I moderated the April Atlanta Startup Chicks panel last night on “Getting Your Business Plan Funded” and it was a blast! Veteran investors Bonnie Herron, Melanie Leeth and Virginia Persons dropped funding gems throughout the panel discussion.
Here’s a summary of the panel re-created completely from memory so if you were there, please fill in the gaps and correct the inaccuracies in the comments section!
1. The role of business plans in the vetting process.
Business plans will help the investor formulate the first impressions of that start-up and the its founder(s) especially if the investor is unfamiliar with the start-up company’s management team. Business plans need to state the company value proposition right at the beginning in simple layman’s terms. It also needs to be succinct and formatted for easy review. Virginia Persons offered that the writing of a business plan is more a tool for the entrepreneur to think through all the aspects of bringing their company and product to market and achieving market traction.
2. The investor vetting process.
If you aren’t a serial entrepreneur with a track record, being referred to an investor by someone they trust is the best way to get your plan read. All three women stressed learning about the investors you are pitching. The difficulty is in knowing where to find them.
Tip: Start with Linkedin. All three panelists have Linkedin profiles and so do many of the angel investors in town. For IRL networking, check out www.Startuplounge.com
3. The top three elements of a business plan.
Virginia Persons: 1.) Can you clearly articulate the opportunity and problem that you are solving 2.) What’s the go-to-market strategy and 3.) What does the ideal customer look like?
Melanie Leeth: 1.) How will you get sales? 2.) If you don’t have competition, that’s not necessarily a good thing, and 3.) Make sure that you are not inventing a new industry.
4. What investors expect to see in the go-to-market section of the business plan.
They need to understand the product’s development stage. Is it in alpha, beta? Is it ready to scale if there is broad adoption? How much will the product sell for? Will it be sold through channels, resellers or direct? How will it be promoted? Essentially, investors need to see a marketing plan that has these elements.
5. What investors expect to see in the financials section of a business plan and the importance of the “hockey stick” sales growth forecast.
Panelists unanimously agreed that all reference to numbers must be consistent throughout the plan. Virginia Persons specifically mentioned that as a CPA, she automatically notices these types of discrepancies. Panelists advised entrepreneurs to focus communicating how they would achieve scalability and repeatability in their sales.
Melanie Leeth stated that hockey stick-like growth charts can have a negative effect on an entrepreneur’s credibility since assumptions can always be tweaked to return the desired projected outcome.
Panelists were also unanimous that entrepreneurs needed to communicate how and when they would provide investors with an exit.
6. Expected time to exit.
Bonnie Herron – 5-7 years
Melanie Leeth – Same
Virginia Persons – No specific time frame provided but she did emphasize “short” time horizon
Audience Q+A
Ideal length of a business plan?
Bonnie Herron – 15 – 20 page plan and a brief slide deck summarizing the plan
Melanie Leeth – Executive Summary first then a 20 – 25 page plan
Virginia Persons – 1 page summary
There was a discussion on the issuance of preferred stock and other elements that have to be negotiated once an investor has done their due diligence and are ready to negotiate an investment. I unfortunately do not recall specifics and didn’t take notes. The gist: the issuance of preferred stock to investors at the seed and angel stage is still a practice.
Tip: If you have access to Karen Robinson Cope or Joan Lyman or are a member of Startup Chicks, they would be wonderful resources for questions in this area.
The role of intellectual property in determining whether to fund a start-up.
The panelists didn’t seem to place too much weight on IP in doing a deal. Bonnie Herron gave an example of how they had just undergone a lengthy and expensive IP infringement lawsuit that was successful but cost $1.5 million! Key takeaway: IP is not a top element in the evaluation of a business plan because of the costs associated with applying for a patent (even a provisional one) and the amount of time it takes to obtain one.
Miscellaneous
a. Be sure you like the investor. If they invest, it’s a 5-7 year partnership.
b. The funding process is gender-blind. Investors want to make a return on their investment and they will fund a promising start-up regardless of the founder’s gender.
c. Entrepreneurs should not pay a third-party to help them find funding.
d. The more revenue an entrepreneur has booked, the better the leverage they have when seeking funding.
e. Entrepreneurs underestimate the amount of funding they need, the time to a beta product and the time it will take to acquire customers.
f. Be certain if you just need capital or are you better off with capital that also provides you with expertise and connections.
Have other insights? Leave me a comment. This is a topic that I’ll be revisiting periodically.
Image by 3D Animation Production Company from Pixabay
