In my previous articles, we've looked some of the most important ingredients your business should have if you want to get investors to bite. This issue, we'll cover the final factors that you need to get financial backing.
Let's face it, the average business plan isn't worth the spreadsheet it's written on. It's full of assumptions that rarely stand the test of moving from the laptop to the real world. If I had £1 for the number of times I've seen fantastic - and fanciful - revenue figures trotted out in year three or four of a business plan, I would be very rich indeed. But that doesn't mean you should ignore a business plan. Far from it.
I, like most experienced investors, know that assumptions will change. So the main thing I look for is how an entrepreneur has approached his or her plan, which gives a real indication of how well the entrepreneur knows their market and how hard they've worked to create reasonable and realistic assumptions. From there I can work out if the general model or opportunity stacks up. Astronomical assumptions usually mean the odds for getting investment are similarly astronomical.
Of course, a sensible business plan will change every few months (and, in some cases, every few weeks). So I also look for signs that the entrepreneur has thought about a Plan B - the current start-up terminology for doing so is "pivoting". If your strategy isn't working you need to change it, and quickly. Flexibility, open mindedness and the ability to listen and learn from investors and customers are key to doing so.
Have an exit strategy
It may seem counter-intuitive to think about how you are going to exit a business when you are in the process of setting it up. However, your exit strategy is a key consideration for investors. Most will be patient and willing to make long-term investments, but they still need to see how they're going to reap a return.
So don't be surprised if investors ask about the exit options and even want you to give them a timespan. Most exit strategies are based around somebody buying the shares in the business. So think about who would buy your business, why and when, and factor it into your investor pitch.
Personality and perseverance
My last tip for would-be entrepreneurs is probably the most important one of all. At the end of the day people buy from people, which is particularly true of investors looking to back entrepreneurs. Investors worth their salt will not want to put money into a company and then forget about it. They will want to help the business and the management team.
I have two crucial criteria I always use to assess any potential angel investment. Firstly, I will only invest in businesses I believe I can help - through my contacts, experience or advice. Secondly, I will only invest in people I like. After all, we could be working together for a long time. I like entrepreneurs who are passionate about their business, have a desire to work hard and succeed and, above all, are people I can get on with and have fun with.
But a note of caution - passion often means pride and pride can come before a fall. Tunnel vision and an unwillingness to change and listen can in turn lead to unrealistic views on valuation or strategy. If investors sense these, they often walk away. Life is short, and there are thousands of other opportunities out there - only a tiny proportion of businesses that want funding ever get it.
So meet any investor armed with personality, passion and perseverance and you stand a great chance of becoming a great entrepreneur. Starting a business and pitching to investors is never easy - but you wouldn't be an entrepreneur if you were looking for an easy path in life.
Good luck - if you've followed my top tips you certainly deserve it!