Secure Investment with These 3 Crucial Steps for a Winning Business Plan!

Summary

The video provides advice to Jaz on creating an effective business plan to secure funding from investors. It emphasizes crafting a simple yet compelling executive summary, building a strong management team with relevant experience, and including realistic financial projections that demonstrate a viable path to substantial returns. By focusing on these key sections and avoiding common mistakes like overpromising, setting unrealistic salaries, and lacking startup experience, entrepreneurs can create a polished plan that convinces investors of the opportunity and team's ability to execute successfully.

Takeaways

• 😀 The executive summary is the most important part of a business plan for investors. It should be 1-3 pages explaining the key details in simple terms.
• 👨‍💼 Investors look at the management team to evaluate if they can execute on the business idea successfully.
• 💰 Investors want to see realistic financial projections with details on how the funding will be used.
• 📈 Have clear projections for investor returns, target 30% yearly returns on average.
• 👵 Use the 'grandmother test' to simplify the language so anyone can understand your business.
• 🤝 Add advisors and partners to make up for any lack of direct experience.
• ❌ Don't have unrealistic growth projections that promise to be the next Microsoft in a few years.
• 💡 Play to your strengths as a founder and surround yourself with people to complement your weaknesses.
• 🤑 Don't allocate unreasonable salaries for yourself or large % of funding to working capital.
• 🚀 Clearly explain the exit strategy and path to liquidity for investors.

Q & A

What are the 3 most important things investors look for in a business plan?

The 3 most important things investors look for are: 1) A clear and easy to understand executive summary that passes the 'grandmother test', 2) A strong management team with relevant experience, and 3) Solid financial projections that show a path to strong returns.

What is the 'grandmother test' mentioned in the transcript?

The 'grandmother test' refers to making your business plan simple enough that even your grandmother with no business experience could understand your idea and opportunity.

Why is start-up experience for the management team so important?

Start-up experience is important because investors want to see that the team executing the idea has practical experience building and running a business before.

How can you make up for lack of direct start-up experience on the management team?

If the management team lacks direct start-up experience, consider creating a Board of Advisors and bringing on people to advise and guide the team.

What are some common financial projection mistakes in business plans?

Common financial mistakes include wildly optimistic growth projections, paying yourself a huge salary too early, and not having a clear explanation of how investor money will be used.

How can you show investors they will make money from your business?

Show a realistic exit strategy and target over 30% average annual returns so investors can get a return in 5-8 years.

What should the executive summary explain?

The executive summary should clearly explain in simple terms what problem you solve, your solution, the market opportunity, and what makes your team qualified to execute.

What financial information do investors want to see?

Investors want to see realistic projections tied to assumptions and costs, a use of funds showing where money will be spent, and a path to providing a return through exits or going public.

What questions should you ask others to test your executive summary?

Ask if they understand what problem you solve, how you uniquely solve it, who your target customers are, and what the major risks or challenges you face are.

How much detail should the full business plan contain?

The full plan should provide all necessary detail on the opportunity, product, go-to-market, operations, team, financials, etc. to validate claims in the executive summary.

Outlines

00:00

😊 Key Things Investors Look for in a Business Plan

The paragraph discusses the 3 most important things investors look for when evaluating a business plan to fund: 1) The executive summary that clearly explains the business idea and value proposition in simple terms 2) The expertise and experience of the management team to successfully execute the idea 3) Realistic financial projections that show a viable path to good returns for the investor within 5-8 years

05:02

😃 Advice to Create a Convincing Investor Pitch

The paragraph provides suggestions to create a compelling investor pitch: Show evidence of startup experience and momentum, assemble a strong advisory board to complement your skills, have sensible financials and exit strategy. Ask friends and family to review your executive summary to ensure simplicity. Demonstrating these aspects can get an enthusiastic investor response.

Keywords

💡business plan

A business plan is a written document that describes a company's objectives and how they plan to achieve them. In the video, the narrator explains the key elements that investors look for in a strong business plan when deciding whether to provide funding. A clear, concise business plan that passes the 'grandmother test' and highlights a skilled management team and realistic financial projections is most likely to attract investors.

💡investors

Investors provide funding to new companies and businesses in exchange for potential returns. The video focuses on what investors want to see in a business plan when evaluating funding opportunities. Key factors that appeal to investors include simplicity, a competent and experienced team, and financials that demonstrate a potential for profitability and a return on investment.

💡executive summary

The executive summary is a critical first section of a business plan that summarizes the key details. As explained in the video, most investors will only read the executive summary initially to decide if the business warrants further consideration. An executive summary that succinctly conveys the essence of what the business does and its money-making potential in simple terms is vital for securing investor interest.

💡management team

While a good business idea is important, the video emphasizes that investors place even more weight on the expertise and track record of the founders and management team that will execute the idea. A management team with strong credentials, relevant experience, and a history of business success offers credibility and boosts the viability of a startup in investors' estimation.

💡financials

The financial section of a business plan lays out metrics like revenue projections, profit margins, salaries, working capital requirements and investor returns. As explained, unrealistic financials are a major red flag for investors. Savvy financial planning that allocates resources judiciously while allowing healthy investor returns above 30% per year indicates thorough business acumen.

💡projections

In their financials, startups present projected future numbers for revenue, expenses, profits etc. As cautioned in the video, excessively optimistic projections that envision enormous short-term growth can undermine credibility for investors. Instead, financial projections should be grounded in market realities and demonstrate a viable path to profitability.

💡returns

Investors expect a sizable return on their funding provided to a business, often a minimum of 30% on average per year. As discussed, accompanying projections that reasonably validate such lofty returns over a defined investment timeline helps convince investors that capital requirements align with profit-making potential.

💡exit strategy

An exit strategy defines how and when an investor can liquidate their ownership stake for significant gains. This typically entails the startup being acquired by another company or becoming publicly listed. Mapping a realistic path to an exit opportunity within 3-8 years enables investors to envision their eventual payout.

💡use of proceeds

In requesting capital, startups must define exactly how funding will be utilized across different expense areas like equipment, salaries, inventory etc. As emphasized, scrutinizing if resource allocation is justified and makes operational sense is a vital exercise for investors before committing funds.

💡working capital

Working capital represents the funds available to cover day-to-day operating expenses in a business. As illustrated in a cautionary example, provisioning reasonable working capital is imperative for a business to demonstrate financial viability to investors.

Highlights

99% of the business plans venture capitalists see get rejected

Investors want executive summaries to pass the 'grandmother test' - easy enough for anyone to understand

The management team is more important than the idea itself

Show experience and wins to make the management team look as good as possible

Add advisors to make up for lack of practical experience

Understand your strengths and weaknesses and surround yourself with people who complement you

Investors want to see reasonable financial projections they can believe

Explain clearly how you will use the funds requested

Show a clear path to an exit for investors to make a return

Target 30% average annual returns for angel investors

Have a clear executive summary to attract investors initially

Show expertise in the management team

Have solid financials you can explain line-by-line

The first things investors look for are the executive summary, management team, and financials

Getting funding starts with a clear, understandable business plan focused on these key areas

Transcripts

if you're looking to get funding for

your business today I'm going to share

the most important three things that

investors look for in a winning business

plan so I got a question for one of my

YouTube viewers Jaz 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 Jaz 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 a 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 the venture capitalists see

get rejected so I'm going to tell you

how to get your foot in the door and

have it get a yes out of an investor

here are the three most important things

that we looked at when evaluating a new

business plan number one 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 one to

three 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

your 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 past a grandmother test then

you're ready to give it to investors

number two is your management team so if

an investor

your executive summary the next thing

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 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 start-up experience on the management

team so when you're managing BIOS you

want to make yourself look as good as

possible show off all the work that

you've done show up all the wins that

you've have and show up 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 investor see you've

thought this thing through and number

three is a financials so if an investor

likes your executive summary they like

your management team the next thing you

know 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 in specific

to the financial section is one they

have projections that are astronomical

like we're going to be the next

Microsoft and we're going to get there

in three years well you might want to

taper that down a little bit too they

pay themselves huge salaries right

they're asking for $500,000 for their

business and there's four partners and

I'm 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

seeds 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 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 five to eight 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 three things that any investor is

going to look at from there they'll flip

through the rest of your business pining

that they like it have you come in for

meeting I hope that helps Jaz good luck

on getting that investor for your

business and for those who are watching

you have a question or comment leave it

below I'd love to engage with you

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guys so much for watching

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