Robert and I have been working hard on Keystone Augusta since we raised our first round of capital and in that time we have brought on board some additional people who believe in our vision.
One of these people is Kirk Hamilton and he said something that we have been saying for years:
“Nobody invests in a business plan”
Any investment is in the management team and their vision for what they are building or going to build. The business plan or the executive summary is just to make sure the people have thought through some of what they plan to do. With Keystone we are now in the position to invest in other companies and the business plan is not what will decide whether or not we do a deal.
More important things for investors include:
- The team – What do they bring to the table? How committed are they to the venture? Are the right people on the bus? What is the exit strategy?
- The industry – How has the opportunity been defined? What makes your venture defensible or primed for acquisition quickly?
- The ROI – How much money will we make relative to our investment and the risk we take? What is the IRR (internal rate of return) on our capital?
- Future capital raises – Are you raising more capital later? What happens to our equity and investment then?
- Use of funds – A statement on what you are going to do with the funds and where it takes you
- Operating history – This is if the venture is not a startup
Yes, a business plan is important, but it is not going to be what gets you investors. The exercise of writing a business plan is good for thinking through a venture in detail but you cannot realistically predict cash flow in July of year 4 because nothing ever goes according to the plan.
It is only in actually starting the venture that the real challenges and predictions will come to light, hence, getting investors early requires finding people who believe in you and your vision, people who trust that you will do your best to execute and then working extra hard to over-deliver.
Spend more time on being able to answer the above than writing the business plan because a plan but no answer to any of the above makes raising money very hard.
Good luck.
