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1. What investors look for in a plan
What
investors
look for in a
plan
To raise capital, angel investors are key to your
business. Find out how you can develop a strategic
business plan that will help you source funds from
investors. Read More

2. What investors look for in a plan
Although you definitely need a business plan to find investors,
your plan alone--no matter how good it is--isn't enough to attract
investors. The investment decision depends on a lot of other
factors: the business team and its track record, the product you'll
be selling, the competitive advantage you have and what your
market is, among others. By itself, your plan is like an automobile
engine--the car won't go anywhere without it. But the engine
alone isn't enough to make the car go, and you need to recognize
this from the beginning.
Another important point to understand is that investors are not all
the same. At the high end, there are a few thousand venture
capitalists working for a few hundred venture capital firms. At the
low end, you have friends and family. And in the middle, there
are tens of thousands of private investors called "angels."
The venture capitalists are the most demanding. They fund only a
few thousand plans per year, and they have to reduce their risks
because they're investing other people's money. They probably
won't consider your venture unless you're introduced to them first
because they have no other way to screen and process all the
proposals they get. They aren't sharks or bad people--they're just
professional managers doing their job. They won't steal your

3. What investors look for in a plan
idea: The last thing they want is another business idea without a
team to implement it. Therefore, when they search for
investment vehicles, they look for the following:
 A management team with a proven track record. Yes,
that often means they won't fund your plan because you
don't have experience, but you don't have experience
because they won't fund your plan. Deal with it. If this is the
case, look for angel investors or friends and family (and
keep reading).
 A defensible product with a competitive advantage.
It's easier to predict the success of a tangible product than it
is a service, which is why service businesses are rarely
interesting to venture capitalists. Of course, there is the
occasional exception, such as Netflix, the popular home
delivery service for DVD movie rentals, for example.
 Reasonable valuation. Divide the amount you plan to
take as investment by the percent of ownership you're
offering to give in exchange. For example, offering 50
percent of a company for $5 million means you're valuing
your company at $10 million. An outrageous valuation shows
investors you may still have your head in the clouds.

4. What investors look for in a plan
 A clear statement of the investment offering Check
with your attorneys about the legality of your offering,
including how much equity for how much money you're
planning to offer this time through, and the planned future
dilution for later rounds of investment.
Other things that interest venture capitalists include:
 A shot at increasing the value of the company from
whatever they think it is now to about 100 times that in
three to five years.
 A plan that requires at least a $3 million investment--in fact,
the more the better. Your plan has to show that the money
is carefully planned and really needed.
 A plan that has several other similar investors ready to
invest at the same time. Venture capitalists find safety in
numbers so they don't want to be the only investor in a deal.
 A clearly stated exit strategy. Investors like to see that
you've thought ahead to how they're going to get their
money back on the deal.
Angel investors are harder to predict. They're usually wealthy
individuals or small groups who invest in different ways. Most of

5. What investors look for in a plan
them look at almost the same factors as venture capitalists. Some
of them, however, will consider lesser investment amounts and
will even invest alone. They often specialize in a specific type of
business, such as retail or technology, perhaps because they
know that sector well.
Read more

6. What investors look for in a plan
About this Author
Tim Berry
Tim Berry is the president of Palo Alto Software Inc., based in Eugene, Ore., which produces
business planning software.