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Venture Capital Business Plan: A Guide for Entrepreneurs

AUG.01, 2023

Are you looking for VC funding or funding from other potential investors? You need a good business idea – and an excellent business plan. Business planning and raising capital go hand-in-hand. An investor business plan is required to attract a venture capital firm. And the desire to raise capital (whether from an individual “angel” investor or a venture capitalist) is often the key motivator in business planning.

What is a venture capitalist?

A venture capitalist, often referred to as a VC, strategically allocates financial capital to early-stage, high-potential startup companies to foster exponential growth and catalyze groundbreaking innovation. By leveraging their investments, venture capitalists secure partial ownership and wield a profound influence over critical strategic decisions and operational facets. Furthermore, they impart invaluable guidance and mentorship and harness their extensive network of influential contacts and abundant resources.

Venture capitalists aim to attain considerable returns on their investments through the strategic divestment of their ownership stake in the company at a subsequent stage, commonly facilitated through an IPO or a trade sale, encompassing mergers or acquisitions. Given the inherent risks associated with their investment endeavors, venture capitalists adopt an exceptionally discerning approach, meticulously selecting a mere fraction of the myriad companies that seek their sought-after financial backing.

Their active pursuit centers around identifying enterprises that epitomize disruptive technologies or trailblazing business models, thrive within expansive and rapidly evolving markets, exhibit a significant competitive edge, and are steered by an adept and fervent management team. These are the essential elements of a compelling Business Plan for Investors that can attract the attention and support of venture capitalists.

What is a Venture Capital Firm?

Venture capital firms (VCs) are money companies that put money in and help new and scalable startups. VCs get funds from different investors and then give them to startups they think can change or make new markets. VCs use a team of experts who check the chance of new companies. These experts have different backgrounds and skills in different businesses, and they use their ideas to help VCs pick companies that are likely to do well.

Besides giving money, VCs also give their companies other benefits, such as advice and access to their network of people, which can be very important to early-stage companies.

Types of Venture Capital Investments

Venture capital investments can be classified into different types based on the company’s development stage. The main types are:

1. Seed Capital

Seed capital is the earliest funding given to an innovator or group with a vision for a novel product or service but has yet to transform it into a feasible business. Seed capital is typically used for market exploration, product creation, prototype evaluation, customer verification, etc. Seed capital is very precarious because there is no assurance that the vision will work or that there will be a market appetite for it. However, seed capital can also generate very high rewards if the vision becomes successful and attracts more funding.

2. Startup Capital

Startup capital is the funding given to a company that has created its product or service and has introduced it in the market but has yet to generate substantial revenue or profit. Startup capital is typically used for promotion, sales, distribution, customer acquisition, etc. Startup capital is less precarious than seed capital because there is some indication of product-market fit and traction. However, startup capital can also be challenging to obtain because there is still uncertainty about the scalability and sustainability of the business model.

3. Early Stage Capital

Early-stage capital is the funding granted to a company that has validated its product or service in the market and has begun generating revenue and profit but has yet to attain its full potential. Early-stage capital is typically used to diversify the product or service portfolio, penetrate new segments, recruit more talent, optimize operations, etc. Early-stage capital is less precarious than startup capital because there is more evidence and traction of the business. However, early-stage capital can also be challenging and demanding because there are more expectations and pressure from the investors.

4. Expansion Capital

Expansion capital is the funding given to a company that has attained a significant market presence, revenue, and profit growth and is ready to scale up its business to the next level. Expansion capital is usually used to acquire other entities, develop new products or services, open new outlets, increase production capability, etc. Expansion capital is less perilous than early-stage capital because the business has more stability and predictability. However, expansion capital can also be costly and dilutive because more investors are engaged, and more equity is surrendered.

5. Late Stage Capital

Late-stage capital is the funding bestowed to a company that has reached a mature stage of development and growth and is preparing for an exit event such as an IPO or a trade sale. Late-stage capital is usually used to enhance the company’s valuation, reputation, and visibility, improve financial performance, strengthen governance, etc. Late-stage capital is less perilous than expansion capital because there is more certainty and credibility in the business. However, late-stage capital can also be complex and restrictive because more regulations and obligations are involved. However, a SBA Business Plan can help late-stage companies comply with the requirements and expectations of investors.

6. Bridge Financing

Bridge financing is the interim funding granted to a company that requires short-term capital to fill an urgent need or gap until it obtains a lasting or stable source of financing. Bridge financing is typically utilized for satisfying payroll, settling bills, accomplishing a project, etc. Bridge financing is perilous because there is no assurance that the firm can secure lasting or stable financing. However, bridge financing can also be beneficial and adaptable because it can offer swift and effortless access to cash.

The following table compares the different types of venture capital investments based on their stage, amount, risk, return, and purpose:

Venture Capital and VC Funding Methods

Venture capital is a source of funding for entrepreneurs who need money to grow their businesses. VC funding methods are the terms and conditions venture capitalists agree on when investing in the companies they support. Different methods of making a venture capital deal exist based on the people involved, worth, chance, and choices. The main methods are:

1. Common stock

This is the most straightforward form of VC funding method. It involves issuing shares of common stock to investors in exchange for capital. A common stock gives the investors voting rights and dividends (if any) in proportion to their ownership stake. Common stock is usually preferred by early-stage companies with low valuation and high risk.

2. Preferred stock

This is a more complex and sophisticated form of VC funding method. It involves issuing shares of preferred stock to investors in exchange for capital. Preferred stock gives the investors preference over common stockholders regarding dividends, liquidation, and conversion rights. Preferred stock is usually preferred by later-stage companies that have higher valuations and lower risk.

3. Convertible debt

This is a mixed form of VC funding method. It means giving the investors a debt instrument that can be converted into shares later or when some conditions are satisfied. Convertible debt pays the investors interest and money back until it gets converted. Early companies with unclear worth and a high chance of failure often choose convertible debt.

4. SAFE (Simple Agreement for Future Equity)

This is a newer and simpler form of VC funding method. It means making a deal with the investors that lets them get shares in the future at a fixed worth or lower price. SAFE only involves issuing shares or debt instruments to the investors once a future financing event occurs. SAFE is usually preferred by seed-stage companies that have uncertain valuations and high risk.

Main Sections of a Venture Capital Business Plan

A venture business plan is a document describing your business idea, market opportunity, competitive advantage, financial projections, and funding needs. It is a tool that helps you communicate your vision and strategy to potential investors and partners. A venture business plan sample should include the following sections:

1. Executive Summary

The executive summary is pivotal in your venture business plan, serving as the primary section that demands attention. It aims to present a concise yet comprehensive overview of your business idea, target market, unique value proposition, traction and milestones, financial summary, and funding request. It is vital to draft the executive summary clearly and compellingly that captivates readers and incites their curiosity to explore your venture further.

2. Company Analysis

The company analysis section delves deeper into your company’s narrative, providing a detailed account of its history, mission, vision, values, goals, objectives, team, culture, and legal structure. This section highlights your company’s noteworthy achievements and inherent strengths while addressing the potential challenges and risks it faces. Moreover, it presents a compelling case for the qualifications and capabilities of your team, demonstrating their aptitude in executing the business plan.

3. Industry Analysis

The industry analysis section demonstrates your understanding of the market you operate in or plan to enter. It should provide relevant information about your industry’s size, growth, trends, drivers, challenges, opportunities, and outlook. It should also identify and analyze your industry’s key segments and sub-segments.

4. Customer Analysis

The customer analysis section is important as it outlines and describes your target market and various customer segments. It should encompass a detailed profile of your ideal customers, covering their demographics, psychographics, behaviors, needs, pains, desires, preferences, and purchasing patterns. Furthermore, this section should include an estimation of your product or service’s total addressable market (TAM), serviceable available market (SAM), and serviceable obtainable market (SOM).

5. Competitive Analysis

The competitive analysis section is crucial in identifying and evaluating direct and indirect competitors. It thoroughly assesses their strengths, weaknesses, strategies, products, services, prices, features, benefits, market share, customer satisfaction, and distinctive factors. Additionally, this section explains your market positioning strategy, emphasizing your competitive advantages and unique selling points.

6. Marketing Plan

The marketing plan section outlines your marketing strategy and tactics for reaching and attracting your target customers and generating sales and revenue. It should cover the following elements:

• Product and service
• Distribution
• Marketing process
• Marketing Physical Evidence

7. Operations Plan

The operations plan section describes how you will run and manage your business daily. It should cover the following aspects:

• Human Resources
• Legal issues and requirements

8. Financial Plan

The financial plan section provides a detailed projection of your financial performance and position for three to five years. It should include the following components:

• Income Statement
• Cash Flow Statement
• Balance Sheet
• Break-Even Analysis
• Funding Request
• Funding Sources
• Exit Strategy

OGSCapital for Your Venture Capital Business Plan

Are you looking for an answer to: How to write a venture capital business plan? Our business plan experts at OGSCapital can help. We have a team of professional business plan writers with over 15 years of experience offering business plan writing services. We have helped over 5,000 clients attract more than $2.7 billion in financing. Here are some of the reasons why you should choose OGSCapital for your venture capital business plan:

OGSCapital can provide you with the following benefits:

• A customized and high-quality business plan
• Comprehensive and in-depth market research and analysis
• A realistic and accurate financial model and projections
• A persuasive and compelling executive summary
• A professional and attractive design and layout of your business plan
• Fast and reliable delivery within 10 to 15 days
• A revision after receiving the first draft of your business plan

If you’re also confused about how to write a business plan for venture capital that stands out from the crowd and increases your chances of getting funded, contact our experts at OGSCapital today.

Frequently Asked Questions

1. What do venture capitalists look for in a business plan?

A business plan to raise venture capital should demonstrate a great business idea, a talented and experienced team, a unique and valuable product or service, a market validation, a huge and expanding market, and a good deal and exit strategy. Plus, it should be clear, concise, well-researched and realistic.

2. What is the golden rule for venture capitalists?

For venture capitalists, people matter more than ideas. They look for entrepreneurs and managers with passion, dedication, flexibility, and willingness to learn from feedback. Venture capitalists believe these are the essential qualities that make or break a venture.

Download Venture Capital Business Plan Sample in PDF

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

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Venture Capital Business Plan

• Written By Dave Lavinsky

As a startup company, one of the most important things you can do is to create a business plan that will secure funding from venture capitalists. But what exactly is a business plan for a venture capitalist?

A business plan is a comprehensive document that outlines the business goals and strategies of a company seeking venture capital investment. It typically includes detailed information about the company’s product or service, market analysis, financial projections, and management team bios.

A business plan for potential investors must be well-written and well-presented to impress those looking to fund your business. It should clearly state why the company needs funding and how it will be used. The financial projections should be realistic and backed up by market research. The management team should be able to demonstrate their expertise in running a business.

If you are a startup company looking for venture capital investment, it is essential to create a well-crafted business plan that will impress potential investors.

Who are Venture Capitalists? 

A venture capitalist (VC) is an individual or firm that invests its capital in startup companies in exchange for ownership equity. They are typically looking for high-growth businesses with solid business plans and a team of experienced entrepreneurs.

VCs can provide much-needed capital to young companies, but they also bring expertise and guidance. In return for their investment, VCs typically require a seat on the company’s board of directors and a share of the profits.

What are Venture Capital Firms? 

A venture capital firm is an organization that invests money in startup companies in exchange for a percentage of ownership in the company. In return for their investment, venture capitalists typically require a seat on the company’s board of directors and a share of the profits.

There are many venture capital firms around the world, but not all of them are interested in investing in every type of company. It is important to do your research and find the right VC firm for your business.

Types of Venture Capital Investment

There are two main types of venture capital investment: equity financing and debt financing.

Equity financing is when VCs invest venture capital in exchange for a percentage of ownership in the company. This type of financing is typically used by early-stage companies that need a large amount of capital to get started. In return for their investment, VCs typically require a seat on the company’s board of directors and a share of the profits.

Debt financing is when VCs provide a loan of venture capital to the company in exchange for interest payments. This type of financing is typically used by more established companies that need a smaller amount of capital. In return for their investment, VCs typically require a personal guarantee from the company’s founders.

There are different stages of investment or funding for startup companies . They are:

Seed Funding

Seed funding is the earliest stage of venture capital investment. It typically goes to businesses just starting and has not yet launched their product or service. Seed funding can be used to cover the costs of research and development, marketing, and other early-stage expenses.

Series A Funding

Series A funding is the next stage of venture capital investment. It is typically used to finance the launch of a product or service, expand into new markets, or hire additional staff. Series A funding can also be used to cover the costs of marketing and advertising.

Series B Funding

Series B funding is a form of venture capital that is usually used to help a company grow at a faster pace. It can be used to finance the expansion of a business into new markets, hire additional staff, or develop new products or services.

Series C Funding

Series C funding is typically used by companies that are ready to go public or be acquired by another company. It can also be used to finance a major expansion, such as the opening of new offices or the launch of a new product line.

How to Raise Venture Capital and VC Funding

There are several ways to raise venture capital for your startup company. One option is to take out loans from family, friends, or banks. Another option is to sell equity in your company to a venture capitalist.

If you are selling equity in your company for venture capital, it is important to have a well-crafted business plan that will impress potential investors. Your business plan should include detailed information about your product or service, market analysis, financial projections, and management team bios.

You can also use crowdfunding platforms to raise capital from a large group of people. crowdfunding is a great way to get your business off the ground, but it is important to remember that you will be giving up a percentage of ownership in your company.

What Capital Raising Options are Available for a Business?

There are a few different types of capital-raising options available for businesses. The most common options are:

One option for raising capital is to take out loans from banks or other financial institutions. This type of financing is typically used by more established businesses that have a good credit history.

Venture Capital

Another option for raising capital is to take out investments from a venture capitalist. A venture capitalist is an individual or firm that invests money in startup companies in exchange for a percentage of ownership in the company.

Crowdfunding

Crowdfunding is a newer form of financing that allows businesses to raise money from a large group of people via the internet. There are several crowdfunding platforms available, such as Kickstarter and Indiegogo.

Initial Public Offering (IPO)

An IPO is when a company sells shares of stock to the public for the first time. This type of financing is typically used by more established companies that are looking to raise a large amount of capital.

Small Business Administration (SBA) Loans

The SBA is a government agency that provides loans to small businesses. These loans are typically used by businesses that may not qualify for traditional bank financing.

Which Capital Raising Option is Right for Your Business?

The type of capital-raising option that is right for your business will depend on many factors, such as the stage of your business, the amount of money you need to raise, and your credit history.

If you are just starting, you may want to consider crowdfunding or an SBA loan. If you have a good credit history, you may be able to get a bank loan. If you are looking to raise a large amount of money, you may want to consider an IPO.

No matter which option you choose, it is important to have a well-crafted business plan that will impress potential investors. Your business plan should include detailed information about your product or service, market analysis, financial projections, and management team bios.

Startup Companies Business Plan Template

If you are a startup company looking for venture capital investment, it is essential to create a well-crafted business plan that will impress potential investors. Use this business plan template to get started:

Executive Summary

The executive summary is a brief overview of your company’s history, mission, and objectives. It should be no more than two pages long.

Company Description

The company description should provide an overview of your business, including your products or services, market analysis, and target customers.

Management Team

The management team section should include bios of your executive team and any other key personnel.

When writing about the management team section of a business plan, you should include bios of your executive team and any other key personnel. This section should also include a description of each team member’s experience and qualifications. This is also a great section to include the management team’s motivation and why the business is raising money.

Financial Projections

The financial projections section should include your company’s historical financial information, as well as your projected income statement, balance sheet, and cash flow statement.

When writing about the financial projections section of a business plan, you should include your company’s historical financial information, as well as your projected income statement, balance sheet, and cash flow statement. This information will help potential investors understand how your company is performing financially and what the future outlook is for your business.

Investor Information

The investor information section should include your company’s equity structure and any terms or conditions that would be attached to an investment.

This business plan template will help you get started on creating a professional and impressive business plan that will attract venture capitalists. Remember to tailor the template to your specific business needs.

Raising Venture Capital FAQs

What is venture capital.

Venture capital is a type of investment that is typically used to finance the launch or expansion of a business. Venture capitalists are usually interested in high-growth companies with the potential to generate large returns.

How do I raise venture capital?

There are several ways to raise venture capital, including taking out loans, selling equity in your company, or using crowdfunding platforms. It is important to have a well-crafted business plan when seeking investment from venture capitalists.

What are the different types of venture capital investment?

The three main types of venture capital investment are seed funding, series A funding, and series B funding. Seed funding is typically used to finance the launch of a new business, series A funding is used to finance the expansion of a business, and series B funding is typically used to finance the go public or being acquired by another company.

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How Venture Capitalists Make Decisions

• Paul Gompers,
• Will Gornall,
• Steven N. Kaplan,
• Ilya A. Strebulaev

For decades now, venture capitalists have played a crucial role in the economy by financing high-growth start-ups. While the companies they’ve backed—Amazon, Apple, Facebook, Google, and more—are constantly in the headlines, very little is known about what VCs actually do and how they create value. To pull the curtain back, Paul Gompers of Harvard Business School, Will Gornall of the Sauder School of Business, Steven N. Kaplan of the Chicago Booth School of Business, and Ilya A. Strebulaev of Stanford Business School conducted what is perhaps the most comprehensive survey of VC firms to date. In this article, they share their findings, offering details on how VCs hunt for deals, assess and winnow down opportunities, add value to portfolio companies, structure agreements with founders, and operate their own firms. These insights into VC practices can be helpful to entrepreneurs trying to raise capital, corporate investment arms that want to emulate VCs’ success, and policy makers who seek to build entrepreneurial ecosystems in their communities.

An inside look at an opaque process

Over the past 30 years, venture capital has been a vital source of financing for high-growth start-ups. Amazon, Apple, Facebook, Gilead Sciences, Google, Intel, Microsoft, Whole Foods, and countless other innovative companies owe their early success in part to the capital and coaching provided by VCs. Venture capital has become an essential driver of economic value. Consider that in 2015 public companies that had received VC backing accounted for 20% of the market capitalization and 44% of the research and development spending of U.S. public companies.

• PG Paul Gompers is the Eugene Holman Professor of Business Administration at Harvard Business School and a research associate at the National Bureau of Economic Research.
• WG Will Gornall is an assistant professor at the University of British Columbia Sauder School of Business.
• SK Steven N. Kaplan is the Neubauer Family Professor of Entrepreneurship and Finance and the Kessenich E.P. Faculty Director of the Polsky Center for Entrepreneurship at the University of Chicago.
• IS Ilya A. Strebulaev is the David S. Lobel Professor of Private Equity and a professor of finance at the Stanford Graduate School of Business. He is also the founder of the Stanford GSB Venture Capital Initiative and a research associate at the National Bureau of Economic Research.

Partner Center

A Guide to Venture Capital for Startups

Table of Contents

Introduction.

• What is Venture Capital
• Early Stage
• The Process
• Pros of Venture Capital for Startups
• Cons of Venture Capital for Startups

Every year, entrepreneurs create 50 million startups . But despite the millions of startup companies that exist in the world, only about 10% make it past their first year, and 90% of startups ultimately fail. One of the most common problems for startups? Cash flow.

As much as 82% of businesses that fail do so because of cash flow issues. Maybe they burn through funding too quickly, or they may fail to secure enough funding in the first place.

Venture capitalists know the risks of investing in businesses. But with the chance to help fund a unicorn —a private startup valued at over $1 billion—venture capitalists are more willing to take a chance on startups, even if they don’t have any other funding or assets in the early stages of the company.

What is Venture Capital?

Venture capital, sometimes abbreviated as VC, is a form of startup financing and a type of private equity that allows a startup business to offer a large share of their company to an investor or a few investors in exchange for funding or other benefits, like mentorship or talent.

Venture capital can come with high risks and high rewards for both investors and startups. Startups can secure funding through venture capital without needing to make monthly repayments, but they may need to give up some control over the creativity and management of the company. For investors, there’s a huge risk that the startup will fail, but there’s also an opportunity to make money if the startup takes off.

Types of Venture Capital

There are three main types of venture capital that a startup may pursue, depending on how new the business is. For instance, brand new startups that are still finalizing their ideas may pursue pre-seed funding , while businesses that are ready to start selling their product or service may seek out seed funding . Startups that have already had some success in their sales and are ready to expand production may try to secure early-stage funding .

Pre-Seed Funding

Brand new startups may seek VC through pre-seed funding. In this round of funding, a startup is beginning to form its business by creating a business plan and developing its first products or services to sell. 

Although pre-seed funding typically involves a startup earning funding through bootstrapping or getting investments from family and friends, promising startups may gain attention from venture capitalists willing to take a risk on a disruptive idea.

Seed Funding

At the seed stage, a startup has a product or service that is ready to hit the market, but they need capital to start running the business until they make enough sales to turn a profit. This can be a great point for startups to seek out venture capital to fund the business without the stress of a repayment deadline, should sales not hit their goals.

Early-Stage Funding

Early-stage funding often involves rounds of funding that allow businesses to access more capital as they grow. Businesses that started selling a product or service and have had a lot of interest may seek out venture capital in early-stage funding to expand their operations and increase sales.

At this stage, a startup exhibits measurable growth, making it even more attractive for venture capitalists to invest.

The Process of Getting Venture Capital

The startup funding process for securing venture capital can be lengthy because venture capitalists are typically looking for a long-term partnership. They need time to thoroughly vet the startup and determine whether or not to invest. Securing VC funding typically takes about 3 to 9 months from initial contact to funding, although the time-frame will vary case by case. Then, it will be several years from when the firm or investor starts providing funding to when they exit.

Initial Contact and Meeting

Either the startup or the venture capital firm will initiate contact to express interest in funding. There are several ways a startup can reach out to a venture capital firm or investor, such as:

• Sending a cold email
• Connecting at an industry event
• Getting an introduction from someone in your network

After connecting, the parties will set up a meeting to discuss the startup and potential funding.

Share the Business Plan

If the venture capital firm is interested in the startup after the first meeting, they’ll want to see your pitch deck and business plan before you can move on to negotiating and signing a deal. The business plan should be thorough, spelling out the idea, the competition, the overall market, the target audience, how the business will operate, goals for the long-term, and how much funding the startup needs.

Due Diligence

The venture capital firm or investor will do due diligence by investigating the business. The firm or investor will need to thoroughly analyze the company, from its business plan to its management and operations.

The startup should also perform due diligence. Venture capitalists will often own up to half of the company’s equity, so the startup founder should review the VC firm or investor, such as reviewing the success of past investments.

Negotiation and Investment

Now that both parties have expressed interest and have gone through due diligence, they can begin negotiating the agreement terms. The negotiation will focus on how much funding the venture capitalist will invest and how much equity the startup will offer in exchange for the investor.

With the agreement signed, the venture capitalist will provide funding as outlined by the terms in the contract. This may involve providing all funding upfront, or the firm or investor may offer one amount upfront and additional funding as the company moves through series funding rounds. Typically, VC funding terms span 10 or more years , according to the U.S. Securities and Exchange Commission (SEC).

Unlike a bank or lender, a venture capitalist will have some ownership through equity in the company. That means they may be more involved in the operations, even joining the startup’s board of directors or advisory team.

The venture capital firm or investor may help with technical operations, management, or hiring new employees. The venture capitalist can also connect startups to other investors, talent, or customers.

Eventually, the venture capitalist will enact its exit strategy , or way of leaving the company by selling their shares. Typically, a venture capitalist will exit when they feel they have hit the maximum profit possible, or they may exit a startup that is on the down-trend in order to minimize the amount of money they are losing in the investment.

There are multiple exit strategies a venture capitalist might take, including:

• Initial public offering (IPO): The startup goes public, selling shares of the company to the public on the stock market. This is a popular exit strategy that is on the rise. In fact, 2021 was a record year with 1,035 IPOs in the U.S.
• Secondary sale: A venture capitalist may exit by selling their shares to another venture capitalist.
• Mergers and acquisitions (M&A): A merger is when two companies join to form one company, and an acquisition is when one company buys another. In acquisitions and some mergers, one company may buy the majority of shares in the startup, allowing the venture capitalist to exit.
• Buybacks: A successful startup may earn enough revenue and build up enough cash to buy out shares from investors.

Pros of Venture Capital

Venture capital for startups can be an accessible way to gain more than just funding but also to grow your network and gain mentorship, too. Some benefits of venture capital for new and growing businesses include:

Secure Funding Without Repayments

If a startup founder doesn’t feel comfortable making repayments to a bank or other lender by a set deadline, venture capital can be a more accessible path to funding. Venture capital provides funding in exchange for equity, so the repayment is in the form of part ownership of the company.

If the startup does fail, the founder doesn’t have to stress about repaying an institution. The venture capital assumes risk when they offer the investment, and they will have an exit strategy in place to sell their shares.

Tap Into Talent

In addition to funding, venture capitalists may also provide access to mentorship or other expertise. For startup founders who may not have all the skills needed to manage a business, bringing in a venture capitalist can help fill those gaps.

Venture capitalists may also assist in hiring new employees and can even offer connections to talent as the business looks to expand its team.

No Funds or Assets Needed

Although having a growing business that’s already making sales can help make your startup a less risky investment to venture capitalists, there are firms and investors willing to take on startups that are brand new. 

In order to maintain the most control over the company, a startup should seek out other funding options first, but that’s not a requirement. Venture capitalists can offer a large amount of funding, and a startup doesn’t have to have funds or assets before seeking VC.

Cons of Venture Capital

Venture capital has a lot of potential benefits for new businesses. However, venture capital for startups can also come with challenges for founders—from high competition, to get funding in the first place, to losing majority ownership, to venture capitalists over time.

Give Equity

If a startup founder secures a loan or grant to start their business, they don’t have to give up equity, or ownership, in the company. But if they secure funding via venture capital, the VC investor or firm will typically take between 20% and 50% equity, making them a significant owner in the business.

Share Control Over the Company

By exchanging large shares of equity for large amounts of funding from a venture capital investor or firm, a startup is also giving up some of its control over the company. Venture capitalists can help strengthen the business by helping out with operations, but they may also influence the future of the company in a way that the startup founder(s) doesn’t always agree with.

VC negotiations typically offer 20% to 50% equity in a startup, already a significant portion of ownership in the business. But a Crunchbase analysis found that by the time a venture capitalist exits, ownership hits a median of 53%. Some of the companies in the study had much higher VC ownership numbers, such as Etsy (62%), TrueCar (82%), and Sabre (97%).

Difficult to Access

In some ways, venture capital makes it easier for startups to access funding, even if the business is more of an idea than an established company making sales. But there’s still a lot of planning and work that needs to happen before securing venture capital, and there can be a lot of competition to get attention from a firm or investor. In 2022, 5,044,748 new businesses were formed in the U.S. That same year, there were about 1,000 active VC firms in the country.

Startups not only need to have a solid business plan that shows how they are prepared to operate in the long-term, but the business idea needs to be innovative and the startup should have strong potential for growth to stand out from the thousands of other businesses competing for investments.

Is Venture Capital for Startups Right for Your Business?

Venture capital is one of several methods of funding a startup. The exchange of funding for private equity can be a great fit for startups expecting rapid growth, and it’s also a beneficial path for startups who don’t want to be stuck with monthly repayments on a loan. But venture capital for startups comes with its risks, too, including giving up some creative control to another firm or investor. Startup founders will need to weigh the benefits and risks and do their own due diligence when considering whether VC funding is the right path to jumpstarting their business.

More stories

10 Types of Startup Capital

The Killer Slide Every Pitch Deck Needs

What Is a Business Accelerator? Everything You Need To Know - HubSpot for Startups

Venture Capitalist and Business Plans – Things You Need to Know

• October 18, 2021

Who are they?

A venture capitalist is defined as a private equity investor, willing to provide capital to companies of all sizes including startup operations in exchange for an equity stake. The key to attracting a venture capitalist is proving to them that your business has high growth potential. Venture capitalists are known to be hard to impress so if you have the chance to engage with one, your best bet is to put your best pitch forward.

Now, it’s true venture capitalists can be hard to impress, but on the flip side of this just know that they’re always looking for an opportunity. They’re notorious risk-takers who, despite all the odds that are often stacked up against a business concept, they will still take a leap of faith.

How do VC’s think?

When it comes to a mature company, their processing and thinking are much easier to predict. The risk is lower because the concept has been proven and establishing value is fairly straightforward. As long as they can see growth, consistent growth that gives them a strong return on their investment, the investment decision comes relatively easy. But, in the case of a new venture or startup opportunity, that’s when a venture capitalist really has to put on their hard hat to find out if the investment they’re being asked to make makes sense for their bottom line.

What are they looking for?

A venture capitalist is going to want to hear about your concept, how well you know the market, where the trends are, and where your business fits in that mix. They’re also going to want to see solid financials that give them peace of mind that the investment they’re being asked to make will yield sizable, realistic returns. All of these things and others will need to be captured in a business plan.

What Do Venture Capitalists look for in your business plan?

A venture capitalist is going to go over your business plan with a fine-toothed comb, looking for any and every instance that raises a red flag and tells them to walk away. Don’t misunderstand; they want to invest in a needle in a haystack that increases the value of their portfolio. Yes, they want nothing more than to seize a promising opportunity, but first, they have to be sure. The best way to make them feel comfortable is with a sound business plan that includes:

• Management team: Finances matter to venture capitalists, but they tend to be more interested in the team they’ll be partnering with than capital. Their thinking is that if they’re investing in sound professionals who have a true understanding of how to build and conduct business, the return on investment is likely to come. They’re typically not looking for new business people or those who don’t have the type of resume that warrants an infusion. So, when it comes to this portion of your business plan, be sure to highlight the strengths of your management team and how they add value to your business.
• Market research: Showing venture capitalists that you understand the market is another important area your business plan will need to focus on. Showing that your business will operate in a large, defined market will put them at ease and assure them that they will be in a position to receive the large ROI’s they’ve grown accustomed to. Expectations are that your business plan will include a detailed market size analysis with growth projections for five years.
• Your competitive edge: Venture capitalists will want to know what your competitive edge is – What sets your business apart from all of the others operating in your space? What is the problem your business is solving and is yours capable of best solving it? Things like this are important because not only do they represent your competitive edge; they also represent barriers to entry and this, in turn, could position them for stronger returns.

We will Craft the Ideal Business Plan that Attracts Venture Capitalists to Your Business

A venture capitalist is a viable resource for any entrepreneur regardless of the stage or size of their business. Firms and individuals like these are looking for investment opportunities, but first, they must see a sound business plan that includes all of the areas touched on above and more. Financials that show a return, marketing that is based on sound, practical strategies, and assessments of all the major players. These areas and others are all included in plans developed by the professionals at The Coley Group. Our staff of seasoned MBA writers can take your concept and sculpt a business plan that positions you to secure the funds you need to move to the next level . Please feel free to contact us for more details on how we can assist you.

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• Write Your Business Plan | Part 1 Overview Video
• The Basics of Writing a Business Plan
• How to Use Your Business Plan Most Effectively
• 12 Reasons You Need a Business Plan
• The Main Objectives of a Business Plan
• What to Include and Not Include in a Successful Business Plan
• The Top 4 Types of Business Plans
• A Step-by-Step Guide to Presenting Your Business Plan in 10 Slides
• 6 Tips for Making a Winning Business Presentation
• 12 Ways to Set Realistic Business Goals and Objectives
• 3 Key Things You Need to Know About Financing Your Business
• How to Perfectly Pitch Your Business Plan in 10 Minutes
• How to Fund Your Business Through Friends and Family Loans and Crowdsourcing
• How to Fund Your Business Using Banks and Credit Unions
• How to Fund Your Business With an SBA Loan
• How to Fund Your Business With Bonds and Indirect Funding Sources
• How to Fund Your Business With Venture Capital
• How to Fund Your Business With Angel Investors
• How to Use Your Business Plan to Track Performance
• How to Make Your Business Plan Attractive to Prospective Partners
• Is This Idea Going to Work? How to Assess the Potential of Your Business.
• When to Update Your Business Plan
• How to Write the Management Team Section to Your Business Plan
• How to Create a Strategic Hiring Plan
• How to Write a Business Plan Executive Summary That Sells Your Idea
• How to Build a Team of Outside Experts for Your Business
• Use This Worksheet to Write a Product Description That Sells
• What Is Your Unique Selling Proposition? Use This Worksheet to Find Your Greatest Strength.
• How to Raise Money With Your Business Plan
• Customers and Investors Don't Want Products. They Want Solutions.
• 5 Essential Elements of Your Industry Trends Plan
• How to Identify and Research Your Competition
• Who Is Your Ideal Customer? 4 Questions to Ask Yourself.
• How to Identify Market Trends in Your Business Plan
• How to Define Your Product and Set Your Prices
• How to Determine the Barriers to Entry for Your Business
• How to Get Customers in Your Store and Drive Traffic to Your Website
• How to Effectively Promote Your Business to Customers and Investors
• What Equipment and Facilities to Include in Your Business Plan
• How to Write an Income Statement for Your Business Plan
• How to Make a Balance Sheet
• How to Make a Cash Flow Statement
• How to Use Financial Ratios to Understand the Health of Your Business
• How to Write an Operations Plan for Retail and Sales Businesses
• How to Make Realistic Financial Forecasts
• How to Write an Operations Plan for Manufacturers
• What Technology Needs to Include In Your Business Plan
• How to List Personnel and Materials in Your Business Plan
• The Role of Franchising
• The Best Ways to Follow Up on a Buisiness Plan
• The Best Books, Sites, Trade Associations and Resources to Get Your Business Funded and Running
• How to Hire the Right Business Plan Consultant
• Business Plan Lingo and Resources All Entrepreneurs Should Know
• How to Write a Letter of Introduction
• What To Put on the Cover Page of a Business Plan
• How to Format Your Business Plan
• 6 Steps to Getting Your Business Plan In Front of Investors

How to Fund Your Business With Venture Capital Venture capitalists lend money and make equity investments in young companies.

By Eric Butow • Oct 27, 2023

Key Takeaways

• Venture capitalists are known for taking risks on new companies and innovative entrepreneurs in the hopes of gaining big returns.
• Business owners typically exchange a percentage of their company's ownership for VC backing.
• Venture capitalists are not as likely to provide seed money as angels.
• Startup capital is financing used to get a business with a proven idea up and running.
• Many will insist on placing one or more directors on the boards of companies they finance.

Opinions expressed by Entrepreneur contributors are their own.

This is part 5 / 10 of Write Your Business Plan: Section 2: Putting Your Business Plan to Work series.

Venture capitalists represent the most glamorous and appealing form of financing to many entrepreneurs. They are known for backing high-risk companies in the early stages, and a lot of the best-known entrepreneurial success stories owe their early financing to venture capitalists.

When many entrepreneurs write a business plan, obtaining venture capital backing is what they have in mind. That's understandable. Venture capitalists are associated with business success. They can provide large sums of money, valuable advice, priceless contacts, and considerable prestige by their mere presence. Just the fact that you've obtained venture capital backing means your business has, in their eyes at least, considerable potential for rapid and profitable growth.

Related: Everything You Need To Know About Attracting Venture Capitalists

Venture capitalists both lend to and make equity investments in young companies. The loans are often expensive, carrying rates of up to 20 percent. They sometimes also provide what may seem like very cheap capital. That means you don't have to pay out hard-to-get cash in the form of interest and principal installments. Instead, you give a portion of your or other owners' interest in the company in exchange for the VC's backing.

When Venture Capital Is an Option

Venture capital is most often used to finance companies that are young without being babies and that are established without being mature. But it can also help struggling firms as well as those that are on the edge of breaking into the big time.

The following are the major types and sources of capital, along with distinguishing characteristics of each:

Seed money. Seed money is the initial capital required to transform a business from an idea into an enterprise. Venture capitalists are not as likely to provide seed money as some other, less tough-minded financing sources, such as family investors. However, venture capitalists will back seedlings if the idea is strong enough and the prospects promising enough. If they see something new and exciting (usually an aspect of technology) and foresee rapid growth (and a strong potential for high earnings), they may jump in and back a fledgling startup. It's a long shot, but it does happen.

VCs, however, are less likely to provide equity capital to a seed-money-stage entrepreneur than they are to provide debt financing. This may come in the form of a straight loan, usually some kind of subordinated debt. It may also involve a purchase of bonds issued by the company. Frequently these will be convertible bonds that can be exchanged for shares of stock. Venture capitalists may also purchase shares of preferred stock in a startup. Holders of preferred shares receive dividends before common stockholders and also get paid before other shareholders if the company is dissolved.

Related: The Truth About Venture Capitalist Funding

Seed money is usually a relatively small amount of cash, up to $250,000 or so, that is used to prove a business concept has merit. It may be earmarked for producing working prototypes, doing market research, or otherwise testing the waters before committing to a full-scale endeavor.

Startup capital. Startup capital is financing used to get a business with a proven idea up and running. For example, a manufacturer might use startup capital to get production underway, set up marketing, and create some actual sales. This amount may reach $1 million.

Venture capitalists are frequently enthusiastic financiers of startups because they carry less risk than companies at the seed money stage but still offer the prospect of the high return on investment that VCs require.

Later-round financing. Venture capitalists may also come in on some later rounds of financing. First-stage financing is usually used to set up full-scale production and market development. Second-stage financing is used to expand the operations of an already up-and-running enterprise, often through financing receivables, adding production capacity, or boosting marketing. Mezzanine financing, an even later stage, may be required for a major expansion of profitable and robust enterprises. Bridge financing is often the last stage before a company goes public. It may be used to sustain a growing company during the often lengthy process of preparing and completing a public offering of stock.

Related: The Best Source Of Funding You'll Ever Find

Venture capitalists even invest in companies that are in trouble. These turnaround investments can be riskier than startups and, therefore, even more expensive to the entrepreneurs involved.

Venture capital isn't for everybody, but it provides a very important financing option for some young firms. When writing a business plan to raise money, you may want to consider venture capitalists and their unique needs.

What Venture Capitalists Want

While venture capitalists come in many forms, they have similar goals. They want their money back, and they want it back with a lot of interest and capital growth.

VCs typically invest in companies that they foresee being sold either to the public or to larger firms within the next several years. As part owners of the firm, they'll get their rewards when such sales go through. Of course, if there's no sale or if the company goes bankrupt, they don't even get their initial money back.

Related: What Is Entrepreneur Capital VS Venture Capital

VCs aren't quite the plungers they may seem. They're willing to assume risk, but they want to minimize it as much as possible. Therefore, they typically look for certain features in companies they are going to invest in. Those include:

• Rapid sales growth
• A proprietary new technology or dominant position in an emerging market
• A sound management team
• The potential to be acquired by a larger company or be taken public in a stock offering within three to five years
• High rates of return on their investment

Rates of Return

Like most financiers, venture capitalists want the return of any funds they lend or use to purchase equity interest in companies. But VCs have some very special requirements regarding the terms they want and, especially, the rates of return they demand.

Related: Why You Need To Think Twice About Venture Capital

Venture capitalists require that their investments have the likelihood of generating very high rates of return. A 30 percent to 50 percent annual rate of return is a benchmark many venture capitalists seek. That means if a venture capitalist invested $1 million in your firm and expected to sell out in three years with a 35 percent annual gain, he or she would have to be able to sell the stake for approximately $2.5 million.

These are high rates of return compared with the 2.5 percent or so usually offered by ten-year U.S. Treasury notes and the nearly 10 percent historical return of the U.S. stock market. Venture capitalists justify their desires for such high rates of return by the fact that their investments are high-risk.

Related: The Rise Of Alternative Venture Capital

Most venture-backed companies, in fact, are not successful and generate losses for their investors. Venture capitalists hedge their bets by taking a portfolio approach: If one in ten of their investments takes off and six do OK, then the three that stumble or fail will be a minor nuisance rather than an economic cold bath.

Cashing-Out Options

One key concern of venture capitalists is a way to cash out their investment. This is typically done through a sale of all or part of the company, either to a larger firm through an acquisition or to the public through an initial stock offering.

In effect, this need for cashing-out options means that if your company isn't seen as a likely candidate for a buyout or an initial public offering (IPO) in the next five years or so, VCs aren't going to be interested.

Related: Why Raising Capital Is A 4-Step Process

Being Acquired

A common way for venture capitalists to cash out is for the company to be acquired, usually by a larger firm. An acquisition can occur through a merger or using a payment of cash, stock, debt, or some combination.

Mergers and acquisitions don't have to meet the strict regulatory requirements of public stock offerings, so they can be completed much more quickly, easily, and cheaply than an IPO. Buyers will want to see audited financials, but you—or the financiers who may wind up controlling your company—can literally strike a deal to sell the company over lunch or a game of golf. About the only roadblocks that could be thrown up would be if you couldn't finalize the terms of the deal, if it turned out that your company wasn't what it seemed, or, rarely if the buyout resulted in a monopoly that generated resistance from regulators.

Related: 8 Key Factors VCs Consider When Evaluating Start-Ups

Venture capitalists assessing your firm's acquisition chances will look for characteristics like proprietary technology, distribution systems, or product lines that other companies might want to possess. They also like to see larger, preferably acquisition-minded, firms in your industry. For instance, Microsoft, the world's largest software firm, frequently acquires small personal computer software firms with talented personnel or unique technology. Venture capitalists looking at funding a software company are almost certain to include an assessment of whether Microsoft might be interested in buying out the company someday.

Going Public: Initial Public Offerings (IPOs)

Some fantastic fortunes have been created recently by venture-funded startups that went public. Initial public offerings of their stock have made numerous millionaires seemingly overnight. For example, when Twitter made its initial public offering for $26 in November 2013, the stock took off, gaining as much as 93 percent within a day and creating 1,600 millionaires. Wow! IPOs have made many millions for the venture investors who provided early-stage financing.

Related: Should You Accept Or Reject VC Funding

The 2012 passage of the Jumpstart Our Small Business Startups (JOBS) Act allows for confidential filing of IPO-related documents. This has made it easier for small business owners who do not want their numbers getting out to the public too soon. There was often concern about investors getting too much preliminary information that could influence their decision to commit to the company. Confidentiality has increased the number of IPO filings in the small business community.

Nonetheless, an IPO takes a lot of time. You'll need to add outside directors to your board, clean up the terms of any sweetheart deals with managers, family, or board members, and have a major accounting firm audit your operations for several years before going public. If you need money today, in other words, an IPO isn't going to provide it.

An IPO is also probably the most expensive way to raise money in terms of the amount you have to lay out up front. The bills for accountants, lawyers, printing, and miscellaneous fees for even a modest IPO will easily reach six figures. For this reason, IPOs are best used to raise amounts at least equal to millions of dollars in equity capital. Venture capitalists consider all these requirements when assessing an investment's potential for going public. Remember that the number of new businesses that go public is quite small.

Related: 3 Alternatives To Start-Up Venture Capital Funding

The Truth About IPOs

Many entrepreneurs dream of going public. But IPOs are not for every firm. The ideal IPO candidate has a record of rapidly growing sales and earnings and operates in a high-profile industry. Some have a lot of one and not much of the other. Low earnings but lots of interest characterize many biotech and internet-related IPOs. These tech companies are usually the ones that generate the huge IPOs and instant millionaires we read about.

Potential Pitfall of VC Funding

Many VCs insist on placing one or more directors on the boards of companies they finance. And these directors are rarely there just to observe. They take an active role in running the company.

VCs also are reluctant to provide financing without obtaining an interest in the companies they back, sometimes a very significant and controlling interest. This can make them just as influential as if they had a majority of the directors on the board, or more so.

Buzzword: Rate of Return

Rate of return is the income or profit earned by an investor on capital invested in a company. It is usually expressed as an annual percentage.

More in Write Your Business Plan

Section 1: the foundation of a business plan, section 2: putting your business plan to work, section 3: selling your product and team, section 4: marketing your business plan, section 5: organizing operations and finances, section 6: getting your business plan to investors.

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How To Approach a Venture Capitalist For Company Funding

Written by Dave Lavinsky

When you’re starting a business, one of the biggest challenges is finding the money to get it off the ground. You may have considered seeking venture capital (VC) funding but don’t know where to start. This article will walk you through the process of approaching venture capitalists for funding.

Decide If a Venture Firm or VC Funding Is Right For You

Before you even bother to approach a venture capitalist, you need to decide if this type of funding is right for your business. There are many types of businesses that are venture-funded materials, not just software companies. Typically, VCs are looking to invest in companies that have the potential for high growth. They want to see a business with a large addressable market, a strong team, and a unique product or service. If your business doesn’t fit these criteria, you may want to look into other funding options, such as small business loans or crowdfunding.

Research Potential VCs & Network

There are hundreds of venture capitalists (VCs) and venture capital firms out there, so you need to do your homework to find the ones that may be a good fit for your business. Start by looking at VC firms that have invested in companies in your industry. Then, narrow down your list by looking at things like the size of investments they typically make and their investment stage preferences. You can also check out VC portfolio companies such as Crunchbase or PitchBook.

Although many entrepreneurs and firs time founders prefer a warm introduction there is nothing wrong with emailing, especially if they are not directly in your network.  That being said, the best way to approach a VC is through a personal introduction. See if you have any mutual connections that can introduce you. If not, many first-time founders try attending industry events or conferences where VCs will be in attendance.  

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Know How VCs Assess Companies

Before networking or pitching to a VC, entrepreneurs need to understand what most VCs want and how they assess companies. They are looking for a few key things:

• A large addressable market: They want to see that your product or service has the potential to be used by a large number of people.
• A strong founding team: Venture Capitalists invest in people as much as they do in ideas. They want to see that you have a strong team in place that has the skills and experience necessary to execute your plan.
• A unique product or service: They want to see that you have a differentiated offering that can’t be easily replicated by your competitors.

Develop A Solid Venture Capital Business Plan & Create a Pitch Deck

Once you understand what VCs tend to look for, you need to develop a solid plan that addresses these key points. Most entrepreneurs’ plans include things like a company mission and vision, an executive summary, a market analysis, a competitive analysis, and your go-to-market strategy.

In addition to a business plan, you’ll also need to create a pitch deck to present to potential investors and VC partners. Your pitch deck should be around 10-20 slides and cover topics like problem/solution, the business’s initial approach, market opportunity, business model, founding team, and financials.

Prepare For Due Diligence & Get A Valuation 

If a VC is interested in investing in your company, it will likely do a thorough due diligence process. This is when they will dig into your financials, your business model, your competitive landscape, and anything else that could potentially affect their investment. It’s important to be prepared for this process and have all of your documentation in order.

Getting a valuation is one of the most important aspects of raising venture capital. This is because it will determine how much equity you will have to give up in order to raise the money you need. There are a few different methods that VCs use to value companies, so it’s important to understand these before you start pitching to investors.

Common Methods to Value Companies

• The venture capital method is typically used for early-stage companies that don’t have much revenue. This method values a company based on its potential future returns.
• The discounted cash flow method is typically used for more established companies that have a history of revenue and cash flow. This method values a company based on its expected future cash flows.
• The comparable companies method is typically used for public companies. This method values a company based on the valuation of similar companies in the market.

Knowing which method VCs will use to value your company will help you determine how much equity you will need to give up to raise the money you need.

Know Your Financials And Other Metrics

In addition to knowing your valuation, it’s also important to know your financials and other key metrics. This includes things like your burn rate, your churn rate, your customer acquisition costs, and your lifetime value of a customer. This information will be important when you are pitching to investors and negotiating your investment.

Rehearse Your Pitch

Once you have everything in order, it’s time to rehearse your pitch. This is where you will practice delivering your presentation to make sure that you are confident and polished when you meet with potential investors. Practicing will also help you memorize all the details so you can focus on delivering a great pitch.

You can practice your pitch with friends, family, or even VCs themselves. The more you practice, the better you will be at delivering your pitch and closing a deal.

Ask Them Questions

Finally, don’t forget to ask the VCs questions during your meeting. This shows that you are interested in their opinion and that you value their input, while also ensuring that the one you choose is the right VC for your startups. Asking questions also gives you an opportunity to get feedback on your business and see if there are any areas that you need to improve.

Some great questions to ask VCs include:

• What companies have you invested in?
• What kind of companies are you looking to invest in?
• How much money do you usually invest?
• What is your role in the companies you’ve invested in?

Pitching to VCs can be a daunting task, but it is necessary to get the funding you need to grow your business. By following these tips, you will be better prepared to approach VCs and close a deal.

Frequently Asked Questions

How do you find vcs.

There are a few different ways to find VCs. You can search online, attend investor events, or network with other entrepreneurs.

What is the best way to approach a venture capitalist?

The best way to approach a venture capitalist is to be prepared before trying to raise money. This includes having a well-researched business plan, a solid pitch deck, and knowing your financials.

What do VCs look for in a company?

VCs look for companies with high growth potential. They also want to see a strong management team, a solid business model, and a market opportunity.

What is the difference between a venture capitalist and an angel investor?

An angel investor is typically an individual who invests their own money in a company. A venture capitalist is usually a firm that invests other people's money.

What is a valuation?

A valuation is a process of determining the worth of a company. This can be done using different methods, such as the discounted cash flow method or the comparable companies' method.

How to Write a Venture Capital Business Plan

As the owner or CEO of a small business, you may be considering seeking venture capital investment at some point in the growth of your company. Venture capitalists are individuals or firms that invest in high-growth businesses, typically in exchange for equity.

There are several benefits to seeking venture capital investment, including the potential for a large infusion of cash and the ability to tap into the expertise of experienced investors. However, there are also some drawbacks to consider, such as giving up a portion of ownership in your company and potentially losing some control over its direction.

If you do decide that seeking venture capital investment is the right move for your business, you’ll need to put together a comprehensive business plan that outlines your company’s current state, its growth potential, and your plans for achieving that growth.

Tips for Writing a Business Plan for Venture Capital Firms

Here are some tips to help you write a venture capital-worthy business plan:

• Do your homework. Before you start writing your business plan, do your research on the venture capital process and what professional investors are looking for. This will help you craft a plan that is tailored to the needs of potential investors.
• Keep it clear and concise . Venture capital investors are busy people, so make sure your business plan is clear and to the point. When writing your business plan it is important to consider the investor’s perspective and include only the most essential information and present it in an easy-to-read format.
• Focus on growth potential . VCs are primarily interested in investing in businesses with high growth potential. Be sure to highlight your company’s unique selling points and explain how you plan to achieve rapid growth.
• Put together a solid team . Investors will also want to see that your company has a strong management team in place. Make sure to highlight the experience and accomplishments of your key team members.
• Have a clear exit strategy. Venture capital investors typically invest with an eye toward eventually selling their equity stake in startup companies. As such, they’ll want to see that you have a well-thought-out plan for how and when they will be able to cash out.

By following these tips, you can put together a strong business plan that will appeal to potential venture capitalists and give you the best chance of securing the investment you need to grow your business.

Benefits of Venture Capital Investment

There are several benefits to seeking venture capital investment, including:

• The potential for a large infusion of cash . Venture capitalists typically invest much larger sums of money than traditional lenders, such as banks. This can give your business the boost it needs to expand its operations and achieve rapid growth.
• The ability to tap into the expertise of experienced investors . In addition to the money they invest, VCs can also provide valuable guidance and mentorship to help you grow your business.
• The potential for a lower cost of capital . If you are able to secure venture debt rather than equity financing, you may be able to get a lower interest rate and more flexible repayment terms.

Drawbacks of Venture Capitalist Investment

There are also some potential drawbacks to seeking venture capital investment, including

• Giving up a portion of ownership in your company. In exchange for their investment, VCs will typically want to take an equity stake in your business. This means you will have to give up a portion of the ownership and control of your company.
• Losing some control over the direction of your company. VCs will typically want to have a say in how their investment is used and may even want to be involved in decisions such as hiring and firing.
• The potential for high pressure and unrealistic expectations. Because VCs are looking to make a profit on their investment, they may put pressure on you to achieve unrealistic growth targets. This can lead to a lot of stress and can even put your business at risk if you are unable to meet their expectations.

Options to Raise Capital for Small Businesses

If you’re a small business owner looking for capital, there are a number of options available to you. In addition to seeking venture capital investment, you could also:

• Apply for a small business loan from a bank or other financial institution.
• Seek out angel investors or other private investors.
• Participate in crowdfunding campaigns.
• Apply for government grants or loans.

Whatever route you decide to take, be sure to put together a strong business plan and pitch to increase your chances of success.

What is a Venture Capital Firm?

A venture capital firm is an investment company that provides financing to startups and small businesses with high growth potential. VC firms typically invest larger sums of money than traditional lenders, such as banks, and often take an equity stake in the companies they finance. In addition to the capital they provide, VC firms can also offer valuable mentorship and guidance to help small businesses grow.

Venture capitalists typically look for businesses with high growth potential that are in industries they understand well. They also typically prefer to invest in companies that are led by experienced management teams.

Venture Capitalists Business Plan Template

If you’re seeking venture capital investment for your business, you’ll need to put together a strong business plan. Your plan should include an executive summary, company analysis, industry analysis, customer analysis, competitive analysis, marketing plan, operations plan, and financial plan.

Make sure to do your research and put together a well-thought-out plan before approaching any VC firms. Remember, they are looking for businesses with high potential for growth and profitability, so you’ll need to make a strong case for why your company is worth their investment.

Executive Summary

The executive summary is the most important part of your business plan. This is where you will make your case for why your company is a good investment opportunity. Be sure to include information on your company’s history, product or service, target market, competitive advantage, and growth potential.

Company Analysis

In this section of your business plan, you will provide an overview of your company. Include information on your company’s history, mission statement, and team. Be sure to also include financial information, such as your company’s revenue and expenses.

Industry Analysis

In this section, you will provide an overview of the industry in which your company operates. Include information on industry trends, growth potential, and major players. Be sure to also include information on your target market and how your company plans to gain a competitive advantage.

Customer Analysis

In this section, you will provide an overview of your target customer. Include information on your target market’s needs and how your company plans to meet them. Be sure to also include information on your target market’s buying habits and preferences.

Competitive Analysis

In this section, you will provide an overview of your major direct and indirect competitors. Include information on their products, prices, marketing strategies, and competitive advantages. Be sure to also include information on how your company plans to compete against them.

Marketing Plan

In this section, you will provide an overview of your company’s marketing strategy. Include information on your target market, marketing mix, and promotional strategy. Be sure to also include information on your sales strategy and how you plan to generate revenue.

Operations Plan

In this section, you will provide an overview of your company’s operations. Include information on your manufacturing process, supply chain, distribution channels, and logistics. Be sure to also include information on your company’s organizational structure and how you plan to manage your team.

Financial Plan

In this section, you will provide an overview of your company’s financials. Include information on your revenue, expenses, and profits. Be sure to also include information on your funding needs, cash flow, and how you plan to use the capital you raise.

Putting together a strong business plan is essential if you’re seeking venture capital investment for your business. Be sure to do your research and put together a well-thought-out plan before approaching any VC firms. 

Venture Capital FAQs

How do i find a venture capitalist.

There are a few ways to find venture capitalists. You can attend industry events, search online directories, or contact VC firms directly.

What should I include in my business plan?

Your business plan should include an executive summary, company analysis, industry analysis, customer analysis, competitive analysis, marketing plan, operations plan, and financial plan.

What are the benefits of venture capital investment?

Venture capitalists typically invest in companies with high potential for growth and profitability. They also provide valuable resources, such as mentorship, connections, and expertise.

What are the drawbacks of venture capital investment?

One of the main drawbacks of venture capital investment is that it can be expensive. VC firms typically charge high fees, and they also take a percentage of your company’s equity.

What are my options for raising capital for my small business?

There are a few options for raising capital for a small business, including bank loans, government grants, and venture capital investment.

What is a venture capitalist?

A venture capitalist is an investor who provides capital to companies with high potential for growth and profitability. Venture capitalists typically invest in early-stage companies and take an active role in their development.

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Get the Free Business Plan Guide

Business Plan Template for Venture Capitalists

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Investing in startups is a thrilling, yet risky, venture. As a venture capitalist, you need a solid roadmap to assess the potential of each startup seeking your funding. That's where ClickUp's Business Plan Template for Venture Capitalists comes in.

With this template, you can:

• Evaluate the market opportunity and target audience to determine the startup's potential for success.
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Invest with confidence and make informed decisions by leveraging ClickUp's comprehensive Business Plan Template for Venture Capitalists. Start investing in the future today!

Business Plan Template for Venture Capitalists Benefits

When venture capitalists use the Business Plan Template, they gain several benefits that help them make informed investment decisions:

• Evaluate the market opportunity and potential for growth of startup companies
• Assess the startup's growth strategy and its alignment with market trends
• Analyze the financial projections and feasibility of the business model
• Evaluate the capabilities and expertise of the startup's team
• Make informed investment decisions based on comprehensive and structured information

Main Elements of Venture Capitalists Business Plan Template

ClickUp's Business Plan Template for Venture Capitalists provides all the essential elements to evaluate startup companies seeking funding:

• Custom Statuses: Track the progress of each section of the business plan with statuses like Complete, In Progress, Needs Revision, and To Do.
• Custom Fields: Utilize custom fields such as Reference, Approved, and Section to include additional information and track the approval status of each section.
• Custom Views: Access five different views to analyze critical aspects of the business plan, including Topics view to focus on specific sections, Status view to see the progress of each section, Timeline view to visualize the overall timeline, Business Plan view for an overview of the complete plan, and a Getting Started Guide to assist in navigating the template.

This Business Plan Template also integrates with other ClickUp features like Docs, Goals, Automations, and Dashboards to enhance collaboration, automate workflows, and track key metrics.

How To Use Business Plan Template for Venture Capitalists

Venture capitalists can make the process of creating a business plan easier by following these steps:

1. Gather key information

Before diving into the business plan template, gather all the necessary information about the company you are considering investing in. This includes details such as the company's mission, target market, product or service offering, competitive landscape, financial projections, and growth strategy. Having a comprehensive understanding of the company will help you assess its potential and make informed investment decisions.

Use the Docs feature in ClickUp to collaborate with the company's founders and stakeholders and gather all the required information in one place.

2. Customize the template

Use the business plan template in ClickUp as a starting point and customize it to fit the specific needs and goals of the company you are evaluating. Tailor the sections and content to highlight the unique aspects of the business, its competitive advantages, and its potential for growth. This will help you assess the company's viability and determine if it aligns with your investment criteria.

Utilize the custom fields feature in ClickUp to add specific data points or metrics that are important for evaluating the company's potential.

3. Analyze and evaluate

Once the business plan is complete, thoroughly analyze and evaluate each section to gain insights into the company's strengths, weaknesses, opportunities, and threats. Assess the market potential, the team's capabilities, the scalability of the business model, and the potential return on investment. Look for any red flags or areas that require further clarification or due diligence.

Use the Goals feature in ClickUp to track and measure the company's performance against its projected milestones and targets.

4. Collaborate and communicate

After analyzing the business plan, it's essential to collaborate and communicate with the company's founders and stakeholders. Schedule meetings or video calls to discuss the plan, ask questions, seek clarifications, and provide feedback. This collaborative approach will help build trust, foster a strong relationship, and ensure alignment between your investment goals and the company's strategic vision.

Use the Email and Integrations features in ClickUp to streamline communication and easily share feedback and updates with the company's team.

By following these steps and utilizing ClickUp's business plan template, venture capitalists can effectively evaluate potential investment opportunities and make informed decisions that align with their investment strategies.

Get Started with ClickUp’s Business Plan Template for Venture Capitalists

Venture capitalists can use the Business Plan Template in ClickUp to efficiently evaluate startup companies and make informed investment decisions.

First, hit "Add Template" to sign up for ClickUp and add the template to your Workspace. Make sure you designate which Space or location in your Workspace you’d like this template applied.

Next, invite relevant members or guests to your Workspace to start collaborating.

Now you can take advantage of the full potential of this template to assess business plans:

• Use the Topics View to navigate through different sections of the business plan
• The Status View will help you track the progress of each business plan
• The Timeline View allows you to visualize the key milestones and deadlines
• The Business Plan View provides a comprehensive overview of the entire plan
• The Getting Started Guide View offers step-by-step instructions for using the template effectively
• Organize business plans into four different statuses: Complete, In Progress, Needs Revision, To Do, to keep track of progress
• Customize the Reference, Approved, and Section custom fields to add additional information and categorize business plans
• Update statuses and custom fields as you review and assess each business plan
• Monitor and analyze business plans to make informed investment decisions
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How to Present a Business Plan to Venture Capitalists

Last Updated: March 23, 2023

This article was co-authored by Pete Canalichio . Pete Canalichio is a Brand Strategist, Licensing Expert, and Founder of BrandAlive. With nearly 30 years of experience at companies such as Coca-Cola and Newell Brands, he specializes in helping brands find the most authentic parts of their story to build a brand strategy. Pete holds an MBA from the University of North Carolina at Chapel Hill and a BS in Physics from the United States Naval Academy. In 2006, he won an MVP Award from Newell Brands for his contributions to their Global Licensing department. He’s also penned the award-winning book, Expand, Grow, Thrive. This article has been viewed 48,645 times.

A venture capitalist (VC) is a person or organization that invests in another’s business or business idea. If you have contacted a VC about investing in your business and have received an invitation for an interview, you will need to prepare your business plan to present during the interview. To present a business plan to a venture capitalist, follow the steps below.

• The company's purpose. Make it short and to the point. For example, a company who manufactures educational products for children may state its purpose as, "to provide children with high quality, inexpensive, educational materials".
• Your target audience. Your target audience is the group of people to whom you will market your product or service. For example, a manufacturer of children's educational products may serve children all across the United States or a tax preparation company may serve tax payers in a certain county or state.
• A description of your company’s product(s) and/or service(s). Describe what your company's product or service is, what it does or how it works, and why someone should want to buy or use it. For example, a tax preparation company may provide faster, more accurate, and less expensive income tax preparation services to tax payers in the area than any other company.
• An explanation of what the company wishes to accomplish. For example, an animal shelter may wish to "ensure that all homeless and abused animals find caring, loving homes" or a tax preparation company may wish to "make fast, accurate tax preparation available to all taxpayers".

• Your company contact information. This includes your company name, logo, tagline, if you have one, the businesses' physical address and your name and personal telephone number.
• An introduction to your product. Provide a brief description of the product or service your company offers. You might want to use photos or illustrations of the product in appropriate places, or include a video demonstration of the product.
• Your company’s financial information. A summary of your most recent profit and loss statement, your current budget, and a financial projection for the following year should be included in the financials. Consider using bar graphs and pie charts to illustrate the most important points.
• A marketing plan. The plan should be a summary of your marketing strategy from your business plan, and should include just the most important points. You may wish to illustrate your points with charts or graphs to make the plan easier to read and understand.
• A description of the competition. Identify and name your competition. Describe the competition’s product and marketing strengths and weaknesses. You may also want to briefly describe why your product is better than your competitor’s product and how you will convince potential customers of that.
• A summary of why the VC should invest in your company. Create a bulleted list of your company’s main attractions or write a paragraph selling your product and your company. However you format it, this is your last chance to 'pitch' your product to the VC.

• Experience. A team member’s experience is important to a VC. After all, new companies fail everyday due to a simple lack of experience. Your team’s previous experience and successful business ventures will help convince a VC that your business will succeed and is worth investing in.
• Education. A team member's educational background is important to a VC considering investing in your company. Well-educated members can give your company an advantage over those company's without educated team members. Describe each member’s education and any degrees he or she possess.
• Personal characteristics. Your team member's character and personality traits are an important factor in whether your business will be successful or not. Hard working, intelligent, creative, reliable, trustworthy team members are more apt to create and run a successful business than lazy, unreliable, and dishonest team members. Talk about your team members’ strengths and how they will contribute to the success of your business.

Expert Q&A

• Practice your presentation. Enlist the help of friends and family to act as an audience so that you may practice your speech and slide show presentation. Thanks Helpful 3 Not Helpful 0
• Allow plenty of time for a question and answer session after your presentation. Thanks Helpful 4 Not Helpful 1
• Keep it short. Twenty minutes is the maximum length for a good VC presentation, and many experts recommend that you keep it to no more than 10 minutes. Thanks Helpful 0 Not Helpful 0

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• http://www.insead.edu/facultyresearch/areas/entrepreneurship/Newsletter/edition3.htm#FAQs

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What Is Venture Capital (VC)?

• Understanding VC

Types of Venture Capital

How to secure vc funding.

• Pros and Cons

Angel Investors

Venture capital success, the bottom line.

• Alternative Investments
• Private Equity & VC

What Is Venture Capital?

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Venture capital (VC) is a form of private equity and a type of financing for startup companies and small businesses with long-term growth potential. Venture capital generally comes from investors, investment banks, and financial institutions. Venture capital can also be provided as technical or managerial expertise.

Key Takeaways

• Venture capital (VC) is a form of private equity and a type of financing for startup companies and small businesses with long-term growth potential.
• Venture capitalists provide backing through financing, technological expertise, or managerial experience.
• VC firms raise money from limited partners (LPs) to invest in promising startups or even larger venture funds.

Investopedia / Michela Buttignol

Understanding Venture Capital (VC)

VC provides financing to startups and small companies that investors believe have great growth potential. Financing typically comes in the form of private equity (PE) . Ownership positions are sold to a few investors through independent limited partnerships (LPs). Venture capital tends to focus on emerging companies, while PE tends to fund established companies seeking an equity infusion. VC is an essential source for raising money, especially if start-ups lack access to capital markets , bank loans, or other debt instruments.

Harvard Business School professor Georges Doriot is generally considered the "Father of Venture Capital." He started the American Research and Development Corporation in 1946 and raised a $3.58 million fund to invest in companies that commercialized technologies developed during WWII. The corporation's first investment was in a company that had ambitions to use X-ray technology for cancer treatment. The $200,000 that Doriot invested turned into $1.8 million when the company went public in 1955.

VC became synonymous with the growth of technology companies in Silicon Valley on the West Coast. By 1992, 48% of all investment dollars went into West Coast companies; Northeast Coast industries accounted for just 20%. During 2022, West Coast companies accounted for more than 37% of all deals while the Mid-Atlantic region saw just around 24% of all deals.

• Pre-Seed: This is the earliest stage of business development when the founders try to turn an idea into a concrete business plan. They may enroll in a business accelerator to secure early funding and mentorship.
• Seed Funding: This is the point where a new business seeks to launch its first product. Since there are no revenue streams yet, the company will need VCs to fund all of its operations.
• Early-Stage Funding: Once a business has developed a product, it will need additional capital to ramp up production and sales before it can become self-funding. The business will then need one or more funding rounds, typically denoted incrementally as Series A, Series B, etc.

$285 billion

The amount global VC-backed companies raised in 2023.

• Submit a Business Plan: Any business looking for venture capital must submit a business plan to a venture capital firm or an angel investor . The firm or the investor will perform due diligence , which includes a thorough investigation of the company's business model , products, management, and operating history.
• Investment Pledge: Once due diligence has been completed, the firm or the investor will pledge an investment of capital in exchange for equity in the company. These funds may be provided all at once, but more typically the capital is provided in rounds. The firm or investor then takes an active role in the funded company, advising and monitoring its progress before releasing additional funds.
• Exit: The investor exits the company after some time, typically four to six years after the initial investment , by initiating a merger , acquisition, or initial public offering (IPO) .

Many venture capitalists have had prior investment experience, often as equity research analysts . VC professionals tend to concentrate on a particular industry. A venture capitalist who specializes in healthcare, for example, may have had prior experience as a healthcare industry analyst.

Advantages and Disadvantages of Venture Capital

Venture capital provides funding to new businesses that do not have enough cash flow to take on debts. This arrangement can be mutually beneficial because businesses get the capital they need to bootstrap their operations, and investors gain equity in promising companies. VCs often provide mentoring and networking services to help them find talent and advisors. A strong VC backing can be leveraged into further investments.

However, a business that accepts venture capital support can lose creative control over its future direction. VC investors are likely to demand a large share of company equity, and they may make demands of the company's management. Many VCs are only seeking to make a fast, high-return payoff and may pressure the company for a quick exit.

Provides early-stage companies with capital to bootstrap operations

Companies don't need cash flow or assets to secure VC funding

VC-backed mentoring and networking services help new companies secure talent and growth

Demand a large share of company equity

Companies may find themselves losing creative control as investors demand immediate returns

VCs may pressure companies to exit investments rather than pursue long-term growth

Venture capital can be provided by high net-worth individuals (HNWIs) , also often known as angel investors, or venture capital firms. The National Venture Capital Association is an organization composed of venture capital firms that fund innovative enterprises.

Angel investors are typically a diverse group of individuals who have amassed their wealth through a variety of sources. However, they tend to be entrepreneurs themselves, or recently retired executives from business empires. The majority look to invest in well-managed companies, that have a fully-developed business plan and are poised for substantial growth.

These investors are also likely to offer to fund ventures that are involved in the same or similar industries or business sectors with which they are familiar. Another common occurrence among angel investors is co-investing , in which one angel investor funds a venture alongside a trusted friend or associate, often another angel investor.

Due to the industry's proximity to Silicon Valley, the overwhelming majority of deals financed by venture capitalists occurred in the technology industry—the internet, healthcare, computer hardware and services, and mobile and telecommunications. In 2023, San Francisco still ranked highest among VC investments. Other industries have benefited from VC funding, including Staples and Starbucks ( SBUX ).

Google and Intel have venture funds to invest in emerging technology. In 2019, Starbucks also announced a $100 million venture fund to invest in food startups. VC has matured over time and the industry comprises an assortment of players and investor types who invest in different stages of a startup's evolution.

Why Is Venture Capital Important?

New businesses are often highly risky and cost-intensive ventures. As a result, external capital is often sought to spread the risk of failure . In return for taking on this risk through investment, investors in new companies can obtain equity and voting rights for cents on the potential dollar. Venture capital, therefore, allows startups to get off the ground and founders to fulfill their vision.

What Is Late Stage Investing?

Late-stage financing has become more popular because institutional investors prefer to invest in less-risky ventures, as opposed to early-stage companies where the risk of failure is higher.

How Have Regulatory Changes Boosted VC?

The Small Business Investment Act (SBIC) in 1958 boosted the VC industry by providing tax breaks to investors. In 1978, the Revenue Act was amended to reduce the capital gains tax from 49% to 28%. In 1979, a change in the Employee Retirement Income Security Act (ERISA) allowed pension funds to invest up to 10% of their assets in small or new businesses. The capital gains tax was reduced to 20% in 1981. These developments catalyzed growth in VC and the 1980s turned into a boom period for venture capital, with funding levels reaching $4.9 billion in 1987.

Venture capital represents a central part of the lifecycle of a new business. Before a company can start earning revenue, it needs start-up capital to hire employees, rent facilities, and begin designing a product. This funding is provided by VCs in exchange for a share of the new company's equity.

World Intellectual Property Organization, " Global Innovation Index 2022 ," Pages 32-33.

University of Pennsylvania, Wharton Faculty Research. "Organizing Venture Capital: The Rise and Demise of American Research & Development Corporation, 1946–1973 ," Page 17.

The Business History Conference. " The Rise and Fall of Venture Capital ," Pages 5-8.

The Business History Conference. " The Rise and Fall of Venture Capital ," Page 8.

National Venture Capital Association. " Pitchbook-NVCA Venture Monitor Q4 2022 ," Download Excel Spreadsheet, Select "Deals x Region."

CrunchBase. " Global Startup Funding In 2023 Clocks In At Lowest Level In 5 Years ."

National Venture Capital Association. " NVCA Members ."

EY. " Venture Capital Investment Remains Slow as Market Seeks New Normal ."

Intel Capital. " Intel Capital Invests $132 Million in 11 Disruptive Technology Startups ."

Google Ventures. " Home ."

Starbucks. " Starbucks Commits $100 Million as Cornerstone Investor in Valor Siren Ventures I ."

American Economics Association. " Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn ," Pages 238-244.

United States Department of Treasury. " Report to Congress on the Capital Gains Tax Reductions of 1978 ," Page i.

U. S. Congress. " S. 209, The ERISA Improvements Act of 1979: Summary and Analysis of Consideration ," Page 69.

United States Congress. " H.R.4242 - Economic Recovery Tax Act of 1981 ."

The Business History Conference. " The Rise and Fall of Venture Capital ," Page 10.

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The Zen of Business Plans

• Write for all the right reasons . Most people write business plans to attract investors, and while this is necessary to raise money, most venture capitalists have made a “gut level” go/no go decision during the PowerPoint pitch. Receiving (and possibly reading) the business plan is a mechanical step in due diligence. The more relevant and important reason to write is a business plan, whether you are raising money or not, is to force the management team to solidify the objectives (what), strategies (how), and tactics (when, where, who). Even if you have all the capital in the world, you should still write a business plan. Indeed, especially if you have all the capital in the world because too much capital is worse than too little.
• Make it a solo effort . While creation of the business plan should be a group effort involving all the principal players in the company, the actual writing of the business plan–literally sitting down at a computer and pounding out the document–should be a solo effort. And ideally the CEO should do it because she will need to know the plan by heart. Take it from an author, for writing to be cogent and consistent, there needs to be only one author. It’s very difficult to cut-copy-and-paste several people’s sections and come out with a good plan.
• Pitch, then plan . Most people create a business plan, and it’s a piece of crap: sixty pages long, fifty-page appendix, full of buzzwords, acronyms, and superficialities like, “All we need is one percent of the market.” Then they create a PowerPoint pitch from it. Is it any wonder why that the plans are lousy when they are based on crappy pitches? The correct sequence is to perfect a pitch (10/20/30), and then write the plan from it. Write this down: A good business plan is an elaboration of a good pitch; a good pitch is not the distillation of good business plan. Why? Because it’s much easier to revise a pitch than to revise a plan. Give the pitch a few times, see what works and what doesn’t, change the pitch, and then write the plan. Think of your pitch as your outline, and your plan as the full text. How many people write the full text and then write the outline?
• Put in the right stuff . Here’s what a business plan should address: Executive Summary (1), Problem (1), Solution (1), Business Model (1), Underlying Magic (1), Marketing and Sales (1), Competition (1), Team (1), Projections (1), Status and Timeline (1), and Conclusion (1). Essentially, this is the same list of topics as a PowerPoint pitch. Those numbers in parenthesis are the ideal lengths for each section; note that they add up to eleven. As you’ll see in a few paragraphs, the ideal length of a business plan is twenty pages, so I’ve given you nine pages extra as a fudge factor.
• Focus on the executive summary . True or false: The most important part of a business plan is the section about the management team. The answer is False.* The executive summary, all one page of it, is the most important part of a business plan. If it isn’t fantastic, eyeball-sucking, and pulse-altering, people won’t read beyond it to find out who’s on your great team, what’s your business model, and why your product is curve jumping, paradigm shifting, and revolutionary. You should spend eighty percent of your effort on writing a great executive summary. Most people spend eighty percent of their effort on crafty a one million cell Excel spreadsheet that no one believes.
• Keep it clean . The ideal length of a business plan is twenty pages or less, and this includes the appendix. For every ten pages over twenty pages, you decrease the likelihood that the plan will be read, much less funded, by twenty-five percent. When it comes to business plans, less is more. Many people believe that the purpose of a business plan is to create such shock and awe that investors are begging for wiring instructions; the reality is that the purpose of a a business plan is to get to the next step: continued due diligence with activities such as checking personal and customer references. The tighter the thinking, the shorter the plan; the shorter the plan, the faster it will get read.
• Provide a one-page financial projection plus key metrics . Many business plans contain five year projections with a $100 million top line and such minute levels of detail that the budget for pencils is a line item. Everyone knows that you’re pulling numbers out of the air that you think are large enough to be interesting, but not so large as to render urine drug-testing unnecessary. Do everyone a favor: Reduce your Excel hallucinations to one page and provide a forecast of the key metrics of your business–for example, the number of paying customers. These key metrics provide insight into your assumptions. For example, if you’re assuming that you’ll get twenty percent of the Fortune 500 to buy your product in the first year, I would suggest checking into a rehab program.
• Catalyze fantasy . Don’t include citations of some consulting firm’s supposed validation of your market. For example, “Jupiter Research says that the market for avocado-farming software like we make will be $10 billion by 2010.” No one ever believes this “validations” because the entrepreneur who pitched at 9:00 am said this about USB thumb drives; the one at 10:00 am said this about online dog food sales, and the one at 11:00 said this about smart antennas for cell phones. What you want to do is catalyze fantasy: that is, enable the reader to make her own mental calculation that this market is big. “Every Nokia Series 40 and Series 60 owner would buy this–Wow, this is a hot market!”
• Write deliberate, act emergent . I borrowed this from my buddy Clayton Christensen . It means that when you write your plan, you act as if you know exactly what you’re going to do. You are deliberate. You’re probably wrong, but you take your best shot. However, writing deliberate doesn’t mean that you adhere to the plan in the face of new information and new opportunities. As you execute the plan, you act emergent–that is, you are flexible and fast moving: changing as you learn more and more about the market. The plan, after all, should not take on a life of its own.

Written at: Atherton, California.

* Note: the question is what is the most important part of the business plan, not what is the most important part of the business itself. The management team is more important than the executive summary to the business, but the discussion of the management team is not the most important part of the business plan because if the executive summary sucks, people won’t get to the management team section.

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Guy: I’ve heard some say that a full blow business plan isn’t necessary for an early stage company to get funded these days. Rather that the real key is to know what you intend to do and be able articulate your plans to the investor. What do you think and have you ever funded a company with out a busines plan?

Guy again…

Thanks for the advice. As someone who is trying to develop an idea into a business I think that this provides a good framework in which to work. Thanks.

great advice mate. thought you were taking the weekend off! put the mac down, walk away from the mac….

Most VCs won’t even consider you without an executive summary. (unless you have connections with them, etc.) They do need some way to tell what you’re going to do with their money. Good information, Guy. Thanks.

Awesome, awesome summary Guy. Thanks. One could get buried in the myriad of “suggestions” from various sources but coming from an actual VC, this is good stuff. Great timing too as we are writing a plan right now.

The business plan part that says “the market is $25B, if we get only 1% of the market we get $250M” is downright insulting to the intelligence of the reader. I’m an accomplished entrepreneur. Because in my country VC capital is rarely available, I used bootstrapping to start my businesses. I always considered business plans to be BS. The main point is to have a very clear idea of what you want to accomplish, to have calculated some things (if possible, etc).. and you can accomplish this without a business plan.

I have worked with many small businesses as a consultant and all have had crappy business plans. Good points by the way. What I suggest to those who are writing, is to you write your business plan for starting a business without the VC. Write it in terms of really doing a business. Do it in real terms not as pretended fantasies as was earlier pointed out. Then write a separate one with a tweaked exec summary for the VC. This way all your info will be grounded and real. Thanks for the article.

I have always wondered if VCs can get a sense of the ability of a company to execute from a well-written business plan. It is easier to plan and identify opportunities and even suggest concrete actions than it is to actually do something about them.

Number seven really cracks me up. I once re-wrote the financial projections for a business plan that been written up by an accountant. He had a positively fictional level of detail, including such items as depreciation allowance for leaseholder improvements to our office space in the third year. I converted all of the overhead to 40% of salaries, and the VC’s we submitted it to said they’d never seen the figures presented so clearly before. Too bad our CEO had entrepeneur’s disease, and wouldn’t take a $200M pre-money valuation. Oh, well… -jcr

Very interesting. As Senior Adviser I find it sometimes difficult getting entrepreneurs to understand that they have to write a business plan. Your post will certainly help.

Guy, I passed your Top 10 Lies of Entrepeneurs to Ireland’s Sunday Business Post. They were featured in detail in today’s issue (22nd). As regards the task of preparing a business plan, we have publshed a list of 20 items on How NOT to Write a Business Plan. Amongst my personal favorites are: # Do mention in the marketing section that your proposed offering has no competition. This will save you having to do any market analysis. # Do develop your business strategies and ideas progressively as you write the plan. It will draw readers into the process and make the ending more unexpected ! # Do write the plan’s summary before you write the plan, or, better still, don’t include any summary. # Do spend at least ten pages describing your offering – do make this as detailed and technical as possible to impress your readers. Don’t mention any benefits as these should be obvious !

Guy’s advice here rings true with the other VCs and angels I’ve talked to, especially the part about the executive summary being super important. I know a couple VCs that only read the executive summaries. We’ve spent a wicked amount of time working on that, and are doing the 10/20/30 PP using it as a guide. It would have been easier to do it the other way around like Guy is suggesting here.

Excellent. Tell me… How much of that gut check really has to do with your confidence in the person making the presentation rather than the presentation itself? I mean, how much stake do you put on people rather than their ideas and plans?

Guys, Your blog has been INVALUABLE to me so far. I was wondering however, if this post would also apply to a non-profit I am starting. While I wouldn’t necessarily have ‘investors’ in the same sense as in a for profit capital venture, would this general framework still apply? Should I include other info to attract donors/investors in my non-profit outreach program? Thanks :) jeremy

Guy, terrific blog. I spent 6 months on the inside of a venture capital house (El Dorado Ventures) before moving onto my next start-up. I came to understand that the early-stage venture guys invest in people first. Too many times companies would come in to pitch a deal and go on endlessly about the market and then rush through the Management Team section. VCs will size up a market really quickly. Its either “big enough” or “not big enough”…and it’s not hard to put a deal into one of these two categories. But it takes time and effort to figure out if the management team is worth investing in. I think people rush through the Management Team section because they are uncomfortable talking about themselves. But I would encourage people looking for venture money to spend the time necessary to convince the VCs (both in the business plan and in the pitch) that they are the right people to invest in.

I “sorta” agree with you Guy. Number 3 doesn’t make sense to me. If a company hasn’t worked out what they are doing, how they are doing it, and who is doing it when, I’m not sure they can create the pitch first. Number 4 I don’t agree with either, fully. The Management Team is VERY important to me as a VC. I allow for a bit larger business plan, but I agree, too big and you lose out.

SIMPLY SUPERB. Presently am involved in the development of a business plan for a social venture. I confirm that your priorities listed for a truly business venture are relevant for a social venture too. In addition, a focus on social benefit should also be included in the sections. This may partly respond to the post of a reader above me in these comments. The art and craft of writing a successful business plan lies entirely in the Executive Summary. Many thanks.

What has any of this to do with zen?

I think business plans are one of the number one reasons why you should not seek outside funding. Yes they are required to reach outside funding and if you have to do this please do follow Guy’s rules. But for most small startups I think they are exceptionally bad news. They cause you to lose focus on your business and on the art of making money. I put together this list of 10 Bootstrappers Anti-Patterns where business plans are number 3 on the list. Click on my name to go to the list.

great overview for other areas as well…not just a biz plan for well, uh, start-ups. But I can see how one could use this in planning one’s life goals. It’s a thought.

Good simple business plan advice

How To Write A Business Plan

The startup guru, Guy Kawasaki, tells you how to write a business plan. His first point is to use your pitch to build the plan, not the other way around. His ideal business plan runs only eleven pages, covering

As a techie, I’d love to know more about the financial side of things. Anyone have any really good examples of business plans in the manner in which Guy suggests that I/we could take a peek at? Thanks!

The Elimination Game

I was reading Guy Kawasaki’s blog the other day and ran across this comment:True or false: The most important part of a business plan is the section about the management team. The answer is False.* The executive summary, all one

Loving your site, Guy – this is the first time I’ve taken a look. A question, possibly a dumb one: where does your customer fit into your business plan? In the problem? The marketing and sales? Everywhere? OK, so I’m in marketing. The marekting mantra is ‘customer at the centre’ – even if it’s not always achieved, that’s the ideal.

Guy Kawasaki on the zen of business plans: In my day job, I not only hear a lot of PowerPoint pitches, but I also read a lot of business plans. The PowerPoint pitches explain my Ménières disease, but the business plans explain my recent need…

by: Guy Kawasaki In my day job, I not only hear a lot of PowerPoint pitches, but I also read a lot of business plans. The PowerPoint pitches explain my Ménière’s disease, but the business plans explain my recent…

“Underlying Magic” – I think it’s pretty clear that you are planning a post on this phrase alone :) Looking forward to it! I’m curious – how many plans/presentations that you see actually really subscribe to this, and do you chuckle internally thinking “oh, you read my blog!”?

The business plan part that says “the market is $25B, if we get only 1% of the market we get $250M” is downright insulting to the intelligence of the reader. I’m an accomplished entrepreneur. Because in my country VC capital is rarely available, I used bootstrapping to start my businesses .

Guy, What would you think of the idea of writing and discussing your business plan in the face of the world instead of doint it in the secrecy of your kitchen with a couple of selected trusted individuals assembled around a table? This is exactly what we are trying to do within the BarCampBank. In particular, P2PVenture is an emergent project where we want to create a P2P screening and financing platform for startups and small business projects. Furthermore, in the good tradition of barcamps, anyone can freely contribute accessing our sites: – http://p2pventure.barcampbank.com for the site dedicated to openly creating a p2p financing platform – http://www.barcampbank.com for the site where our international community of professionals in the banking and finance industry and innovators collaborate to create new business models in every quadrant of the banking and finance industry. Cheers.

Don’t Skip the Planning Process

Experts in business planning like Guy Kawasaki, and our own Tim Berry, are all talking about the recent Wall Street Journal article “Enterprise: Do Start-ups Really Need Formal Business Plans.” The article is based on a study conducted by Professor

I with you in many respects agree you are right!

To Plan or Not To Plan

Lets say you have a great idea, you have read all the Entrepreneurial Proverbs … and youre ready to jump. Then what next ?Some one will probably tell you that it is a time for a business plan. And of course, you have no idea on how to start…

i’m trying to make a business blog for my documentary movie,the nice man cometh,which has me meet 9 different people vieing for office of the presidency.And i’m the man who talks to all of them and finds out how they feel about it all.lothar patten.

Thank you very much for posting this. It’s invaluable advice for those trying to put together a business plan, such as I am at this moment.

I think the most important point in your list is point 5. The executive summary is defenitely the most important part.

i am now a class room lecturer.And i’ve spoken to 4 classes over the last year.And i mostly do this with educational purposes in classrooms at universities.And i’m starting to be very good at it.And my pro-life style is getting better all of the time.And you may call me the professor of filmaking and class lecturor.My name is professor lothar patten.

that was a terrible thing that young man did.And it seems like all of these terrible incidents just don’t want to stop happening.And the bible said that these things would happen in the last days.Sin and crime would be on the rise.Lets pray to god for a big healing for these families.Overcome tradjedy wit love.lothar patten-author.

i’m writing a comment about how i pay my bills on bicycle.And i’ve done it for years now,and i’ll never own a car again.I prefer to be an environmentalist rather than a gas guzzler.And i love to take long bike rides.lothar patten-trekker.

The Executive Summary It may be considered all parts of a business plan are important and to some degree this is the case. However, if the purpose of preparing a business plan is to attract investors or to gain the confidence of others in the future of your business, then it is critical that the reader’s attention is gained, and retained, throughout the reading of the document. The Executive Summary will most probably be the first section of the plan to be read and it should, therefore, be succinct and written in an informed and interesting manner to encourage the reader to read more. If the reader fails to be attracted by the headline proposition then no incentive will exist to explore further.

i’ve started a column called my new life in jesus christ.And it’s progressing really well everyday.I just explain everything i do on a day to day basis and go on from there.lothar patten.

Excellent article – I guess also remember for most people a business plan doesn’t need to be a thousand pages long because a) no one will read it and b) by the time you finish it’ll be out of date. Just write what is necessary to describe how you are going to take your journey from today to where you want to be :)

Actually, “avocado-farming software” will more likely be covered by Gartner. Jupiter focuses on the consumer side of things. $10 billion market, eh? ;-)

If anyone is looking for a business plan(s) then we can reduce your workload – we have over 2000 at www.business-plans-4-you.com You could even become an affiliate… http://www.business-plans-4-you.com/idevaffiliate/index.php We hope that stops some of you staring at that blank piece of paper – it can be a daunting job!

You Got A Plan?

Imagine hiring an architect/contractor to build an expensive mansion. Youve had good recommendations on this person, and are ready to move forward. The construction team shows up to start working on the house. Mind if I look at the plan?&quo…

Solid article, Guy. I especially like the way you categorize your business plans and emphasize the Executive Summary. We have seen dozens of plans and we open directly to the exec summary 99% of the time. When we help clients write strategic or business plans we strongly emphasis the importance of linking the value they are creating for the customer directly to the operating model. Sound obvious? We rarely see a solid link between a value proposition and the mechanism for delivering that value. The operating model is usually set-up to deliver different components of customer value than the ones being communicated. www.mybilliondollarfruit-stand.blogspot.com

I completely agree about the executive summary. It is so crucial to have a executive summary that sells. If not, the rest doesn’t even matter.

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Raising private capital: tips for startups in today's market.

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Jeff Bartel is chairman and managing director of Hamptons Group, a private investment and strategic advisory firm headquartered in Miami.

Private capital activity has increased in recent years . For startups, raising private capital offers financial support for development and innovation.

Our firm's capital raises have included obtaining capital through funds and direct investment. Drawing from that experience, here is a look at the current private capital landscape and strategies for successfully raising capital.

The Current Private Capital Landscape

Private capital includes venture capital, private equity and other investment funding sources, where venture capital can help drive technological advancement through industries such as biotech, fintech and artificial intelligence.

Mature companies are a primary focus for investors interested in raising private equity capital to inject funds for strategic initiatives, acquisitions or operational improvements.

Private capital markets attract a large amount of their investments from institutional and high-capital investors. This focus stems from the flexibility in private capital transactions and the possibility of higher returns over more traditional investments.

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Building strong, personal relationships with potential investors is essential to capital acquisition. Developing genuine connections based on shared values and principles creates the trust and confidence necessary for securing investment.

Our firm endeavors to discern whether a smaller business or startup can demonstrate mission and vision alignment. When we confirm aligned impact goals and value sets, our teams build solid partnerships that ensure all deals flow seamlessly.

Founders who focus on the value proposition to the investor rather than looking only at the value of the potential investor's capital have the right approach. The best venture leaders focus on proposing versus convincing others to invest.

Other ways to build relationships with investors and improve your chances of raising capital are outlined below:

• Attending industry events. These provide a valuable opportunity to connect with investors, share insights and showcase your venture.

• Leveraging social platforms. You can strengthen your networking efforts by using social media to connect with a larger audience and participate in relevant discussions.

• Holding one-on-one meetings. These allow a personalized approach, letting you dive deeper into your business proposition and address individual investor concerns.

The Implications Of Seed Funding

Early-stage startups typically seek seed funding, which provides initial capital to validate concepts, conduct market research and develop minimum workable products. When startups begin exploring Series A funding, investors often expect clear proof of concept, market traction and a scalable business model. Series B and additional funding rounds focus on scaling operations and expanding market share to show sustainable revenue growth, operational efficiency and a solid profitability plan.

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Industries with a reputation for high failure rates are a problem for entrepreneurs trying to build capital due to investor concerns about stability. Investors are often cautious when looking at various opportunities, especially in biotech or new technology projects.

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A robust business model is a powerful tool for lowering investor concerns; it should outline a clear value proposition, articulate revenue streams and show adaptability to market dynamics.

Path To Profitability

Equally crucial is showcasing a practical path to profitability, inspiring confidence that your business is scalable and sustainable in the long run. A practical path starts with defining a vision and setting key strategic goals necessary for success. Helpful strategies when determining the vision include:

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Ultimately, actual profitability is about more than just revenue; it should include cost management, client retention and an overall focus on returning value.

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With a shift toward venture capital and private equity over traditional funding sources, one needs careful strategies for capital acquisition. The importance of seed funding, understanding volatility in high-risk industries and building trust are essential to securing financing.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

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