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What do you think is the most critical mistake
entrepreneurs make in the business plans that they present
to angel investors?
The entrepreneurs who responded to this survey question had,
as a group, a remarkably thorough understanding of what can
go wrong with a business plan. These entrepreneurs must be
the ones who are out there writing the effective business
plans.
Entrepreneurs thought the most
critical mistakes made in business plans were as followed:
Unrealistic 27%
Lack of clarity or miscommunication 17%
Incomplete 15%
Structure of investment and exit strategy 10%
Financial Projections lacking, unclear or unexplained 8%
Market Need undefined 8%
Competition analysis lacking 8%
Management team 4%
Not directed toward audience 4%
Unclear business model 1%
Unrealistic 27%
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The respondents really took their fellow entrepreneurs
to task for not presenting a realistic picture of the business
opportunity to investors. They told us that nearly all parts
of the plan are unrealistic, except perhaps the table of contents
and the appendix.
Clarity of the Presentation 17%
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The best business plans are those that are concise
and to the point.
Incomplete 15%
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Incompleteness of presentation often stems from a
lack of basic homework into the market and the competition.
The plan is an ideal venue for the founders of the company
to demonstrate their thorough knowledge of the market space
they will be entering. Unfortunately, many times the business
plan content demonstrates just the opposite.
Structure of the Investment and Exit
Strategy 10%
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This is a controversial part of a business plan. Depending
on which "expert" you talk to, it is better to be
extremely direct and specific about the proposed deal structure-how
much equity you are willing to give up for how much capital-and
about how you propose to let the investor get their money
out of the venture. You might even go so far as to calculating
a forecast rate of return for the angel investor. The other
school of thought is to just describe how much capital you
need to execute the plan, in what stages, and leave the specific
terms for when you are actually negotiating with investors.
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Financial Projections 8%
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With financial projections, sometimes less is more.
Because they are at most educated guesses, the projections
section of
the plan does not need to be 40 pages long. You want to show
that you have a detailed estimate of the start-up costs of
the venture, and that your profit and loss statement projections
are backed up with sound assumptions that the reader can track
through. And you want to answer the fundamental question:
when will the venture reach positive cash flow?
Market Need Undefined 8%
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For an entrepreneur to succeed in his/her mission
of obtaining capital, the venture must be clearly set apart,
and show to be superior, to both potential competitors in
the market space, but also to other deals that are competing
for the investors'
attention and dollars. Entrepreneurs tend to overlook the
latter type of competition: other entrepreneurs are coming
up
with good ideas as well. That is why it is so critical to
show a compelling need for your product/service in the marketplace.
Competition 8%
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It is truly amazing how many business plans contain
a statement like the following: "There is no competitor
in our market space who is providing the same service/product
that we are; therefore we do not see any direct competitors."
Management Team 4%
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It is interesting that relatively few entrepreneurs
cited this as the major weakness of a business plan, whereas
investors
overwhelmingly view this as the critical factor in making
the investment decision.
Audience 4%
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When preparing a Business Plan for angel investors,
it is best to err on the side of giving them a little too
much basic
information about the technology rather than giving them technical
jargon or industry insider type information that may fly right
over their heads. These entrepreneurs also spoke to the importance
of seeking out angels who have already have an expressed interest
in your type of company.
Business Model 1%
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We tend to think of business model as simply a discussion
of how revenues will be generated. But there is an equally
important other component: what aspects of the business will
lead to high margins and therefore profitability.
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