Simple guide to prepare your business plan, and how to deal with investors
As per basic economics, people who have more money than they need are looking for investment opportunities. The easily available options like bonds, saving accounts are just enough to cover inflation rates, so it makes people look for higher-yielding options.
Most investors like to diversify. The motivation behind diversification is to achieve optimal security and returns at the lowest possible risk. Angel investors typically invest their own money for the above-explained reasons.
To approach investors successfully one needs to understand that these people do not want to save your business or donate money to you, neither to sponsor your idea. They are looking to buy into business opportunities that are very likely going to generate returns.
This is why it is crucial for startup founders and investment seekers to demonstrate how someone will profit from investing in their business.
How to present your business and make it attractive?
First of all, angel investors will want to see a business plan that meets at least minimum professional standards. Do not waste your time sending WhatsApp messages or emails with long stories. If you want to win investment, prepare for it properly.
Poorly written and ridiculously presented business plans are going to be ignored or rejected immediately after looking at the first few pages.
A well-written business plan demonstrates:
- What problem the solution is aiming to solve
- How it will bring value to customers
- Market size and potential
- Clear financials, including cost breakdowns
- Overview of your past and current cost, revenue, and profits
- Revenue model
- Revenue projections
- A summary of risks and opportunities
- An overview of the current competition
- How the startup is going to be able to compete
- A brief introduction of the team the founder
And most importantly, a solid plan to explain how the new investment is going to be utilized to grow the business.
Think of your business plan like a proposal. In your presentation, you will need to demonstrate what returns the investor can expect, and how. Are you going to offer equity in your business? Are you planning to take on investment as a loan? Are you going to offer shares in your company? Be clear and specific about these details from the beginning.
Remember that investors only care about how they are going to make a return on their investment. Your investment pitch needs to provide clear answers regarding how their money will generate returns.
What if an investor likes your business plan?
If an investor likes your idea, they will ask you to continue the discussions further. Otherwise do not bother them anymore. Begging them to consider funding will not get you anything.
People in business are typically occupied and will not have time to carry on pointless conversations.
If your pitch is getting rejected or ignored too often, then you need to look into how to improve your business plan and presentation. It is a great idea to take an investor readiness audit to find out that your pitch is attractive, or looks legitimate.
According to a survey we conducted in late 2020, around 98% of pitches get rejected or ignored. Entrepreneurs with well-elaborated business plans have a success rate of 10%-15%, meaning every 10th potential investor will want to learn more about their business. This is a huge gap between the two segments — it is definitely worth it to get a proper business plan together.
Due diligence process
Once an investor decides to discuss your business proposition further, they will likely require additional documents and information. Such information typically includes third-party market demand analysis and market research results, patents of inventions, bank statements, financial records, legal information about your business structure, or even police conducts of the founders.
This is called due diligence, and it is a part of the procedure. If an investor is asking you these details, rest assured that he is interested in investing in your business — otherwise he would not waste their time talking to you.
Unprepared entrepreneurs tend to think that they are being scammed. Other entrepreneurs who are lacking the basics, or will likely fail the due diligence process might get offended.
If you have planned and prepared your business professionally, then you should already have everything ready to pass these due diligence checks. In case you cannot pass the test, the investor might ask you to produce any necessary documents to proceed.
Dealing with investors
Now let’s talk about how to deal with investors.
First of all, be respectful, friendly, and professional. Do not call them a scammer, “bro”, “mate” or anything similar. Talk to them in a way how you expect them to talk back to you. A disrespectful attitude will disqualify you immediately.
Do not try to challenge them, and definitely do not question their credibility. Feel free to do a background check if you suspect that an investor is not legitimate, but do not risk your chances by showing a challenging attitude.
Most investors, including myself, get 10 to 15 emails a day from people begging to invest in their company. Every entrepreneur thinks that their business idea is great, and most of them will be offended when we do not want to proceed.
Arrogance is never a good approach in business. Do not annoy your potential investors, because they will abandon you and your business idea immediately. Do not send them dozens of messages on LinkedIn, and don’t email them every other day to check if they have reviewed your business plan. This is very counterproductive.
So to wrap it up. In order to find a legitimate investor for your business, you will need to have a proper business plan clear presentation, as well as basic business manners. That’s it.