Here are two big questions you’re asking yourself if you’re launching a company and looking to raise capital before you’ve generated revenue… and an answer from one seasoned Angel investor. Agree? Disagree? Comment below.
What do angel investors expect in a business plan for a Tech startup in the early stages?
How should financial projects be addressed when you are pre-revenue and need to build a large user base before a business model can be implemented?
Here’s a quote from Roger Ehrenberg, one of the most active angels in NYC between 2005-09. It was sent to me by a client we’re advising on raising a seed round of working capital.
“An Angel investor who asks you for a business plan for a seed stage Internet start-up doesn’t know what they’re doing.
An entrepreneur needs a clear vision, clear projections (18-24 months) of cash burn and an estimate of how the business model will work on the revenue side. There must also be a vision of how the business will scale both in terms of human capital and technical resources, but this is, as we say in trading parlance, “not held” (read: a best-guess that is subject to change).
At the earliest stage, it is the entrepreneur and the vision that are key. Too much time spent on business plan means too little time iterating on the product or spending time with potential customers. It also means that the entrepreneur is likely too old school to adapt to the fast-changing start-up environment. If an entrepreneur in a seed-stage venture plopped a 30-page (or more) business plan on my desk I would take that as a very negative sign. I don’t even want to see a deck during our first meeting. I want a substantive two-way conversation. Business plan? Puhleeze…”
I don’t know about you… but that’s not been my experience. However, before my work launching CoupleWise, all of my fund-raising successes had been for companies already generating revenue.
What do you think?
Godspeed to all my small business friends!
Dan Gallo, The Small Business Lifer…