What an investor looks for in a business plan
Prof. Michael Epstein, Academic Director, ISEMI College
A business plan is a document in which an entrepreneur gives an orderly presentation of his vision of a new product or service, specifying its benefits for users, its target markets, and detailed financial forecasts. In the world of entrepreneurship and venture capital investments one finds many documents bearing the heading “Business Plan” the content of which do not match the name. Most investors do not consider such documents to be genuinely comprehensive and feasible business documents (see the article on "Why do most ventures fail").
Serious investors look for an explanation of the need for the product on the part of defined customers at a price those customers are prepared to pay, a description of other sources of income, proof of profitability and an account of how a given team and other people are able to achieve this goal.
Most investors feel a need to constantly stress the marvels of their invention or method or technology, but without a proper explanation of how this method/technology translates into a viable and profitable business. Thus, most of the documents called "Business Plans" fail to meet the expectations of investors.
The business plan should identify the business, its sources of income and profit, and above all the way in which the entrepreneur intends to turn the idea into a profitable business. For example, if customers have been found for the product, whether identified by name or by profile, we should explain how we intend to reach those customers and the planned cost of reaching and persuading future customers.
One central point in any business plan is that declarations about the product’s competitive advantages and its expected revenues must be backed up with suitable references and clearly stated asumptions that lead us to firm financial results.
Entrepreneurs love to assume that what they read, everybody knows, but investors are more cautious and want to know “Who said so”? Therefore, you must substantiate every claim you make with validly documented references.
The Executive Summary (See example for "Executie Summary - an example") at the beginning of the document is not a preface but a summary, notwithstanding its placing at the beginning of the business plan. Therefore, the executive summary must be written after the business has been thoroughly explained in the full document. The investor usually forms an impression from the executive summary and on that basis decides whether or not to continue reading and/or invite the entrepreneurs for a discussion. If they encounter just an introduction, they will stop reading and move on to the next business plan in the very high pile that lies in front of them.