What do venture funds want to see in a startup business plan

    I continue to publish some materials from my blog IdeaBlog.ru , dedicated to venture capital investments, venture capital investors and startups.

    A small announcement: on the blog in the section Venture Capitalist's Profile of the IdeaBlog.ru blog , an article was published entitled " Investor Profile: FINAM Venture Fund. Dmitry Rodionov, " in which, based on an interview with the project manager (venture investment) of the Investment Center at a high Finam’s technology, Dmitry Rodionov, reveals the investment preferences of the Finam venture fund, its requirements for projects and project teams, it says for what reasons the majority of investment applicants are screened out, etc.


    When a startup thinks about attracting foreign investment, the question always arises of preparing a business plan - in his absence, talking to investors may be possible, but things will not go beyond conversations. Many people think that a business plan for a startup, especially at a pre-startup stage of development- This is a fiction that you do not need to do it, but if you do, you can do with formal words. However, such startups are usually left without investment. Unless, of course, they attacked some sucker investor: one of the successful Russian startups told me that among the business angels whom he presented the project in cooperation with one of the Russian business angel networks, there were also mistresses oligarchs - “real blondes” in his words - to whom their sponsors gave money so that they would buy a business and do it, and not take out the brain of their “daddies” from idleness; so, to such “investors”, according to this startup, it was more important to like the startup himself, and not the project. However, all other investors will need your business plan, and they will study it very seriously. They need this document not so much for the payback figures that you provide there, but in order to understand how deeply you have studied the market in which you intend to operate, and whether your product / service will be in demand by your target audience, which should bring money to startup. Therefore, the preparation of a business plan should be taken very, very seriously. First of all, this document is a kind of questionnaire for yourself - have you studied the market enough, have you thought everything through in your project. Personally, I am always on my new projects - it doesn’t matter whether I am going to attract investments or not - before starting their implementation, I draw up a business plan - always with numbers. For myself and for a better understanding of what I want, what I have to do and whether I can do it myself or I will have to attract someone. In 99% of cases, those amounts

    However, the business plans of startups who want to see venture capital funds are slightly different from the standard business plans that can be found on the Internet. First of all, the fact that venture funds need accents placed a little elsewhere. Therefore, the following structure of the business plan contains the requirements that venture funds place on such documents. The above document, in particular, was compiled by the ROSNO Asset Management venture capital fund , but other venture funds will be satisfied if you present them with a business plan that comprehensively describes all the points mentioned below. The next couple of weeks I will devote a detailed transcript on the IdeaBlog.ru blogeach item that you need to describe in the business plan (and which you need to know for yourself!), illustrating this with examples, including from personal experience.

    The structure and content of the business plan submitted to venture funds

    The Executive Summary of the project

    * Market size and opportunities

    Here it is necessary to describe the size, dynamics and opportunities of the existing market for the proposed product or service. Bring the main competitors, if any, and also describe their capabilities, both financial and non-financial. It is necessary to describe the trends and problems existing in the market.

    * Product

    This section of the executive summary is intended for a brief description of the proposed product or service, its characteristics and the main differences from similar products of competitors or services. If this is a new product that is still under development, it is necessary to briefly describe the stage at which research or development of the product is.

    * Team

    In the section you need to give a brief description of the existing management team.

    * Business model

    It is necessary to describe in several sentences the business model of the proposed product, namely: how it is planned to manufacture and sell the proposed product or service to end consumers.

    * Investments

    The section must describe the size and purpose of the requested investment. It is also necessary to indicate here what goals I would like to achieve after attracting investment in the project.

    * Exit

    It is necessary to determine the time frame for the investor to exit the project, as well as to give suggestions on how the investor will exit the project.

    1. Market and industry

    1.1 Market development prospects

    The current section describes the market for the proposed product or service. It is advisable to bring the dynamics of the existing market, as well as give forecasts on the prospects for growth, change and development of the market. If you have access to professional research regarding the market opportunities of the product or service you are providing, you must provide a link to these studies. It is also necessary here to describe important trends and events occurring or planned in the market in question.

    1.2 Market size, segment and potential consumers

    * 1.2.1 Potential consumers

    Here it is necessary to give a complete and detailed description of potential consumers of the proposed product or service. If this product or service is the final product for retail customers, it would be interesting to see the structure of consumption and income (size, by country / region) of these consumers. If potential consumers of the proposed product are commercial enterprises, it is recommended to characterize these consumers: market share, their annual turnover (if available), the share of the proposed product in the consumption structure of these enterprises, as well as the business development trend of the described consumers.

    * 1.2.2 Segment of the proposed product / service

    The segment of the offered product / service is understood as a niche in the existing market that the offered product occupies or will occupy.

    * 1.2.3 Size and condition of the market

    This section is intended to describe the size, condition and capacity of an existing market for a product or service.

    1.3 Competition

    Here it is necessary to describe the competitive component of the project existing on the market, to list and describe all manufacturers of a competing product or service.

    * 1.3.1 Direct competition

    The direct competition section identifies and describes all products or services that can directly compete with the product offered in the project. It is also necessary here to compare the proposed product with existing or future competitors.

    * 1.3.2 Alternative competition

    Here, in contrast to the direct competition section, it is necessary to describe possible alternative competing areas with the product or service offered for sale.

    * 1.3.3 Competitive advantages

    Competitive advantages are one of the key to success in a project, therefore it is necessary to provide a detailed description of all competing advantages of the proposed product or service.

    Examples:

    Unique copy-protected technology or process (patents, etc.). The unique experience accumulated by business / managers / specialists.

    Costly, unique equipment.

    Special properties of products / services.

    Concluded exclusive contracts.

    Wide distribution network.

    * 1.3.4 Barriers

    This section should indicate the existing barriers that stand in the way of a new product and the barriers that, in turn, will help to maintain the declared share in the market of a product or service. It is also necessary to describe the barriers that need to be put in order to provide potential protection for this project from competitors.

    2. Product and technology

    2.1 Technology

    In this section, it is necessary to describe in detail the existing technology, its advantages and key components.

    2.2 Ongoing developments in terms of technology improvement

    In the section "Ongoing developments in terms of technology improvement", it is necessary to indicate those developments that are currently underway.

    2.3 Product

    * 2.3.1 Distinctive features of the product

    This section is intended for a detailed description of the product offered to end users. Here it is also necessary to indicate the main distinguishing features of this product from competing products on the market.

    * 2.3.2 Channels and product sales opportunities

    Here it is necessary to describe the main sales channels of the proposed product or service.

    Examples:

    Method of distribution of goods.

    Alleged distributors and intermediaries.

    Results of studies of potential demand.

    * 2.3.3 Features of direct application of the product

    Here it is necessary to describe all the features of the direct application of the proposed product or service.

    Examples:

    Distinctive features.

    Disadvantages.

    Hidden potential.

    * 2.3.4 Possibilities of alternative application of the product

    Here it is necessary to describe all the features of the alternative (if any) application of the proposed product or service.

    Examples:

    Distinctive features.

    Disadvantages.

    Hidden potential.

    3. Intellectual property and protection

    3.1 Intellectual property

    The intellectual property that exists in the project and is subject to patent protection should be described here.

    3.2 Existing Intellectual Property Protection

    This section should list all available patents, including PCT applications already filed.

    3.3 Planned steps for further protection

    If, in the authors' opinion, there are unprotected places regarding intellectual property in the project, the planned steps for implementing the proposed protection should be described.

    Examples:

    Patent Search.

    Submission of missing patent applications in Russia and other countries.

    4. Team

    4.1 Management team

    Here you need to describe the management team in detail:

    Brief summaries of the main managers

    Relevant experience, business achievements

    Contacts with the companies and employees of the Fund and recommendations

    Motivation of each top manager to work in business

    4.2 Technology development team

    This section should describe, by analogy with the management team, the development team participating in this project.

    4.3 Estimated strengthening of the management team

    Availability (or plans) for hiring directors:

    General Director

    Production

    Director Strategy and Business Development

    Director Financial Director

    Chief Accountant

    5. Business model

    Here you need to describe the existing or proposed business model for implementation and implementation.

    5.1 Operational activity and strategy

    * 5.1.1 Research & Development (R&D)

    The R&D section should describe the scientific component of the project, describe the ongoing developments, as well as the developments that are planned.

    * 5.1.2 Production

    The “Production” section is intended to describe:

    Buildings, constructions, and land rights.

    Main equipment, its cost and depreciation.

    Necessity and size of investments in re-equipment and repair.

    * 5.1.3 Service

    . Service is understood as necessity and structure, if necessary. , work with a client who has already become a consumer of the proposed product or service.

    5.2 Product promotion strategy

    * 5.2.1 Marketing campaigns

    Here you should describe the planned marketing campaigns, as well as key marketing points in terms of impact on the end-user loyalty.

    * 5.2.2 Estimated returns from marketing companies

    This section is intended to evaluate the effectiveness of the implementation of the above marketing campaigns. It should describe and predict:

    The dynamics of marketing investments / returns per customer

    dynamics response of the client to a specific marketing component

    Expected actions to track the effectiveness of marketing campaigns

    5.3 strategy of sales development

    * 5.3.1 The main sales channels

    in this section should describe the proposed product or promotion strategy services on the main sales channels, work with distributors and suppliers.

    * 5.3.2 Alternative sales channels

    Here, by analogy with the previous section, the same thing should be described, but with respect to alternative sales channels.

    * 5.3.3 The basic concept of the sale

    This section should describe the basic concept of promoting a product or service in the distribution network or to individual consumers.

    5.4 Dates and implementation plan

    * 5.4.1 Estimated timelines for entering the market

    Here you should describe the expected timelines for the enterprise to reach maximum capitalization and give its suggestions on the timing for the investor to exit the project.

    * 5.4.2 Main Reference Points

    This section is necessary to describe the main significant events in the life of the company.

    6. Finance

    6.1 Key Assumptions

    * 6.1.1 Sales Forecast

    Here you should describe the main provisions on which the forecast for sales is based, and also give this forecast calculation.

    * 6.1.2 Operating and capital costs

    In this section, it is necessary to describe all estimated operating and capital costs in a temporary breakdown and linked to the sales plan.

    6.2 Consolidated financial forecast

    In this section, you must provide a consolidated financial plan of the company, starting from the time of investment.

    7. Project risks

    Project risks are understood as follows:

    Stages of the industry development, current state and forecasts

    Factors affecting the increase / decrease in sales in the industry and the price of products / services

    Dependence on other industries, the threat of product substitution

    The role of the state (regulation, licensing)

    8. Investments and exit strategy

    8.1 Volume of requested investments

    Here it is necessary to describe the volume and terms for which investments are requested.

    8.2 Structure and schedule of investment consumption

    This section is necessary to describe the structure of the requested investment, consumption rate, as well as a description of the return on each item of the investment structure.

    8.3 Intended exit strategy

    This section should describe the options for investor entering and leaving the project:

    The structure of the proposed transaction and the Fund’s participation

    Description of the Fund’s exit options from the business (IPO, sale to a strategic investor, etc.)

    Potential buyers and their motives

    Availability of options for the sale of a share to the Fund or the purchase by the Fund of an additional stake.

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