Yesterday I talked with somebody who was frustrated and disappointed with his failure to get even a nibble in his search for investment in his startup. He thought, of course, that it was a matter of bad timing, and investors failing to get his vision.
However, when I asked him what he was doing to find investors, it turned out he was sending a folder with a complete business plan inside it, unsolicited, to as many investors as he could get names and address for.
Ouch! That’s a horrible way to look for investment. Don’t ever send a business plan unsolicited.
Here are my suggestions:
Step 1: Your business plan. Yes, you do need the plan, but it’s not for showing investors, it’s for laying out things such as your business idea, and the details of running that business, so you can see how they come together and understand what’s right for your company as you move ahead.
You can’t answer the questions you’ll be asked without having gone through the business planning steps. So the plan is essential for figuring out best-guess estimates of how much investment you need, and knowing what you’re going to spend it on, and how that flows through to sales and, ultimately, realistic prospects of giving those investors return on their money.
Step 2: Realistic investment plan. This is a subset of the business plan. As you work with your business plan, go through some of the vast amount of content available on VCs vs. angels and so on — there’s way more information around than anybody could digest — and develop a viable strategy. The $2 million amount is a lot for angels but not might be too little for VCs.
More important, if you don’t have a proven management team with a good record, VCs are less interested. And, also vital for VCs, you have to have a believable exit strategy that has a realistic shot at giving the investors a huge return. Do your homework on that; you could well have a viable plan for angel investment that will never get VC investment.
3. Careful implementation of the investment plan. You have to research your target investors, whether VC or angels, to select targets carefully. They have to be interested in your industry segment, your geography, your deal size, and your stage of company. There are lots of databases out there.
Success is matching your investors to your business as carefully as choosing a spouse. Getting investment from the wrong (for example, incompatible) investors is a nightmare, far worse than no investment at all.
Never again send out a business plan instead of an introduction. You will need the business plan to set your strategy, before the quest.
Later, as investors look more carefully at your business, if you get through the initial stages, they’ll look at the plan in more detail (or have someone on their staff do it. Daniel G is on the right path when he suggests just a few PowerPoint slides, but actually you’re not going to send PowerPoint slides either, slides without the person are useless. You need an introduction, and that you get however you can (it is possible, if you have the right deal).