Real-Life Communication
You are a venture capitalist researching a company for a client.
"There is a lot of reading that has to be done," says investment advisor Michelle
Ramsey. She works with venture capitalists. "You have to read legal documents
and understand legal jargon. You have to research companies thoroughly."
You
have an intern working with you, and she wonders how you decide whether to
invest in a company. You tell her that one important research
tool is looking at the company's business plan. She wants to know more about
business plans.
Below are seven questions that an investor should ask
about a business plan. Read the list to help answer the intern's questions
at the end:
1. What is unique about this company or project?
The investor or lender is not necessarily looking for a unique product, but
one with growth potential that sets it apart from other industry members or
from other proposals received.
2. What does the company do?
The reader wants to be able to understand the company's product and services
and the operations of the company.
3. How does or will the company
attain profitability? This area entails discussion of the market and competition
as well as an analysis of areas such as revenue and profit margins.
4.
What benefit will be derived from a capital infusion? In other words,
how will the proceeds of the financing be used and what results benefiting
the investor will be achieved?
5. Is management capable of implementing
the business plan? Many investors consider this the most important element
of a business plan. An investor must be comfortable with the experience and
abilities of the management team.
6. Do the financial projections
make sense? Overly optimistic projections reflect on management's judgment.
Projections can be aggressive, but must be within the realm of the real business
world.
7. Is there an exit strategy for the investor? Does
this business have the potential to merge, be acquired, go public or buy out
the investor? This is very important. The investor must be confident that
either the debt payments can be sustained or that their stock conversion rights
have home run potential.
These are the questions the intern asks:
- Are investors more interested in a unique product, or in the growth potential
of the business?
- What question do most investors feel is the most important?
- What sort of potential is an investor looking for in a company, to make
sure that there is an exit strategy available?
(by David Pierce. Excerpted with permission from the Venture Capital
Resource Library: http://www.vfinance.com)