Just having a great concept isn’t enough if you want to get approval for funding from investors. Every year, they receive hundreds, even thousands of different pitch proposals for possible companies to invest in, so what sets these approved and funded entities apart from those that don’t get accepted is having an effective, straightforward and strategically organized business proposal.
As someone who wants to attract funding from investors through your business proposal, you need to also show how your proposed business opportunity will have scalability, profitability and risks management, in addition to just an idea.
By using this extensive guide and applying this knowledge on how to write an effective business proposal that attracts funding will result in the ability to locate and obtain a viable funding source.
Why Does the Business Plan Matter to an Investor?
When an investor makes an investment, they are not only investing into a business idea; they are also investing into creating a return for themselves.
Whether you are appealing to an angel investor, venture capitalist or applying to a startup company program such as Y Combinator, your proposal will have to answer one primary question: “What makes this a wise investment?”
An investor is searching for the following:
- An opportunity that exists in the current marketplace
- A clear competitive advantage
- The potential for their revenue model to grow into significant amounts
- A solid and capable executive management team
- Financial forecasts that are realistic
- A defined “exit strategy”
Your business proposal will need to directly address each of these points with compelling and provide additional evidence regarding item, if necessary.
1. Write an executive summary
Your executive summary is the most important part of your business plan. Investors will decide whether they will read through the rest of your plan after they have read this part of the document.
What to Include:
- Company name and mission
- The problem that you are solving
- How you have solved the problem or how you will solve it
- The people that you are trying to sell your product to
- Your business model (how you will make money)
- Current progress (if applicable)
- Amount of funding you are looking for
- Potential return on investment or growth
Be brief – one to two pages.
You should think of it as a written elevator pitch.
2. Identify the problem
Investors want to help solve major problems.
You should describe:
- Who has this problem
- The frequency this problem occurs
- Why the current solutions are insufficient
- The financial or emotional implications of the problem
To validate your claims, you should include real-world examples or statistics.
The larger and more pressing the problem, the more opportunity will be created.
3. Provide a compelling solution
You then show that your product or service solves the problem better than the alternatives.
You should discuss:
- Your product
- How your product works
- Your product differences
- Why your product is hard to replicate
Focus on the benefits of your product rather than simply its features.
For example, instead of saying “Our software uses artificial intelligence,” describe that it saves time, decreases your expenses, and increases your revenue.
If available, include photos of prototypes, screen captures, or early user feedback.
4. Show Market Potential
Large markets with ongoing investment growth are appealing to investors.
To best describe your market, break your target down into three key areas:
- Total Addressable Market (TAM) – The entire addressable market
- Serviceable Available Market (SAM) – The segment you can realistically service
- Serviceable Obtainable Market (SOM) – The realistic percentage you can expect to actually capture within your SAM(s)
Research firms, industry-specific publications, and government data should be used to back up your claims of growth.
A scalable business model requires a reasonable amount of growth potential.
5. Describe Your Revenue Model
How will you earn revenue?
Be very clear about the following elements of your revenue model:
- Pricing model
- Revenue sources (including multiple revenue sources, if applicable)
- Sales methods
- Cost of goods sold
- Strategies for acquiring customers
Examples of revenue models may include:
- Membership subscriptions
- One-time sales
- Licensing
- Commission-based transactions
- Advertising revenue
Investors favor kinds of recurring revenue or revenue that is easily predictable because they present less risk to the investor.
6. Describe Your Competitive Advantage
There isn’t any business that doesn’t have competition, even if it’s indirect competition.
All of your possible competitors should be documented in two ways:
- Direct competitors to your organization
- Indirect competitors to your organization
- Alternate solutions to your products/services
Then, identify your company’s competitive advantages. They might consist of:
- Unique patents, trademarks, or intellectual property
- Exclusive partner relationships that give you an advantage over your competition
- Strong brand image/perception
- Alternative distribution systems
- First to market advantage/business model
Be realistic about competition. Saying there is no competition provides an indication of your inexperience.
7. Show Your Traction and Validation
There is nothing more appealing to investors than seeing proof of success.
To showcase your traction, include:
- Revenue
- Monthly Growth Rate
- Active users
- Customer Testimonials
- Strategic Partners
- Media Coverage
Even early forms of validation through pre-orders or beta users help build credibility.
Showing traction also decreases the amount of risk that an investor perceives.
8. Introduce Your Founders and Team Members to Investors
Investors invest in people before they ever invest into an idea.
Make sure to include:
- Background of Founder(s)
- Relevant Industry Experience
- Previous Startup Successes
- Key Advisors or Board Members
If you are a graduate of any well-known programs such as Techstars, call it out because that has built credibility as well.
Highlighting your team’s unique ability to execute on this plan is vital.
9. Present Reasonable Financial Projections
By presenting reasonable financial projections to the investor, you demonstrate that you know your numbers.
These should include:
- 3-5 Year Revenue Projections
- Expense Breakdown
- Gross Margins
- Cash Flow Projections
- Break-Even Points
Try to avoid unrealistic growth predictions without supporting logic.
Instead of guessing and creating projections based on:
- Market Size
- Customer Acquisition Cost (CAC)
- Customer Lifetime Value (CLV)
- Conversion Rates
Investors understand that projections are just estimates — they are evaluating your assumptions and financial acumen.
10. Clearly Define Funding Needs
Specify:
- How much you are raising.
- What you will do with those funds.
- How long will those funds last?
- What milestones will you achieve with that money?
Examples might be:
- Developing your product
- Hiring your core team
- Doing marketing
- Scaling up your infrastructure
When you are clear about these things, it gives people confidence in what you are doing.
11. Clearly Define Your Exit Strategy
Investors want to know how they’re going to make their money back.
Standard ways people get out of their companies are:
- Being acquired by a larger company.
- Merging with another company.
- Going public (IPO)
- Selling shares after going public.
Which of those options are you considering?
Are there companies similar to yours that have been acquired or gone public?
Indicating there is demand for your type of company and lets them know there is a reasonable chance you could be successful.
12. Be Honest About Your Risks
There is no business that is without some risk; there are many types of risk.
Some examples of risks may be:
- Competition in the marketplace
- Changes in government regulations
- Supply chain problems
- Recession
- Technological changes
Then tell how you will prevent these risks.
Being honest builds trust.
13. Make It Look Professionally Presentationed.
How you present yourself is important.
Present your business plan in a way that:
- Has professional formatting.
- Has charts/graphs.
- Has no unnecessary technical terms.
- Is free of errors.
- Is easy to read quickly.
Many investors read through lots of plans quickly, so use easy to locate areas of importance for them.
Conclusion
When developing a business plan to attract investors, you must develop a clear, strategic and credible plan so that you can show the following to the investor:
- Your product or service addresses a significant market need
- It has the potential to scale or grow at least an order of magnitude
- You have an effective revenue model based upon this large market opportunity
- You have the right people on your team to bring the plan to fruition
- You have a sound understanding of the financial aspects of your business
- There is a clear path forward that indicates how you will achieve positive returns on your investment
Investors want to invest in opportunities, but more importantly, they want to invest in businesses that demonstrate execution potential and scalability.
If you business plan clearly describes the opportunity, minimize perceived risks and provide strong leadership to your organization, you will greatly increase your chances of receiving funding for your business.
Invest the time necessary to research, verify, refine and perfect your plan.
