Helping you to get your business investor ready
Seedcorn is more than a competition – it’s about helping you to get your business investor ready, whether you make it through to the final or not!
The competition mimics the real-life investment process so having a strong business plan is crucial. We’ve gone through over 2,200 business plans since the competition began – together with our investment experts, we’ve pulled together some hints and tips to help you refine your business plan and make it more attractive to investors…and increase your chances of success in the competition!
Preparation and getting your business plan right
Make sure your plan is easy to read – include headings, paragraphs, tables and graphs if appropriate. You must attempt to keep the reader interested throughout the whole of the reading.
Try to avoid the use of industry jargon – not all readers of the plan are as conversant with industry language as you are. Avoid the use of acronyms without first explaining what they stand for. Do you know what a PIP is?
It's a Programme Implementation Plan, but you could possibly have been guessing for ages if you hadn't been told. Small things like that frustrate a reader. Try not to do that!
What is the purpose of your business plan? Is it primarily to raise finance? What type of finance? If it's equity then you should tailor the output to an investor's point of view, i.e. a return on their investment after a period of programmed development and a sale to maximise their investment – usually via a trade sale for cash.
If you are using the business plan to approach a lending institution (bank) for funds then you need to tailor the plan slightly differently – they are interested in the business's ability to repay. You should prepare the plan with this in mind.
An investor may have to read a lot of business plans. The more concise and to the point that a plan is the better. The plan should only serve to get you, the promoter, in front of an investor to make your pitch for funds!
Make sure that your executive summary (the most important part of the plan) is no longer than 2-3 pages and that the whole plan is less than 25 pages using a font size 12. Oh, and don't use the executive summary to introduce new ideas – they should have been addressed in the main body of the text. Write the executive summary last.
Make sure that what you say in the plan is correct. Use your prior trading experience, provide external data and research results to back up what you say.
Don't fall into the old trap of overstating the size of the market. When estimating the size of the market, if you achieved 100% of the market sales would your turnover be what you claim the market size to be? Really?
Also don't fall into the "we'll achieve 5% of the global market" trap. How are you going to do this? That's what the reader wants to know!
Don't rush the job. If it is prepared in a hurry, it will look like it has been! Get it ready and then leave it alone for a few days before revisiting it. Get someone else to read it – it's amazing what a second pair of non-industry eyes will do!
Often, promoters will look at the first draft of their business plan after a year or so and be amazed how amateurish it looks. Your first attempt will probably be the same! Don't be put off, everything can be improved with a bit of work.
Try to attract the investor's attention
Detail the strengths of the business. Explain how your business idea will benefit the investor.
List the key strengths of the business in relation to the competition. What makes your business different from all the others?
Do you have a key selling point that differentiates you from the competition? State it!
Who are the key people in the business? If there are only one or two, that's fine. An investor will want to see that you recognize that there are gaps in the company and that you plan to do something about that in future.
Do you have any external advisers that can sit on the board? Let the investor know about this in the plan. Tell the investor what experience that the management team has, especially their experience in starting up new businesses, if any.
Remember investors invest in good people.
A common failing in a business plan is to concentrate on the product. This is because the promoter is comfortable talking about the product that they know all about. You have to get out of the comfort zone and identify the need that your product addresses.
An investor will, of course, want to know what the product is, but it would be better to describe the benefits of the product. Sell the sizzle, not the steak! Identify why the product is stronger than what's currently out there!
Have you considered all the risks to the business? Will you be able to cope if a competitor reacts to your new product by say, dropping their prices? Remember investors expect there to be risks.
A risk identified is a risk that can be managed. Have all the regulatory approvals been set in place? Is there Intellectual Property issues?
Investors are usually impressed by a management team that recognise key risks, identify ways to mitigate the risks and address them in the business plan.
Put real achievable milestones into the business plan. If you plan to hire someone to carry out sales and marketing, then state when you hope to achieve this by.
An investor will look favourably on a plan that has clearly defined stages of development. However, it's important to act on these milestones and not just put them in for the sake of it.
There are usually three ways in which an investor can realize their investment – Initial Public Offer (IPO) – sale of shares on the open market, a buy back of own shares and a trade sale for cash. Investors usually will want to see a trade sale for cash stated in the business plan as it's the easiest and quickest way for them to see their return realised.
There may be regulations associated with an IPO and there will be a conflict of company valuation with share buyback (the investor will want a high value and the company will want a low value) so the best policy is to state the aim of a trade sale for cash.
Getting the financials right
If your company has been trading, include the accounts in the financial appendices. If you have taken advice on preparation of the financials, make sure that you understand the numbers. Include projections, but be realistic about them. Don't forget to state the assumptions used in the projections.
The first year should be set out monthly and the next few years (2-5 years) quarterly or annually. Include a cash flow statement as this will enable an investor to get a feel for the level of cash burn and the maximum funding requirements.
Make sure that the financials add up! State what the breakeven point of the business will be.
Bringing the product to market
Traditionally, the weakest sections of a business plan are the marketing section and the route to market. Will there be a pilot scheme to win initial customers? Will there be direct or indirect sales? Are there license issues? Can the product / service be franchised? How is the product going to be promoted? Who are the key customers and how are you going to get them to take your product as opposed to another? Will there be incentives?
Set out the pricing and discount plans.
Don't forget to address the possibility that competitors may react to your product. Take a good deal of time with this section.
The business plan needs to address the amount of funding required to bring the product to market and to state the amount of equity actually being sought.
The plan should identify what funds have already been secured to date. Will there be a further round of funding sought? Don't forget to build in an element of headroom. And remember to state what the funds will actually be used for.