more than one angel investor, the group may designate a single representative as the primary contact.

The control issue can be one of the more difficult areas to negotiate at times. Though an entrepreneur needs money, he or she doesn’t want to give up control of their vision or dream. You can take care of that issue by submitting a solid well thought out business plan that is realistic.

More detailed information and useful advice can be found at http://www.funded.com.  Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions.  If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

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In The Eyes of an Angel Investor

One of the best ways to prepare for a search for startup funding by angel investors is to pretend you are one.  Investors have money they are willing to put into new enterprises, but they also want to minimize their risk as much as possible even with the understanding there is always a certain higher risk associated with a new business. If you consider what you would require if you were investing personal funds, the element of risk becomes much clearer and you can hone in on what information you need to assemble to prove your venture is a good investment.

The truth is that funding requests in the form of business plans submitted to any type of investor, whether for venture capital or to equity partners or to angel investors, should focus on answering questions before they are even asked. So it only makes sense to ask yourself the questions first as if you are investing your own funds.

It can be difficult to look at a new business with an objective eye when you are excited about a new idea, and it’s your business under the microscope.  Looking at the proposal from the angel investor’s viewpoint can help you keep your proposal targeted on the ultimate goal which is new funding.

Question: Am I It?

In the eyes (and mind) of an angel investor approached about a potential investment, your new business is untested.  The initial questions that will arise include:

  • What other potential sources of business funding is available to the new enterprise?
  • Could the startup business find funding through more traditional sources like business loans?
  • How long has the entrepreneur been looking for funding and is there any interest in the project by other investors?
  • Is it possible that several angel investments could be pooled to establish business funding while spreading the risk?
  • Is the entrepreneur asking for funding able to prove that he/she is a legitimate requestor with a solid business plan and not simply an “idea” person who has trouble following through?

These types of questions are just the beginning of a detailed analyzation process. Angel investors considering startup funding will want comprehensive information about projected income and expenses, marketing, project team members, business organization, a SWOT analysis, management, legal matters, future capital needs and more.

Question: Is Break Even in the Picture Anytime Soon?

One of the reasons some entrepreneurs are unable to attract any type of investment including venture capital, equity partners or angel investors is because they have not looked past the initial startup. Lack of capital is one of the main reasons small businesses fail according to the Small Business Administration. In the excitement of bringing a new business idea to the marketplace, the details are overlooked like when will the business break even?

Question: Do You Have Answers Prepared

Pretend you are the investor as you prepare your business plan including the financial section. What would you expect to get answers to before approving any investments or business loans? If your business plan doesn’t answer those questions about your venture then angel investors are going to see the proposal as too risky before it even gets off the ground.

More detailed information and useful advice can be found at http://www.funded.com . Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

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Attracting Equity Partners for Strategic Success

Two of the main reasons an entrepreneur or business may want to attract equity partners for business funding are: 1) to fund a particular project, or 2) to fund general business operations for the purpose of advancing the goals established in the strategic plan. It is critical that you precisely define your reason for needing additional investment dollars to insure that you target the investors most likely to fund your financial needs.

When you talk about funding a particular project, the word “project” takes on a broad meaning. A new project can include introducing a new product line to the marketplace or buying another company that sells products or services that will enhance your current company market position. A new project can also include expanding sales into foreign markets or expanding production.  Also qualifying as a new project would be the acquisition of equipment that will strengthen the company’s ability to meet customer demand.

On the other hand, equity partners may also agree to fund company operations based on a long-term strategic plan. Instead of a finite project, the investors may agree to provide startup funding for a new business that is equivalent to venture capital. Unlike most venture capital and business loans though, the equity partners will take part ownership of the company and participate in the management of the business.

Minority or Majority Ownership

What makes equity partners different from other types of investors like angel investors or venture capital is that the institutional or private equity investors will require a share in the ownership of the business (thus the use of the term ‘equity’). When the equity partners invest in a project, they will remain business owners usually up to the point the project is completed and the expected returns have been earned.  In these types of funding arrangements, the equity partners are often willing to take a minority ownership share.

When the equity partners offer business funding for general strategic operations, the requirements often include taking a majority share in the company. This makes sense if you consider that the equity investors are putting cash into the company with the expectation operational expansion or revisions will lead to higher profits in the future. The longer term nature of this type of funding naturally means the equity partners will want to control operating activity.

In the final analysis, it is clear that there are equity partners willing to consider almost any type of business financial need including startup funding.  One of the steps a business should always take when preparing a request for funding is to consider the various investment alternatives including business loans or angel investors that can fund the type of activities whether they are project based or based on strategic operations. If searching for equity partners is the best option, the business plan will be written to make it as attractive as possible to that particular type of potential investors.

Learn more at http://www.funded.com. Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.

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Start Up Business Funding – Don’t Take No for an Answer

Your cousin Lou has told you that he wishes he could help out but start up business funding is out of the question. There’s the mortgage to pay and gas prices are rising and the kids need braces and on and on the excuses go. You received the same answer from Aunt Sally, your best friend Dave and even your own father. You have a great idea for a new business but can’t seem to convince anyone to help you get it off the ground.

Many entrepreneurs are rich in great ideas and have plenty of enthusiasm and a willingness to do what it takes to succeed. But desire and excitement are not dollars, and that is what is needed to get any business off the ground. Finding startup funding can be one of the most difficult challenges faced.  You haven’t proven yourself to potential investors, but you can’t prove yourself unless they give you business funding. It’s the proverbial catch-22. It reminds you of the time you were looking for your first job and the employers told you that you had to have experience first!

Plenty of Options for Those Who Persevere

Many entrepreneurs exhaust all of their own money before they even start looking for outside investors for start up business funding. If you were lucky enough to convince some of your family and friends to invest in your new business, there is still a good chance it was not enough money. That means you have to find other sources of funding in order to take the business to the next level which may include buying inventory, purchasing equipment, or making the next 6 months of payroll. The thought of your business never getting off the ground or coming to a screeching halt is distressing to say the least.

Fortunately, you have plenty of options when it comes to funding sources. Given the complexity of convincing financial institutions or private investors to invest in a tight credit market and limping economy, it is always best to get professional assistance. Gaining access to a network of funders is critical, and like any “private” club you need an introduction.

What are these sources of funding?

  • Angel investors and angel organizations – Earthly angel investors are really private investors willing to invest their own funds in fledgling businesses. The often invest in the form of equity or convertible debt. They truly seem like angels when you need funding, but these angels are investing because they believe they can get a higher rate of return by investing in your company as opposed to investing in traditional financial tools. Many angel investors are also interested in promoting businesses in which they have personal experience or a special interest.
  • Business Loans – These are loans from financial institutions like banks. Despite what you read, the banks are lending to businesses. But since credit is still tight due to the recession, you improve your chances of success by accessing those banks with a record of lending through the recession. That is where a professional can be of invaluable assistance in locating funds domestically or globally.
  • Venture Capital – Venture capital is money that is loaned by a venture capital firm or individual. Larger amounts usually come from firms. These firms are often looking for start-up businesses that have high potential for fast growth and early returns. They take an equity position in your business meaning the venture capitalists take part ownership. But there are innumerable ways to structure the financing and equity arrangements so don’t rule out this type of  funding as a possibility.
  • Equity Partners – This is start up business funding in which private individuals invest in your firm in exchange for part ownership.  Ownership can take the form of stock ownership, but in some cases the investor may want to be involved in a way similar to a partner.

Make No Assumptions

There are numerous types of start up business funding as you can tell. There is no reason to assume that since you are a new business that money is not available from traditional sources like business loans or non-traditional angel investors.  You can pursue startup funding from equity partners or venture capital firms. And while you are looking for business funding, you should go ahead and ask your cousin Larry if he is interested. He just might be the first one to say, “Yes.”

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Small Business Funding Is a Searing Hot Topic

Small business funding can’t be called just a hot topic because it’s far beyond hot…it’s searing hot. The National Federation of Independent Business (NFIB) reports that SBA 7(a) loans have fallen dramatically in the last few years. In 2010 only 41% of all businesses were able to get financing from any source, and 16% of businesses didn’t get any credit at all.

You can’t help but wonder how businesses are staying in business when they can’t get credit. But who says they can’t get credit?  The fact is that many of those small businesses did get credit from sources like angel investors and equity partners and other sources of private lenders.  In other good news, there are probably just as many or more businesses that are eligible for private funding, but they are still pursuing traditional financing routes.

Perfect Conditions for Successful Funding

There is much inefficiency in the lending marketplace which is precisely why there is a thriving private funding marketplace. This marketplace was created because of the mismatch between the number of lenders and amount of capital available and the number of borrowers looking for business funding.  It works the other way too. There are borrowers trying to find investors with little success. In a free enterprise economy these are the perfect conditions for creating a thriving market that fills a void.

Small businesses generated 64% of the new jobs in the economy in the last 15 years according to the NFIB. You would think that traditional funders would make sure that small business has the capital needed for job creation, but instead it is estimated that trillions of dollars are sitting idle in banks and corporate accounts.

This is a perfect storm for private lending. If the big companies and banks won’t spend or lend, then it is up to the private business funding market.  The private capital market is lending more than ever before for various purposes. There are lenders willing to loan small businesses venture capital and startup funding for example. The private market is also lending in a variety of forms that include business loans, equity partners and angel investors.

Making Sense of Funding

If there is so much money available for business funding then why aren’t more small enterprises taking advantage of this capital availability? There are several reasons.

·    Don’t know how to find investors
·    Don’t know how to complete a lender worthy business plan
·    Don’t understand the variety of capital available in the private market
·    Entrepreneurs get discouraged after getting turned down in the traditional lending marketplace
·    Don’t want to pay expensive originating fees for business loans

It can be disconcerting to consider approaching equity partners or searching for venture capital without help. It can be just as intimidating to consider presenting a new idea that needs startup funding.  It can certainly be frustrating going from bank to bank feeling like a beggar.

Using a central point for finding private business funding makes sense. It is efficient because you don’t have to go from lender to lender, and it is cost effective. Most of all, it offers funding solutions for the very businesses and entrepreneurs that keep the economy growing.

Want more info? Check out http://www.funded.com.