Historically companies needed to list on an exchange to access liquidity. More recently however private funding channels for technology companies have matured, giving rise to venture as an asset class, and growth investing as a popular approach. Startups are choosing to stay private for longer, demanding billion-dollar valuations and, in doing so, adversely affecting Initial Public Offering (IPO) volumes by attracting traditional and non-traditional investors. However recent data shows seed-stage funding pools have been sliding for the past two years owing to deal concentration whereby investors are opting for fewer but larger deals. Naturally these investors have become highly tedious and now demand a clear business plan. Therefore, there are some elements an early-stage startup should focus on in detail.
Having a defined company purpose is essential in clarifying the business objectives to an investor. A single punch line should communicate a purposeful vision of the mission that aims to capitalize from the change. Starting from a clear description of customer pain-points, in relation to needs and wants, the idea should subsequently present unique insights and a compelling market research case. If investors are not convinced on the burning importance, they will not be interested in the solution, which must be differentiated from other existing part-time fixes out there. A well thought roadmap should market on the singular value proposition of the innovative product or service and its simplicity. The solution should display the significant break-through or innovation that has created an opportunity for a sizeable new company to be formed.
An extensive market research to identify the customer and market is highly valued. Large, existing markets poised for rapid growth and change can be studied, while some of the best companies invent their own markets. If it is a new market, the best way to tackle it is to enumerate approximate users or customers, expected growth over time, and revenue generated per customer through a pricing/revenue model. If it’s a replacement market, for example where a software is automating an existing service within a market, then describe the degree to which you expect your solution to attract market share through lower prices. One thing not to do is to put up huge numbers from some market study without any details behind them.Moreover, identify the direct and indirect competitors so that the company can proactively explain its uniqueness to the investors.
A business plan is incomplete without a business model detailing how the company plans to grow. The product or the service being provided should be carefully assessed and suitably priced. It must be kept in mind that pricing greatly impacts the valuation of a company. A common mistake is to assume early distribution is more difficult than upselling later and entrepreneurs incorrectly tend to think that a high price translates to lack of traction when in fact, sometimes the market is unprepared or the sales model is ineffective. Often, the problem is lack of product-market fit, or customer not being sold fully on value. Since pricing is not only directly linked to profits but also later helps in determining the in-demand product variations, a strategic approach is necessary. When it comes to presenting financials, a timeline describing where money will be spent (e.g hiring of specialized blockchain developer) to achieve specific milestones (e.g releasing beta on testnet) provides investor an understanding of the company’s priorities and direction. Additionally, the business development stage and the current market grip of the company if specified can outline how the capital would be spent.
VCs enjoy meeting new talent and businesses in their early stages. As well as financing a company, the backers are looking to invest in a passionate and committed team. The team DNA is set roughly within the first 90 days so recruit talent to include wider diversity i.e. commercial, technical and operational level of expertise. Highlight special talents and experiences of the founders and members. Before jumping into a funding round, be personal and build a relationship by going to events and being in contact through emails to keep them updated. To stay targeted, research the past and current investments made by the VCs and specifically within the firm, build relationships with people most relevant to the company’s sector and geographical focus. VCs are compelled to invest in a disruptive idea backed by extensive market research and a large market opportunity therefore a well-targeted relationship with a researched approach to presenting the business plan can help secure funding which is the lifeblood for a startup.