Jay: What is the biggest show stopper you see when looking at a business plan?
Putting aside the obvious silly ventures we get from time to time (e.g., digging up an ancient treasure ofgold buried 250 feet beneath some city in the Philippines or a negative gravity machine that enabled people to travel on these tubes at hundreds of miles an hour), there are no single show stoppers for legitimate VC backable opportunities. When a deal is turned down, it is usually a combination of things that create enough uncertainty or discomfort. For many VCs, it’s about fit within the expertise of the firm’s knowledge base, size of the opportunity and the entrepreneurial team. This is why talking to several VCs is always in the best interests of the entrepreneur not to mention the fact that you should have your own criteria for “fit” such as expertise of the partners, previous successes, value-add on market, product, customers, etc.
Mistakes that are often made in business plans include things like (i) over stating or over-reaching the size of the market, (ii) creating a financial model showing unrealistic revenue growth, margins that are rarely achieved even by the most successful companies in history, and underestimating the amount of capital needed to achieve the plan, (iii) not really understanding the competition, heavily discounting competitive threats, and not clearly communicating your sustainable competitive advantage, (iv) biting off too much from a product functionality perspective vs. finding a niche play (“tip of the spear”, “beachhead”, “use case”) to penetrate and go big from there, and (v) not building the nucleus of a team that is complementary and relevant to the opportunity.
Over the last several years, we’ve seen many accelerator/mentor programs pop up across the country with numerous communities’ now supporting incubators or co-working spaces that all provide access to experienced mentors which can be a valuable resource as you begin to think about formalizing your company for introduction to investors. As first impressions are so important, it behooves you to leverage the expertise of those that have gone before you.
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