|  "How
to Make Your Business Plan the Perfect Pitch "
August 25, 2005
By Michael V. Copeland
Venture capitalists love to repeat a popular refrain: “I
invest in people, not business plans.” That may be, but they
still want to see a plan. Not that a business plan will secure millions
in funding on its own merits, of course; its real purpose is just
to get a VC to pay enough attention to your idea to call you back.
The wrong plan, though, could get you barred from the front door.
The first misstep to avoid may seem obvious, but venture firms
routinely reject ideas simply because they’re sent to the
wrong partner -- someone whose area of expertise doesn’t align
with your business. You sent your digital media idea to a telecom
specialist? "It'll never leave my inbox," says Philippe
Cases, a partner at Partech International. Fortunately for you,
we’ve done this critical bit of work by finding VCs who are
just waiting for your pitch. Now all you have to do is write it
up.
Just as Hollywood producers get bombarded by unsolicited scripts,
venture capitalists are deluged with scores of 50-page business
plans, many of which are never read. Hence, another preliminary
rule of thumb: Skip the full business plan in favor of an executive
summary of less than three pages that hits all the elements highlighted
below. Don’t worry: If you get that coveted callback, you'll
have ample opportunity to wow them with the full 50-page treatment.
TWO-SENTENCE ELEVATOR PITCH
A first-rate executive summary opens with a great lead. Sequoia
Capital, one of the first venture firms to back Google (GOOG), suggests
that you should be able to explain your idea on the back of a business
card. If you can’t lay it out in a gripping sentence or two,
a VC might assume you don’t have a good grasp of your concept.
DEFENSIBLE DIFFERENTIATOR
Next section: What twist or technology makes your company special
and compelling to the market? A common goof entrepreneurs make is
expounding too much on the market without first offering up an ironclad
defense of the proposed company. Venture firms know a lot more about
the market than you do; what they want to hear is how you’re
going to dominate it.
STRONG MANAGEMENT TEAM
Succinctly describe yourself and the colleagues you’re bringing
in. “No egos, please” is Woodside Fund managing director
John Occhipinti’s plea when it comes to choosing the right
details. VCs want to see not only the experience you bring to the
table, but also the specific skills and accomplishments that prove
you and your comrades are up to the job. “When I read, ‘I
have held leadership positions at companies like Oracle (ORCL),
Microsoft (MSFT), and IBM (IBM),’ my eyes roll,” Cases
says. “What I want to see is a person who initiated a product
and saw it to $100 million in sales. I want the two or three things
that truly make you different from someone else.”
That said, don’t exaggerate. At a glance, a VC will likely
know what holes need to be filled in the management team. If anything,
be up-front about what your team lacks.
REALISTIC MARKET ANALYSIS
Keep your market-size projections conservative and defend whatever
numbers you provide. If you’re in the very early stages, most
likely you can’t calculate an accurate market size anyway.
Just admit that. Tossing out ridiculous hockey-stick estimates will
only undermine the credibility your plan has generated up to this
point.
REALISTIC GOALS
Finally, you need to size up your financial targets. "I always
have problems with startups making unrealistic assumptions -- how
much money they need or how quickly they can ramp revenue,"
Redpoint Ventures’s Greg Martin says. "Those can really
kill a deal for me." Thus, lay out your revenue projections
and capital needs for just three or four years. Don’t promise
the moon and don’t ask for it either: VCs expect you to be
frugal.
Another potential deal killer? Offering up ill-founded estimates
on the returns the venture firm can expect to see from your company,
or what its valuation is. Leave that math to the VC -- if you're
fortunate enough to get that far.
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