A version of this article by Palo Alto Software CEO, Sabrina Parsons, originally ran on the MyCorporation blog.
You’ve built your business idea into a scalable, high-growth potential startup. You’ve demonstrated some initial traction in the marketplace, and now you’re seeking your first round of funding.
What should go into your investor-ready business plan?
It’s true that the angel investors or venture capitalists that you pitch may not ever read your whole plan, but anyone interested in handing your thousands or even millions of dollars will want to do due diligence before they invest in your venture. They’ll be especially interested in your strategic roadmap, your business model, and a solid financial plan.
The best investor-ready business plan is a Lean Plan
When writing a business plan for investors, focus on developing a lean, strategic business plan.
This type of business plan is shorter than a traditional plan. Think of it as a tool for gleaning valuable insight into your company, its potential for success, and the areas where you may want to fine-tune your business model.
Be prepared: Do your homework
When you first reach out to an investor, plan to share solid financials and an impressive executive summary that piques their interest. They will ask you for whatever additional information they’re interested in.
The key here is that by the time an investor says “yes” to the pitch meeting, you’ve already done all your homework—your Lean Plan—and you’re prepared for whatever investors want to know.
The executive summary you share the first time you reach out to an investor should be short—one to two pages. It doesn’t include any unnecessary details, but it should support the financial forecast you’re also including.
Make sure it covers:
- Who you are—your name, your business name, your contact information
- What you offer and the problem your business solves
- Your target market
- How much startup funding you’re seeking
- The size or scale of your business
- Any remaining critical details that investors definitely need to know
A full financial forecast
The easiest and most accurate way to do this is to build the financials from the bottom up, starting with identifying your share of the market. First, figure out your TAM, SAM, and SOM. That is, your total addressable market (TAM), then what percent of that market you are going to go after, or your segmented addressable market (SAM), and your realistic share of the market (SOM).
- What’s the average lifetime value of your customers?
- How much is it going to cost you to get them (acquisition costs)?
If you’re seeking investment, you’ll have to prove that you’ve had some initial traction, so as you build out your forecasts, use your actuals to help model what you expect to see for the next few years.
The elements of a lean, investor-ready business plan
Before you send over your executive summary and financials, make sure you’ve already completed your full Lean Plan. It will share some common topics with your executive summary, but it should go into more detail—and it should still be fairly brief.
Your Lean Plan and pitch to investors should absolutely address each of these topics:
- The problem or need that you’re solving for your customers
- Your product or service—how you’re solving the problem
- The target market size and demographics
- Your sales channels
- A basic marketing plan (the results of your market research)
- Competitor analysis and your competitive advantage
- Real financial projections including a full cash flow forecast
- Key milestones in your business to date and a timeline of expected milestones to come
- Key team members, business owners, and advisers championing your success
For more on how to write your Lean Plan, check out our introduction to Lean Planning.
The pitch presentation
When your Lean Plan is finished and your executive summary and financials are ready to send, prepare your pitch deck and presentation. Research your investors so you have a sense of who they’ve funded before and what they really want to get out of your presentation.
Use storytelling to your advantage, but just like your Lean Plan, your pitch should be brief. Your pitch will include many of the same elements as your Lean Plan, but don’t just read your executive summary to investors when you have them in the room.
Here’s a guide to pitching to help you get started. Practice your pitch on your family and friends so you get comfortable with the delivery. Ask them to ask you questions about things they’re not clear on so you can start to anticipate and prepare for the hardest questions investors will ask.
When you’re ready to seek funding for your startup, resist the urge to send over a 200-page business plan to a potential investor. Keep in mind that investors get piles of pitches just like yours every day. Make it as easy as possible for them to digest who you are and the opportunity your business presents. Just make sure that when you get that call back, you have a strong financial plan, and a well-thought-out Lean Plan in your back pocket, so you’re not scrambling.
About Sabrina Parsons
Sabrina Parsons is CEO of Palo Alto Software, developer of the best-selling business management software, LivePlan. Palo Alto Software develops software and tools specifically targeted for entrepreneurs and small-business owners. Sabrina assumed the CEO role in May 2007, and is responsible for Palo Alto’s business planning, fiscal and strategic goals, and all of the company’s traditional marketing.
Sabrina, a mother of three boys 14 and under, is the author of a blog about the challenges and rewards of being a “Mommy CEO.” She writes for Inc magazine, Entrepreneur Magazine, Business Insider, Huffington Post, Forbes, and Bplans.
She is a staunch supporter of entrepreneurs and supports entrepreneurial organizations. She is on the board of the Princeton Entrepreneurs’ Network. She has been appointed by the governor of Oregon and confirmed to serve on the Oregon Growth Board, as well as being a board member of The Oregon Community Foundation. She also serves on the board of directors for RAIN, the Willamette Valley Regional Accelerator Innovation Network.
Editor’s note: This article originally published in 2013. It was revised in 2018.