Former venture capitalist Evan Carmichael breaks down what investors actually want: an executive summary that passes the grandmother test, a management team with proven wins, and realistic financials showing a clear exit. Avoid inflated projections and unjustified founder salaries.
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If you're looking to get funding for your business, today I'm going to share the most important 3 things that investors look for in a winning business plan. So I got a question from one of my YouTube viewers, Jazz— love you guys— who wrote in to say, "Yes, I would like to say thank you so much for sharing your idea." I'm glad I could help. "I just want to ask you how to make a business plan for my investor, a plan that is clear to them to show them how they will make money. Your reply is highly appreciated. Thank you." So Jazz, this is a great question and I used to work as a venture capitalist, and my role in that business was to screen the business plans. I was the guy who was getting all the business plans coming in and had to make a decision whether I would accept a meeting or politely say no. And you have to understand that 99% of the plans that venture capitalists see get rejected. So I'm going to tell you how to get your foot in the door and how to get a yes out of an investor. Here are the 3 most important things that we looked at when evaluating a new business plan. Number 1 was your executive summary. The first thing that an investor looks at is the executive summary of your business plan. They don't have time to read a 30, 40, 50-page document. They want to see that 1, 2, 3 pages at the start that quickly explains what it is that you do. If they don't like it, if they don't see the opportunity, if they don't understand it, then your business plan is going straight to the garbage pile. There's a term in the industry called the grandmother test, where you want to make your business plan so easy to understand that your grandmother can understand it. Remember that investors don't know your business as well as you know your business and never will. So you have to make your business plan, and especially the executive summary, easy enough for anybody to understand. Make it simple, dumb down the language, take out any industry terminology or acronyms or short forms so that anybody can understand what you're talking about. And before you give your executive summary or business plan to an investor, make sure you run it by your friends and family first to again see if they actually understand what the opportunity is. When you pass the grandmother test, then you're ready to give it to investors. Number 2 is your management team. So if an investor likes your executive summary, the next thing you're gonna look at is your management team. Because in investors' eyes, the idea is important, but much more important than the idea is the team that's going to execute it. As a venture capitalist, I saw dozens of companies pitch me variations of the same idea. The real question for us became, which management team is going to be the company that can actually execute it and deliver results? So on your management team, you want to show that you have experience experience and that you know what you're talking about. The biggest factor here that held a lot of plans back from getting a yes was a lack of startup experience on the management team. So in your management bios, you want to make yourself look as good as possible. Show off all the work that you've done, show off all the wins that you've had, and show off all the momentum that you've built so far into your business. And if you don't have a lot of practical business experience yet, consider building a board of advisors and bringing on people into your business to help advise you to grow. Even something as simple as adding your business lawyer or your accountant to your board of advisors can give you a lot more credibility and trust in an investor's eyes. It's important to understand your strengths and what your skills are that you are the best in the world at, and then surround yourself with people who can complement your weaknesses and put that in your business plan so that the investors see you've thought this thing through. And number 3 is the financials. So if an investor likes your executive summary, they like your management team, the next thing you're gonna flip through is the back of the document, which is typically where all your financials are. They want to see that the numbers make sense. They want to see that there's an opportunity for them to make money. Some of the common pitfalls that a lot of entrepreneurs make in their business plan, and specific to the financial section, is one, they have projections that are astronomical, like we're gonna be the next Microsoft and we're gonna get there in 3 years. Well, you might want to taper that down a little bit. Two, they pay themselves huge salaries, right? They're asking for $500,000 for their business and there's 4 partners that are going to give each other $100,000 each for the year and only have $100,000 in working capital for the business. That actually happened. That was a business plan that somebody submitted to me. So the use of proceeds has to make sense. Use of proceeds means how are you going to use that money? You're asking for X amount of money, where is that going to go in your business and does that make sense or not? And then the third is how am I going to get they're going to get a return out of this. If you're talking to angel investors, they typically want to see 30% return every year on average and be out of your business in 5 to 8 years. So they have to see first of all that one, there is some kind of exit that somebody is going to buy you out or that you can go public with your business. And two, that you can generate returns in excess of 30% average per year to be able to give them. That's when you get an investor excited. So work on having a really clear executive summary Build out that management team expertise and have solid financials that you can explain every single line on it and tell them how you arrived at those numbers. Those are the first 3 things that any investor is going to look at. From there, they'll flip through the rest of your business plan, and if they like it, have you come in for a meeting. I hope that helps, Jaz. Good luck on getting that investor for your business. And for those of you watching, you have a question or comment, leave it below. I'd love to engage with you. Remember to believe And if you like this video, you want to see more, don't forget to subscribe to the channel. Thank you guys so much for watching. I'll see you soon.
Self-improvement books are like fitness books. They never work on their own. What you need is a trainer. That's Evan Carmichael. Get the newsletter.
