Former venture capitalist Evan Carmichael breaks down what investors actually look at: an executive summary a grandmother could understand, a management team that covers all the skills you lack, and financial projections showing a realistic path to 30% annual returns. Background and education don't matter. What matters is making it easy to understand and proving your team can execute.
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Investors. Being an entrepreneur is hard. Having supportive and caring investors helps. Fred Wilson. How do you write a business plan for investors? It doesn't matter if you have a business degree. It doesn't matter if you graduated from university, college, high school, or the school of hard knocks. It doesn't matter what your last name is, what your skin color is, how old you are, or whether you wear pants or a skirt. I used to be a venture capitalist, a VC. People came to me to raise big money for their businesses. I'm talking $500,000 to $15 million kind of money. And today I'm going to share with you the 3 most important things I look for before inviting someone in to see me. 99.9% of business plans got rejected. Only the 0.1% of entrepreneurs who followed these 3 simple rules got invited to a meeting with us. So if you're thinking about raising capital or just want an education as to how the process works, you'll want to pay attention to this one. Number 1: Executive Summary. The executive summary is the first thing an investor—venture capitalist, angel, banker, and so on—looks at. It's 1 to 3 pages at the beginning of your business plan that summarizes the whole opportunity. Write it last. Make it important. Keep it simple. There was an expression in the VC world that an executive summary had to pass the grandmother test, meaning that it had to be written in plain English so that your grandmother could understand it. Most business plans are filled with so much jargon and technical terms that investors get lost. Remember, investors are generalists, not specialists. They don't know your business like you do. It's your job to make it easy for them to understand the opportunity. If they can't understand how they're going to make money from your executive summary, then your entire business plan goes to the trash can, and that's your fault. Keep it simple. Number 2: Management team. Assuming they like your executive summary, the next thing they'll look at is your management team. They want to see what kind of experience you have. Have you done this before? Do you have any startup experience? Are you the right person to actually execute this idea of yours? One of the biggest problems with most startup companies is an incomplete management team. For example, you've got a founder who can't sell and doesn't have a salesperson. Or you've got a tech company without a CTO. Or everybody involved is young and this is the first thing they're trying. All of those things scream risk for an investor. To give yourself the best chance at a yes, find people to complement your team. It could be someone who's a partner, a full-time or part-time employee, or even a member on your board of advisors. Pro tip: create a board of advisors. Get respected people to lend their name to your company so it doesn't look like it's just you. For example, if nobody who really understands finances is on your team, That's going to worry an investor. Get your accountant to join your board of advisors to add credibility and make investors feel more comfortable. Number 3: Financials. Investors want to know that they're going to get a return on their investment. Banks, for example, want to know that you can pay them back, and they'll likely want your house as collateral. Angel or VC investors will want to see that your business can give them an average annual return of 30% on their investment. They want to see that you can grow quickly and that someone is likely to buy you out. They want to be in and out of your business in 6 to 8 years. Can they get that kind of return through your financials? If they can't, they're out. Also, make sure that you understand every number on your financial projections. They're going to test your assumptions, and if you stumble, you're going to lose them. The next step. You'll need to send an entire business plan in, but those are the 3 main sections investors will look at. If you pass the test on those 3, then the investor will likely read the rest of the plan, but will be thinking in the back of his or her head, "I'd like to meet this entrepreneur." And that's what you want. That first meeting where you can show your passion and get them excited about the opportunity with you. It's not about having a business degree. You don't need it to write a business plan. Your plan just has to make sense. Make it easy for investors to understand your business, and you're that much closer to getting a yes from them. Believe.
