How to build a business plan and presentation for venture capitalists

Today I went through with a potential start-up what is required by the venture capitalists for getting funding in terms of presentation. You will never see this written in a book or even a web site - at least not from someone who has successfully received money. However, I went through this with them and someone else might be able to benefit from it.

It reminds me a bit of when Howard Shao and I were raising money for Documentum. We asked Marty Sprinzen of Forte how many slides he had and he said 12. We thought “Hah! We have 40!” Forte raised more money than we did in a much shorter period of time. Quality, not quantity is what is required.

To successfully raise money, just consider that you probably have 60 minutes at best to raise it. The VC could care less about the actual technology and is considering your business prospects. Here are the slides that you should have prepared as succinctly as possible. Keep it short and only one slide per topic!

1. Summary - Practice giving this with your most important point in less that 60 seconds. If you can give it 30 seconds, you may well have a very compelling business case. Less is more.
2. Team - Your people are your most important asset. Why is your team capable of building a business and why are they unique. What is the unique blend of skills and qualifications you have? Past experience counts a lot. Be honest about what you are missing, especially if it is a CEO. Include the roles and responsibilities of the people. Be prepared to discuss, but not include, the ownership of the company.
3. Market and Opportunity - What is the market? Give it a name. Prove the TAM (Total Addressable Market). Use analysts to support these numbers.
4. Business Model - What business model are you using to address this market? It was very important for us to describe Alfresco’s open source business model, conversion rates and distribution. How do you sell the product? What is the sales model? What is your ASP (Average Selling Price) and how many do you have to sell to make your projections? This is a good time to discuss revenue projections - all in one slide!
5. Problem and Solution - What problem are you solving and why is that problem worth spending good money on to solve? What is the before and after situation of not having and then having your product? It better have some sort of 10 times factor of benefit to have people bother.
6. Customer Traction - If you have customers, then highlight the success with high-level details and who in the organization is buying. The more brand-name the customers, the better. What is the average sales price? If there are clusters of customers (i.e. financial services, government, Northwest US, Central Europe) then indicate it here. Try to get the point across in one slide.
7. Technology - Don’t dwell on this because the VC doesn’t really care even if this is the most passionate piece for you. What they are looking for is completeness, complexity or lack thereof, and barriers to entry.
8. Competition - Who are the competitors in the market? What are their realistic strengths? Don’t underestimate the competition if you wish to look credible. What are your strategies to compete? Technology isn’t the only competitive weapon. Distribution channels, strategic alliances and better focus are often better competitive weapons.
9. Plan - Title this one “What Will We Do with the Money.” It is best to do this one as a chart. We successfully used this in our last round of funding and got good feedback from the VCs on this one. In a table, have the columns be quarters or halves of years for 2 to 3 years as milestones. You must not go smaller that 12 point font! The rows are the objective including:
   1. Key hires - what executives are you going to hire
   2. What are your key sales targets - lead customers in verticals, number of customers, number of downloads, target purchase price size
   3. What are your product objectives - what new features, shipments, etc.
   4. What are your marketing objectives in terms of PR, web presence or analyst reports
   5. What are your channel objectives - key distributors, integrators, resellers or geography
   6. Any other key performance indicator that is important for measuring the business
10. Assumptions - What assumptions will go into your plan? Most important is how much money are you going to raise to meet the objectives that you state. Remember - less is more equity for you. Also, what exchange rates are you assuming. What total cost per head are you assuming? $200K is generally a good number to start with? What are you operation costs for IT, for hosting infrastructures, etc? When you think of something add it here.
11. Pro Forma Profit and Loss Statement - This may be your most important slide, but build up your case with the previous slides. Do the P&L on a per quarter basis over 3-5 years depending on your business. It should include:
    1. Headcount per department
    2. Cost per department
    3. Revenue
    4. Cost of revenue
    5. Cash balance (starting with investment)
    6. Burn per quarter
    7. Cash coming in
12. Exit Strategy - How is your investor going to make money? This may be a trade sale or it may be a public offering. IPOs in the London seem to be easier than New York due to Sarbox and other factors. You may design a company to be bought by another. You will probably find that managing your company to go IPO will yield you the best outcome in a sale.

Finally, be courteous at all times. Even if they reject you, you may be coming back again. The person you meet on the way up may be the same person you meet on the way down.

Comments

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[john beck]

The VC could care less about the actual technology and is considering your business prospects.

[Kumar]

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[sandeep kushwaha]

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