Step-By-Step Guide To Raising Capital From Angel Investors

Step-by-Step Guide To Raising Capital from Angel Investors
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How to Raise Capital from Angel Investors
Table of Contents
Getting Started ................................................................................ 1
What is Angel Investing? ........................................................................................................ 1 Understanding the Difference Between Equity & Debt Capital............................................... 1 The Pros & Cons of Equity Capital ......................................................................................... 2 The 5 Key Stages of Equity Investments................................................................................ 3 How do Angel Investors Differ from Venture Capitalists......................................................... 5 The Value that Angel Investors Offer...................................................................................... 6 Concerns You May Have About Giving Up Equity in Your Company .................................... 6
Understanding the Angel Investor Psyche.................................... 8

What Do Angel Investors Look Like?...................................................................................... 8 Why Angel Investors Invest .................................................................................................... 8 What Sectors Angels Invest In................................................................................................ 9 What Angel Investors Look For in a Company ..................................................................... 10 The Return on Investment that Angel Investors Require...................................................... 11 The Importance of Accreditation........................................................................................... 11
Step-By-Step Action Plans For Raising Capital from Angel Investors ........................................................................................ 12
Step 1: Preparation ........................................................................................12
A. Developing a Solid Business Plan.................................................................................... 12 B. Developing Your Private Placement Memorandum ......................................................... 12 C. Preparing for Due Diligence ............................................................................................. 14 D. Hiring the Appropriate Counsel ........................................................................................ 14 E. Setting Realistic Investment Terms.................................................................................. 14
Step 2: Find Angels ........................................................................................15

What Not To Do .................................................................................................................... 15 How to Find Angel Investment Groups ................................................................................. 16 How to Find Individual Angel Investors................................................................................. 16
Step 3: Pitch Angels ........................................................................................18 Step 4: Close the Deal ....................................................................................20

Why You Need to Keep Angel Deal Terms REALLY Simple ............................................... 20 Advantages & Disadvantages of Convertible Promissory Notes.......................................... 21
Appendix A: Angel Investor Groups ............................................ 23 Appendix B: Preparing Your Business Plan for Angel Investors ........................................................................................................ 29
Overview .........................................................................................................29
The 10 Sections of Your Business Plan ............................................................................... 29 Your Executive Summary ..................................................................................................... 30 The Company Analysis Section ............................................................................................ 31 Detailing Your Industry Size and Trends .............................................................................. 32 The Customer Section .......................................................................................................... 34 Competition ........................................................................................................................... 35 The Marketing Plan............................................................................................................... 36 Partnerships .......................................................................................................................... 38
The Operations Plan ............................................................................................................. 39 The Financial Plan ................................................................................................................ 40 Developing Realistic Financial Assumptions ........................................................................ 42 Documenting Your Exit Strategy........................................................................................... 42 The Management Team........................................................................................................ 43
Good to Great: How to Make Your Business Plan Truly Shine .......................45
Unique Qualifications ............................................................................................................ 45 Realism vs. Optimism ........................................................................................................... 45
Other Key Business Plan Issues .....................................................................47

Updating Your Business Plan ............................................................................................... 47 Business Plan Length ........................................................................................................... 47 Business Plan Appendix ....................................................................................................... 49 Use of Graphics .................................................................................................................... 49
Getting Started
What is Angel Investing?
The term angel investor is officially defined as a private investor who offers financial backing to an entrepreneurial venture. When several private investors form an organization to collective fund ventures, they are known as an angel investor group. The act of providing the financial backing is known as angel investing. The amount of angel financing is significant. According to the Center for Venture Research at the University of New Hampshire, last year 55,480 ventures were funded by angel investors totaling $19.2 billion. This compares to only 3,808 companies which were funded by venture capital firms, although VCs invested $28.3 billion in these firms. Part of the reason why angel investing is so prevalent is that there are numerous stories of companies who raised angel capital in their nascent stages and then went on to achieve massive success. Among many others, companies that raised angel investments include Google, Amazon.com, Apple, The Body Shop, Kinkos, Starbucks, Digg and LinkedIn. Before discussing the game plan for raising capital from angel investors, it is important to understand where angel investments fits into your overall funding options to make sure it is a good fit for your company. The remainder of the Getting Started section provides guidance on this key issue.
Understanding the Difference Between Equity & Debt Capital

Equity capital, unlike debt capital, is when someone or some company invests in a company in return for shares or stock in that company. Angel investing is generally done as such an equity investment. This money does NOT need to be paid back to the investor. Rather, the investor generally gets paid when there is a liquidity event, which is the event through which the company cashes out such as being sold to another company or having an initial public offering or IPO. Note that a liquidity event is also known as an exit.
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In some angel investments, angel investors can be paid dividend payments or profit sharing over time, and sometimes angel investments are structured as convertible notes (loans that can convert into equity this is discussed in more detail later). As you might imagine, equity capital is much riskier to investors than debt capital. With debt capital, lenders (typically banks) will receive interest and principle payments from the businesses they lend to, and earn perhaps 10% on their money with a relatively low risk profile. That is, due to their review process, the lenders feel that there is a high likelihood that the company will be able to repay the loan. Equity capital is very different since the likelihood of a liquidity event is relatively low. However, when this does happen, investors can receive 10 times, 100 times or even 1,000+ times their money back. Note that with equity investments, investors also believe that there is a strong likelihood that their investments will succeed, but they do understand that there is more risk involved than with most debt investments.
The Pros & Cons of Equity Capital

The key negative with equity capital is that you generally need to qualify by proving that your venture can grow quickly and be acquired (or have an initial public offering) so that the investor can earn a return. In addition, like everything else in business, real work is required to gain equity capital. You need to create a strong business plan and know how to find and present it to the right investors (which this report explains). Conversely, finding a bank to give you a loan is much easier. The other key negative is that equity investors, like angel investors, take a piece of your company, so that if you do eventually exit the company (IPO, sale, etc.) you have to share the proceeds. However, it is my experience that a small piece of a big company is better than a large piece of a small company. For example, a 10% piece of a $10 million company is twice as valuable as 100% piece of a $500,000 company. This argument holds true if the equity investor's money and advice can help you create the larger entity. With their stake in your company, equity investors may often exert control, particularly if they control the majority of the shares of your company. At the least, they will probably take a seat on your Board of Directors. Generally, however, these investors have the same goals as you -- to grow a successful business and exit -- and thus, their control and advice does NOT harm your company. On the other hand, there are many key positives to equity capital. Many equity investors have deep pockets, that is, they can offer significant dollars to help grow your business.
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In addition, most equity investors offer strategic assistance and connections to help grow your business. Also, equity investments are more accessible to early-stage companies than bank loans which often require a multi-year operating history. Finally, equity investments do not include periodic principle and interest payments which allows you to focus more on growing your business and less on short-term cash flow needs.
The 5 Key Stages of Equity Investments

To understand where angel investing fits in, it is important to understand the five main sources of equity capital: 1. 2. 3. 4. 5. Friends and Family Angel Investors Venture Capital Firms Strategic/Corporate Investors Private Equity Firms
For equity investments, the source of capital is, for the most part, tied to the round of capital being raised. Read below to learn more. Equity capital is raised in stages or rounds. The five main stages include the following: 1. 2. 3. 4. 5. Pre-Seed Funding Seed Funding Early Stage Investment (Series A & B) Later Stage Investment (Series C, D, etc.) Mezzanine Financing
Most companies that raise equity capital that are eventually acquired or go public receive multiple rounds of financing. It is important to consider this when negotiating deal terms on earlier stage financing rounds. A key point to consider when raising capital from angel investors is whether you will eventually need larger pools of money that individual angels cannot afford. If you do not believe that you will additional financing after the angel rounds, perhaps if you are a retail or manufacturing business, then you dont need to worry about this. But if raising additional rounds of capital is likely for your business, you must plan for this now. Planning includes being very carefully regarding how you structure your angel equity investment, mainly with regards to the price per share (cant be too high) and other
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terms (e.g., anti-dilution) which might make it more challenging for your company to raise additional capital rounds. Here are the five main stages of equity capital:
1. Pre-Seed Funding Pre-seed funding refers to the initial capital that a company brings in that comes from friends and family members. This round of financing typically can be as small as $5,000 and as high as $100K. Not all companies raise a pre-seed round. With this funding, the company often perfects its business plan and starts building its management team in order to position itself for its next round of funding.
2. Seed Funding Seed funding or seed capital refers to the capital that a company brings in before the first institutional round of funding (e.g., capital invested by a company or institution such as a venture capital firm). Seed funding typically ranges from $100K to $500K and is generated by angel investors, SBA loans, and even the rare early stage venture capital firm. Seed investments are typically structured as convertible notes or common stock.
3. Early Stage Investment (Series A & B) Series A is the term used to describe the first round of institutional funding for a venture. The name is derived from the class of preferred stock investors receive in return for their capital. The average Series A round is between $2 million and $5 million, with the expressed goals of funding early stage business operations. Providing enough capital for 6 months to 2 years of operations, funds obtained from the Series A round can be used for the full gamut of needs -- from product development and marketing to employee salaries. Series B is the round that follows series A in early stage financing. These rounds generally raise $5 million to $10 million, but can sometimes generate up to $20 million in capital or more. Series A and Series B rounds are usually obtained from venture capital firms and/or strategic/corporate investors, and are best pursued once a company has completed its
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initial products, shows initial revenue, and/or demonstrates compelling growth (such as fast and steadily increasing member growth). To get from Series A to Series B, the primary challenge for the entrepreneur or business owner is to demonstrate market adoption of their venture. A company that doesn't resonate with the target market or demographic will have serious difficulty moving on to future funding.
4. Later Stage Investment (Series C, D, etc.) Series C, D, etc. (some venture backed companies raise over 10 rounds of financing) are further rounds of venture capital. Each round may raise between $5 million and $20 million or more. This type of financing is provided to companies that have demonstrated a high level of success, are approaching or have reached a financial break-even point, and are looking to expand even further. Series C, D, etc. rounds are usually obtained from venture capital firms and/or strategic/corporate investors
5. Mezzanine Financing Mezzanine capital is capital, provided either as equity, debt or a convertible note, that is provided to a company just prior to its IPO. Mezzanine investors generally take less risk, since the company is generally solid and poised to cash out relatively quickly. However there is still some risk since sometimes companies cancel their IPOs, the valuation at the IPO event is lower than anticipated and/or the IPO company loses value after the IPO event (Note that investors in pre-IPO companies often have to endure a lock-up period which is the period of time after the IPO (often a year) in which they cannot sell their shares of the public company). Mezzanine capital is often provided by private equity firms.
How do Angel Investors Differ from Venture Capitalists

As the previous section pointed out, venture capitalists differ from angel investors in that they typically provide more money (generally at least $2 million) and focus on companies that have achieved more operational milestones than companies generally funded by angel investors. Other key differences include the following:
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Professional vs. non-professional investors: venture capitalists are professional investors. That is what they do for a living. Angel investors do not invest for a living. They often have other jobs or commitments to attend to. Other peoples money vs. own money: Venture capitalists invest other peoples money in ventures. This money comes from pension funds, corporations and other sources. Conversely, angels invest their own money. As a result, angel investments are not always based on the potential return on investment (ROI) of the deal (the primary concern of venture capitalists) but may result from other factors such as simply liking the entrepreneur and wanting to help them out. Board seat vs. no board seat: Angel investors may or may not want a seat on the companys Board of Directors. For venture capitalists, taking a Board seat is the norm.
The Value that Angel Investors Offer

Angel investors often provide value beyond the actual dollars they invest in your company. Because most angel investors are successful business owners and executives with vast networks, they often provide additional value via:

Contacts that they have in their networks that can help your business Advice in running your business Contacts to additional sources of capital
Concerns You May Have About Giving Up Equity in Your Company

Many entrepreneurs and business owners who are seeking angel capital or other equity investments have concerns about giving up too much equity and/or losing control of their companies. Let me start by saying that capital is the MOST important thing to your business. In fact, running out of capital is the reason why most businesses fail. And with capital, your business gains massive competitive advantages such as: The ability to hire better personnel Better equipment and technology Better access to education and training The ability to get to and more quickly penetrate markets More inventory to serve customers faster
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Ability to plan and execute long-term. For example, how many more lifetime customers might you be able to get if you offered products to first time buyer at below cost. Etc.
Having the appropriate funding is the KEY ingredient to success! Even if you don't think you need capital, you probably do. Think about it, how much could your business improve if you had more capital to invest in it? Or think about it the other way, how bad would it be for you if your competitors gained access to lots of capital and started an assault on you? Now, in terms of giving up equity to investors, consider this important yet simple mathematical fact: 100% of nothing is nothing. And without the capital, your company may be worth nothing. As such, it is my experience that a small piece of a big company is better than a large piece of a small company. For example, a 10% piece of a successful company (perhaps a $10 million company) is twice as great as 100% piece of a small company, perhaps a $500,000 business. Plus, as mentioned, angel investors provide value beyond the capital they provide, further improving your chances of success. Yes, you don't want an angel investor to take the vast majority of your company from you. But note that any savvy investor WON'T do this. They know that the entrepreneur is only going to perform at his peak if he has a major carrot (with the carrot being a big payday if the company succeeds). As such, the savvy angel investor WANTS the entrepreneur to maintain a meaningful equity piece. Likewise, angel investors generally dont want control of your company. They want you to run the company and to make them money. In general, you should expect angel investors to want 10% to 35% of the equity of the company. So, in summary, the key is to focus on raising capital. Focus less on retaining the highest equity position. If your company succeeds, you will still make a ton of money. And, then, if you want, you will have enough capital and connections to launch a future business where you retain most or all of the equity.
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Understanding the Angel Investor Psyche
What Do Angel Investors Look Like?

The Center for Venture Research at the University of New Hampshire, which researches angel investments, has found that the average angel investor is 47 years old with an annual income of $90,000, a net worth of $750,000, is college educated, has been self employed and invests $37,000 per venture. While the Small Business Administration and other organizations estimate the number of active angel investors in the United States to be 250,000, the number of potential angel investors is much greater. According to TNS Financial Services, there are 9.3 million households in the United States with a net worth exceeding 1 million dollars. Three million of these households, according to Merrill Lynch & Co. and Capgemini Group, have investable assets of at least $1 million, excluding their primary homes. We consider this 9.3 million figure to be the best estimate of the number of potential angel investors in the United States. The vast majority of these individuals are latent angels, defined as individuals who have the necessary net worth, but have not made an investment. These individuals are often the best potential investors in a venture since they have the funds, but arent bombarded with potential deals (unlike angel groups and venture capitalists who are constantly bombarded). Most active angel investors are current or former entrepreneurs, successful executives, or otherwise wealthy individuals. Note that sometimes a venture capitalist will see a deal that is not a good fit for their venture capital funds but which they personally like, and thus may invest personally as an angel investor. Because, as discussed earlier, angels are often individuals with extensive business experience who have operated and owned successful businesses of their own, they can often provide more value to your business than just the money they invest. In 2008, the Center for Venture Research found that women angels represented 16.5% of the angel investor market.
Why Angel Investors Invest

Angel investors usually invest in privately-held companies for the following reasons: 1. They think they can get a solid return on investment. Obviously, investing at the earliest stages for a company that eventually goes big can earn the investor 100X their money back or more.
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a. According to the Center for Venture Research, angel investors expect an average 26% annual return at the time they invest, and they believe that about one-third of their investments are likely to result in a substantial capital loss. 2. They know, like and trust the entrepreneur. Like with friends and family investments, sometimes angels know and trust the entrepreneurs and want to help them succeed. They feel they can add real value: many angels have lots of relevant experience that can help the companies they fund, from experience hiring staff to connections with key potential customers or suppliers. If angels can see their involvement adding a lot of value to the company, they might be very interested in investing. Sometimes the angel wants or likes the action. Simply put, angel investing is exciting. It is generally a higher risk/higher reward version of the public stock markets requiring a more entrepreneurial analysis which is highly intriguing.
3.
4.
Keeping these motivations in mind can help you secure angel investments for your business.
What Sectors Angels Invest In

The following presents a breakout of the sectors in which angels invested in 2008:

Healthcare: Software: Retail: Biotech: Industrial/Energy: Media: Other High-Tech:
16% 13% 12% 11% 8% 7% 33%
Because retail represents a relatively low percentage of angel investments but such a high percentage of U.S. businesses, I often get questions regarding whether retail establishments, like restaurants, can raise angel financing. The answer is a definite yes, however, the entrepreneur needs to first address how the angel will recoup their investment (e.g., sale of business, dividend/profit payouts, etc.). The key reason why retail deals can reap angel investments are as follows:
As mentioned, there are over 9 million latent angel investors, most of which have never been asked to invest in a private company
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As mentioned, angels often invest when they feel they can add real value and virtually always only invest when they understand the business. Because retail businesses are frequented by angel investors, they tend to understand the businesses and believe they can add value. Finally, not that with retail establishments like restaurants, there is also the ego element that the angel can go to and tell friends that it is partially their restaurant. This ego-factor also holds true with other types of angel investments.
What Angel Investors Look For in a Company

In order to consider investing, angel investors must believe that the company has great potential to achieve a liquidity event, and one that enables them to earn a significant return on their investment. The following factors imply that a company has this potential: The first criteria is scale or the potential for the company to achieve significant annual revenues. If a company expects to raise venture capital after the angel round, it must have the potential to earn annual revenues of $50 million to $100 million within five years. Conversely, an angel investor, when no follow-on capital is required, might be willing to invest in a restaurant or website that has the potential to generate hundreds of thousands or a few million dollars as long as a clear path has been laid out regarding how they could get a sizable return on their investment. The second criteria is barriers to entry. Barriers to entry are those things that make it difficult for another firm to compete against you, such as patents or proprietary technology, a unique location, and long-term customer contracts. The third criteria is having a strong management team with relevant experience and successes under their belts. The angels must believe in and be comfortable with both the founders and the key operating personnel of the company. The fourth criteria is that angel investors need to feel confident of your exit strategy, mainly that the chances are good of eventually having another firm purchase you or your firm going public. It is through your exit strategy that these investors profit from their investment in you. Another important criteria, while not necessarily tied to liquidity potential, is that angel investors tend to only invest in local companies. Angel investors often like to invest in companies that are close by so that they can visit them often and participate in Board and other meetings. In fact, according to the Center for Venture Research, 70% of angel investments are made within 50 miles of the investors home or office. Finally, angel investors will only invest when the price is right. If companies price their equity too high, than angels may not have the potential to reap significant returns, and thus may not invest.
Step-by-Step Guide To Raising Capital from Angel Investors Page 10
The Return on Investment that Angel Investors Require

Angel investors typically provide more capital than friends and family but less than venture capital firms. Specifically, angel financing amounts typically range from $25,000 to $500,000. For this money, angel investors usually gain 10% to 35% of the equity of the company. Angel investors generally expect to earn returns of approximately 30% from their private company portfolio. Note however, that you cannot simply offer an angel investor the chance to earn a 30% average return on investment (ROI). Why? Because most angel investments fail to reap any ROI. As such, if half of their investments fail, they would need to earn 60% returns on those that succeeded to realize a 30% average return.
The Importance of Accreditation

Many, but not all angel investors are accredited investors. Accreditation is important because if you do not register your capital raise with the appropriate state and federal agencies, your investors must be accredited. If all of your investors are accredited, then you do not need to register your securities offering. The federal securities laws define the term accredited investor in Rule 501 of Regulation D as follows: 1. 2. a bank, insurance company, registered investment company, business development company, or small business investment company; an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million; a charitable organization, corporation, or partnership with assets exceeding $5 million; a director, executive officer, or general partner of the company selling the securities; a business in which all the equity owners are accredited investors; a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase; a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
3. 4. 5. 6. 7.
8.
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Step-By-Step Action Plans For Raising Capital from Angel Investors

The action plan for raising capital from angels and angel groups is as follows:
Step 1: Preparation
There are several things you need to do to prepare yourself and your company to raise capital from angel investors:
A. B. C. D.
Develop a solid business plan Develop your private placement memorandum (if appropriate) Prepare your due diligence documents Hire the appropriate counsel (legal, accounting). With regards to legal, legal counsel will be needed to prepare and/or review your private placement memorandum (if appropriate) and/or in negotiating and finalizing the paperwork for the financing transaction(s). Set realistic investment terms
E.
A. Developing a Solid Business Plan

Your business plan details the vision of your company and your action plan for achieving it. As such, it is a critical document for angel investors to review. Appendix B of this report provides a section-by-section overview of how to expertly complete your business plan.
B. Developing Your Private Placement Memorandum

Private Placement Memorandums or PPMs are documents that are provided to potential investors for a private placement of securities. Specifically, the PPM is a document which includes your business plan plus the following information:
Summary of Subscription procedures o How the offering works; e.g., payments; state disclosures, etc. Summary of the Offering
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o Company overview, # shares, minimum investment, use of proceeds, etc. Risk factors Use of proceeds Management compensation Principal shareholders and capitalization table Subscription Agreement Actual subscription form that investors sign
Private placement transactions are exempt from registration under the Securities Act of 1933 in accordance with one or more statutory exemptions, as discussed in "Regulation D and Other Exemptions from Registration". The question naturally arises as to which firms need to prepare a PPM and which dont. While the answer to this question is not clearly outlined in Regulation D, in practice, the answer is relatively clear. Specifically, if a placement is made to one or more unaccredited investors, then a private placement memorandum should be prepared. The definition of an unaccredited investor is included above, but in summary, it is an individual which does NOT 1) have individual net worth, or joint net worth with the persons spouse, that exceeds $1 million at the time of the purchase; or 2) have income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. Conversely, if the placement is made to accredited investors the PPM need not be prepared. With regards to accredited investors, the SEC does not require any specific amount of information to be provided to them. (With regards to venture capital firms, the influential Ralston Purina case stresses "access" to information in the hands of investors to fend for themselves. If the investors are venture capital funds, the managers of the fund will usually conduct their own due diligence.) So, the first factor in determining whether you need a PPM is whether you are raising capital from an accredited or unaccredited angel investor. There is another factor to consider:
Even with an accredited investor, a PPM is often helpful since it sets the terms of the deal so that you dont have to negotiate and/or create new legal documents for every investor transaction (which can be very expensive). Note that institutional investors, like venture capital firms, like to set the terms of the deal, so presenting them with a PPM is not appropriate. Likewise, it might not be appropriate for a deal presented to an angel group.
Finally, it is important to note that creating the PPM has certain risks. Specifically, if the PPM includes a mistake or material omission, it is arguable that the investor has made their decision under false pretenses, which can be grounds for a lawsuit.
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In summary, the key factors to consider regarding whether you should prepare a PPM are whether the angel investor is accredited or not, and whether you will be seeking funding from several individual angels (in which case a PPM could possibly prevent you from having to negotiate several distinct transactions and the accompanying legal fees).
C. Preparing for Due Diligence

Before closing a deal, angel investors (and particularly angel investor groups) will complete whats known as due diligence, which is a deeper investigation into the details of the business. The short list of the key elements that may need to be prepared for angel investors for the due diligence phase include the following: 1. Background of the company 2. Background of management 3. The Company's business plan 4. Financials of the company inception (if applicable) 5. Management discussion of company performance (if applicable) 6. Capitalization table (list of current equity holders) 7. Leases 8. Employment agreements 9. Purchase or sale agreements 10. Previous letters of intent Make sure you prepare each of these materials beforehand so you can quickly respond when these items are requested.
D. Hiring the Appropriate Counsel

Your company should be prepared with appropriate counsel such as a lawyer and an accountant. With regards to legal, legal counsel will be needed to prepare and/or review your private placement memorandum (if appropriate) and/or in negotiating and finalizing the paperwork for the financing transaction(s).
E. Setting Realistic Investment Terms

When you work with venture capital firms, and oftentimes angel investment groups, they will set the terms of investment (e.g., the price per share, clauses to the financing, etc.) With individual angel investors, you and your company will typically set the investment terms, although the angel may negotiate these terms with you.
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In developing your investment terms, make sure that the terms are realistic. Keep in mind that the angel investor is often taking a substantial amount of risk in an unproven company, and should be amply rewarded if the company succeeds. Setting your investment terms too high could prevent you from raising the funds you need to grow your venture.
Step 2: Find Angels

What Not To Do
Many entrepreneurs have the notion that you can simple complete a form online and have angel investors (or venture capitalists) flock to your company. Our research shows that the chance of an angel investor funding your business based on an online form is about 0.01%, or 1,000 WORSE than the odds of getting into Harvard Business School. Sure there are many sites that tell you to pay them, submit your plan or complete their form, and that your plan will be sent to thousands of investors. And each of these sites prominently display their success stories. BUT, these success stories are the outliers. They are the 1 in 10,000 businesses that got funding for one reason or another. One reason why this doesnt work is the geographical issue mentioned before; that angel investors most often invest within 50 miles of their homes or offices. With online databases, there are rarely enough potential investors in your area to make funding realistic. Perhaps more importantly, angel investments are typically based on relationships. Whether your relationship with the angel is started by you cold-calling them, or via a referral from a mutual acquaintance, the strength of the relationship will have a significant impact on whether an investment will be made or not. Relationships started by an angel investor receiving an alert, via email or online, that a potential investment opportunity exists are very weak. That is, if the investor even sees that alert at all. The one exception to this rule is that if you are seeking investment from an angel group, and that group requires you to complete their online application, then it is generally worth completing.
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How to Find Angel Investment Groups

You can find angel groups in Appendix A at the end of this report. Note that angel groups invest geographically, so you need to find a group within 100 to 200 miles maximum of your company headquarters. It is important to understand that while angel groups are a viable funding option, these groups get tons of potential deals and are thus extremely selective. The better bet is often to network and otherwise find individual angel investors (typically business owners and retired industry executives) who know your business and have the capital to invest.
How to Find Individual Angel Investors

Individual angel investors can be found via: A. Referrals B. Networking at events and through multiple degrees of separation. C. Focused Prospecting
A. Referrals The ideal way to be introduced to an angel investor is through a referral by a mutual acquaintance. Talk to your friends, family members and service professionals such as your accountant, lawyer, or business advisor and see if they can either invest in your business or refer you to an angel who can. Note that once you meet an angel investor, if they say no to investing in your business, dont stop there. Angel investors generally know other angel investors, so always ask for referrals. These are often the highest quality and most fruitful referrals.
B. Networking If you cant find referrals to angel investors from your current network, expand your network. Networking through attending events and constantly expanding your network by asking for more introductions from your existing contacts works extremely well. It does take time and diligence so you must stick with it. Heres a quick lesson regarding how Google raised its angel round of capital.
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Founder's Page and Brin told their ideas to others in hopes that they would get great advice and connections. And sure enough, it worked. Page and Brin discussed their concept with their computer science professor David R. Cheriton. Cheriton then introduced them to his friend Andy Bechtolsheim. Bechtolsheim then wrote Google a check for $100,000. And then, Google raised more money from friends and family. And through their rapidly growing network of investors and advisors, they met and received angel investments from Ram Shriram, a former Netscape executive, and Ron Conway and Bob Bozeman, partners in Angel Investors. The and so on and so on momentum had begun, and that, coupled with continued success with the development and launch of Google.com, resulted in millions of additional dollars being invested in Google. If you already know some quality people, speak to them and then get them to refer you to other people. If you feel you don't have highly networked people that you know, go out and find them. Go to industry events and conferences and meet people. Befriend them and follow-up with them. Then get them to open up their networks to you. And/or meet them on professional networking sites like LinkedIn, Spoke or Facebook. And then, promote the story of your company to your newfound contacts and to prove to them that investing in you and your dream will provide them with significant financial returns.
C. Focused Prospecting With regards to prospecting for angel investors, consider the statistics mentioned earlier in this report:
According to TNS Financial Services, there are 9.3 million households in the United States with a net worth exceeding 1 million dollars. Three million of these households, according to Merrill Lynch & Co. and Capgemini Group, have investable assets of at least $1 million, excluding their primary homes
As such, there are up to 9.3 million potential angel investors for your venture. Most of these investors are either current or retired executives or business owners. You just need to find them.
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Retired Executives One way to accomplish this is by seeking out retired industry executives online. You can find the names of retired industry executives and often what they are now doing via searches on Google. For example if you were seeking angel investors for an aviation company, doing Google searches on retired Boeing executive and former Boeing executive will produce names of potential angels. Likewise, you can find the names of executives and Board members of local companies, contact them and see if they are interested in investing in your company.
Business Owners Business owners are the best angel investors. They generally have capital and they can often provide great advice regarding starting and growing your company. In addition, business owners are easy to find. You can simply pick up the phone book or drive around to find businesses in your area that seem to be successful. And then strike up a conversation with the business owner. It really is that simple. Another way to find business owners along with their contact information is to purchase lists from organizations such as InfoUSA and Dun & Bradstreet. These firms allows you to create highly focused lists. For example, you can purchase the contact names of business owners within specific industries, with certain annual revenues, and within specific zip code ranges. As a result, you can quickly, easily, and cost-effectively create highly-targeted angel investor contact lists. Then, you can call these prospects and/or use both online and offline networking to get introductions to them.
Step 3: Pitch Angels

Once you find angels and angel groups you need to pitch them on one or more of these three important things: 1. Investing money in your company 2. Investing time in your company as an executive or advisor 3. Introducing you to other angels since angels nearly always know lots of other angels
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If you are pitching to an angel group, there is generally a formal process in which you first submit your business plan, and then present a PowerPoint slide presentation to the group. Whether you are pitching to an angel group or an individual angel investor, you should always use a PowerPoint slide presentation since it allows you to control the conversation and ensure that all of your key points get mentioned. A well-crafted PowerPoint presentation will contain the highlights of your business and financial plans, and should echo the clarity that is put forth in your executive summary. Specifically, your PowerPoint presentation should include answers to the following TEN questions: 1. What does your company do? o In one line 2. What is the status of your company? o Age of venture, previous funding, customer traction, etc. 3. What are the key points that make your company unique? o Management team, successes to date, patents, etc. 4. What pain does your solution solve? o And how big is the pain? o What is your unique selling proposition? 5. In what market(s) are you competing? o Market sizes, trends, etc. 6. How do you generate revenues? 7. Who is your competition? o Strengths, weaknesses, etc. 8. Who is on your management team? o Experience, track record, etc. 9. What is your timeline/roll-out plan/milestones? 10. How much capital are you seeking? o Projections and uses of funds When developing your investor PowerPoint presentation it is always good to try to adhere to investor and blogger Guy Kawasaki's 10/20/30 Rule of PowerPoint as follows: a PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than thirty points.
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Step 4: Close the Deal

As discussed earlier, be careful not to negotiate complex financing terms nor set valuations too high, or it will hurt your chances of raising additional rounds of capital. Likewise it is important to keep this in mind you want your angel investors to earn a great reward from investing in your company. They are taking a big risk on you and your venture and should be rewarded. Also, remember that closing the deal may be getting referrals to other angels and not a cash transaction. Be thankful of these referrals as referrals are the root of most deals. Before closing a deal, angel investors (and particularly angel investor groups) will complete whats known as due diligence, which is a deeper investigation into the details of the business. Preparing for due diligence beforehand will help speed this process.
Why You Need to Keep Angel Deal Terms REALLY Simple

Raising money from angel investors is the best bet for most companies seeking their initial capital. But keep in mind one thing -- keep it simple. The terms of your angel deal could come back to haunt you if you plan to seek venture capital later. Prominent venture capitalist and angel investor Brad Feld says it similarly, My strong suggestion to all angel investorskeep it simple and fair. Let's consider two examples of angel deal terms that could cause future problems. The first is if an angel negotiated a deal with you that they couldn't be diluted. What this means is that if they purchased 10% of your company, for example, and you later raised more capital (and gave up more of your company) that they would retain their 10%. The problem here is that if investors won't allow dilution you eventually get to a point where you can't raise any more capital and the business fails (because there is no more equity to sell). Another example is if an angel investor requires cash dividends. The key point of equity investing is that the capital is not paid back periodically like it is with debt capital. Having required dividends will once again make it harder for your company to raise future rounds of capital.
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The key thing to realize is this: RARELY do successful, high-growth companies only raise one round of capital. Rather, they raise one round of capital, use it to achieve milestones, and then raise another round of capital. And so on and so on. (note that a business like a restaurant can thrive with just one round of capital, but even in this situation, if you plan to open up more locations, more capital will be required). As such, entrepreneurs must look ahead to future capital rounds and not enter into any agreements that might hamper their ability to raise more capital later.
Advantages & Disadvantages of Convertible Promissory Notes

Convertible promissory notes are loans with a fixed interest rate which, at maturity, can be redeemed for cash or shares of stock in a company. Oftentimes, convertible notes are used in angel investing transactions. The unique aspects of a convertible note are: 4. It converts into equity in the company so long as certain agreed metrics are achieved 2. Conversion rather than repayment is the usual intention of the parties 3. The usual metrics for conversion (a conversion event) could be some or all of: Later financing acquired of an agreed minimum level Developmental milestones reached by the company; and/or Strategic partnerships concluded with important companies
4. The conversion into equity is usually at a valuation that is consistent with the valuation agreed to with investors in an investment round that occurs at a later time. The three primary benefits of convertible promissory notes are as follows: 1. Avoids a valuation dispute between founders and the convertible note lenders 2. Brings founders and convertible note lenders onto the same side of the table in determining valuation with later investors 3. Can be concluded and transacted relatively quickly The key disadvantages of convertible promissory notes are as follows: 1. If the conversion event doesn't occur, the note remains due (meaning that the company has to pay back the loan with cash) 2. If the note isn't paid off, the convertible note lenders may be able to foreclose on the company's IP or other assets
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3. The company doesn't have a demonstrable valuation that has been agreed to in an arms' length financing transaction Oftentimes the advantages of convertible promissory notes outweigh the disadvantages, which is why these notes are often used in angel financing transactions.
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Appendix A: Angel Investor Groups

Below are the 150 US-based angel investor groups sorted by state.
Huntsville Angel Network http://www.huntsvilleangels.com Huntsville, AL Fund for Arkansas' Future http://www.arkansasfund.com Little Rock, AR Arizona Technology Investor Forum http://atif.asu.edu/ Tempe, AZ Arizona Angels http://www.arizonaangels.com/ Scottsdale, AZ Desert Angels http://www.edesertangels.com/ Tucson, AZ 12 Angels http://www.12angels.org Los Angeles, CA Angels' Forum http://www.angelsforum.com/ Palo Alto, CA Band of Angels http://www.bandangels.com Menlo Park, CA European American Angel Club http://www.euroamericanangels.com San Francisco, CA Golden Gate Angels http://www.ggangels.com/ San Francisco, CA Imporium Angels http://www.imporiumangels.com San Diego, CA Investors Circle http://www.investorscircle.net/ San Francisco, CA Keiretsu Forum - Orange County http://www.keiretsuforum.com/orangecounty Costa Mesa, CA Life Science Angels http://www.lifescienceangels.com/ Menlo Park, CA North Bay Angels http://www.northbayangels.com/ Healdsburg, CA Pasadena Angels http://www.pasadenaangels.com/ Pasadena, CA Private Capital Network http://www.privatecapitalnetwork.net Huntington Beach, CA Sacramento Angels http://www.sacangels.org/ Sacramento, CA Sand Hill Angels LLC http://www.sandhillangels.com/ Menlo Park, CA San Joaquin Angels http://www.sanjoaquinangels.com Stockton, CA TechCoast Angels http://www.techcoastangels.com/ Los Angeles, CA Ansel Capital Partners http://www.anselcapitalpartners.com Boulder, CO Angel Investor Forum http://www.angelinvestorforum.com/ East Hartford, CT Connecticut Angel Guild http://www.cvg.org Fairfield, CT
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Golden Seeds LLC http://www.goldenseeds.com Stamford, CT Angel Investors of Greater Washington http://www.aiogw.org Washington, DC Emergent Growth Fund http://www.emergentgrowth.com Gainesville, FL Gulf Coast Venture Forum http://www.gcvf.com Naples, FL New World Angels http://www.newworldangels.com Boca Raton, FL South Florida Angels http://www.sflangels.com Coral Springs, FL Springboard Capital http://www.springboardcapllc.com/ Jacksonville, FL Winter Park Angels http://www.winterparkangels.com Winter Park, FL Atlanta Technology Angels http://www.angelatlanta.com/ Atlanta, GA Ariel Savannah Angel Partners http://www.savannahangelpartners.com Savannah, GA Seraph Group http://www.seraphgroup.net Atlanta, GA Hawaii Angels http://hawaiiangels.org Honolulu, HI Rock River Capital http://rockrivercapital.angelgroups.net Rock Rapids, IA Boise Angel Alliance http://www.boiseangelalliance.com/ Boise, ID
Cornerstone Angels http://www.cornerstoneangels.com Northbrook, IL Hyde Park Angel Network http://www.hydeparkangels.com Chicago, IL Stateline Angels http://www.statelineangels.com Rockford, IL Irish Angels http://www.irishangels.com Notre Dame, IN Irish Angels http://www.irishangels.com Notre Dame, IN Main Street Venture Partners http://www.mainstreetventures.com Fort Wayne, IN Women's Capital Connection http://www.kansaswbc.com/WomensCapital Connection/tabid/1221/Default.aspx Lenexa, KS Mid-America Angels http://www.midamericaangels.com Lenexa, KS Midwest Venture Alliance http://www.midwestventure.com/ Wichita, KS Louisville Angel Investor Network http://louisvilleangelnetwork.angelgroups.net Louisville, KY Bluegrass Angels http://www.bluegrassangels.com/ Lexington, KY Boston Harbor Angels http://bostonharborangels.com Boston, MA Bay Angels http://www.bayangels.net Cape Cod, MA Beacon Angels http://www.beaconangels.com Boston, MA
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Boynton Angels http://www.boyntonangels.com Worcester, MA CommonAngels http://www.commonangels.com/ Lexington, MA Golden Seeds http://www.goldenseeds.com Boston, MA HubAngels http://www.hubangels.com/ Brookline, MA Launchpad Venture Group http://www.launchpadventuregroup.com/ Wellesley, MA River Valley Investors http://www.rivervalleyinvestors.com/ Springfield, MA Walnut Venture Associates http://www.walnutventures.com/ Wellesley Hills, MA Capital Access Network (Dingman Center of Entrepreneurship) http://www.rhsmith.umd.edu/Dingman/progr ams/CAN/ College Park, MD ECS Angels http://www.ecs-angels.com Bar Harbor, ME Maine Angels http://www.maineangels.org/ Portland, ME Blue Water Angels http://midmichiganinnovationcenter.org/blue waterangels/index.html Midland, MI Capital Community Angels http://www.capitalcommunityangels.org/ Lansing, MI Great Lakes Angels http://www.glangels.org/ Rochester, MI
Grand Angels http://www.grandangels.org/ Grand Rapids, MI First Angels http://www.southwestmichiganfirst.com/First _Angels.cfm Kalamazoo, MI 3C Capital Partners http://3ccapital.angelgroups.net Northfield, MN Central Minnesota Growth & Transition Fund LLC http://3ccapital.angelgroups.net Willmar, MN Prairie Capital II http://prairiecapital.angelgroups.net Worthington, MN River Valley Capital http://rivervalleycapital.angelgroups.net Montevideo, MN Sofia Angel Fund http://sofiaangelfund.angelgroups.net Minneapolis, MN South Metro Investors http://southmetroinvestors.angelgroups.net Burnsville, MN Wellspring Investor Alliance http://www.greatermankato.com/businesswsinvestoralliance.php Mankato, MN RAIN Source Capital http://www.rainsourcecapital.com St. Paul, MN Lakes Ventures II http://www.rainsourcecapital.com/rainfund.cf m Alexandria, MN Two Rivers Angel Investment Network http://www.rainsourcecapital.com/rainfund.cf m Mankato, MN Centennial Investors http://centennialinvestors.com Columbia, MO
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St. Louis Arch Angels http://www.stlouisarchangels.com St. Louis, MO Mississippi Angel Network http://www.technologyalliance.ms/services/ ms-angel-network.php Ridgeland, MS Frontier Angel Fund http://www.frontierangels.com Kalispell, MT Triangle Accredited Capital Forum http://www.capital-forum.com/ Wake Forest, NC Eastern NC - Investor Network http://www.ecu.edu/rds/ei Greenville, NC Inception Micro Angel Fund - Family of Funds http://www.inceptionmicroangelfund.com/ Winston-Salem, NC Piedmont Angel Network http://www.piedmontangelnetwork.com/ Greensboro, NC Wilmington Investor Network http://www.wilmingtoninvestor.com Wilmington, NC FM Angel Investment Fund http://fmangelfund.angelgroups.net Fargo, ND Northern Plains Investment http://www.rainsourcecapital.com/rainfund.cf m Bismarck, ND Valley Angel Investment Fund http://www.rainsourcecapital.com/rainfund.cf m Grand Forks, ND Nebraska Angels Inc http://www.nebraskaangels.org Lincoln, NE eCoast Angels http://www.ecoastangels.com Portsmouth, NH
Jumpstart New Jersey Angel Network http://www.jumpstartnj.com/ Mt Laurel, NJ New Mexico Angels Inc http://www.nmangels.com/ Albuquerque, NM Sierra Angels http://www.sierraangels.com/ Incline Village, NV Vegas Valley Angels http://www.vegasvalleyangels.com Las Vegas, NV Long Island Angel Network http://liangels.angelgroups.net Mineola, NY Golden Seeds http://www.goldenseeds.com New York, NY New York Angels http://www.newyorkangels.com/ New York, NY Orange County Angel Network http://www.orangecountycapital.com Goshen, NY Rochester Angel Network http://www.rochesterangels.com Rochester, NY Seed Capital Fund of CNY http://www.scfcny.com Syracuse, NY Tech Valley Angel Network http://www.techvalleyangels.com/ Albany, NY Core Network http://www.core-network.org/ Toledo, OH North Coast Angel Fund http://www.northcoastangels.com Cleveland, OH Ohio TechAngels http://www.ohiotechangels.com/ Columbus, OH
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Queen City Angels http://www.qca.com Cincinnati, OH Rocket Ventures http://www.rocketventures.org Toledo, OH Akron ARCH Angels (Akron Regional Change Angels) http://www.uakron.edu/research/archangels/ Akron, OH i2E Inc http://www.i2e.org Tulsa, OK Oregon Angel Fund http://www.oen.org/programs_oaf.aspx Portland, OR BlueTree Allied Angels http://www.bluetreealliedangels.com/ Pittsburgh, PA Delaware Crossing Investor Group http://www.delawarecrossing.org Doylestown, PA LORE Associates http://www.loreassociates.com/ Philadelphia, PA Minority Angel Investor Network http://www.minorityangelinvestornetwork.co m/ Philadelphia, PA Private Investors Forum http://www.privateinvestorsforum.com/ Jenkintown, PA Robin Hood Ventures http://www.robinhoodventures.com/ Wayne, PA Mid-Atlantic Angel Group Fund I http://www.magfund.com/ Philadelphia, PA Cherrystone Angel Group http://www.cherrystoneangelgroup.com Providence, RI
Charleston Angel Partners http://www.chapsc.com/ Charleston, SC Upstate Carolina Angel Network http://www.upstateangels.org Greenville, SC SDSU Brookings Angel Fund http://brookingsangelfund.com Brookings, SD Great Opportunities http://www.gosdfund.com Aberdeen, SD Prairie Winds Capital http://www.prairiewindscapital.com Sioux Falls, SD Enterprise Angels http://www.sdei.org/enterprise_angels.shtml Brookings, SD Angel Capital Group http://www.angelnetworksc.com Hendersonville, TN Nashville Capital Network http://www.nashvillecapital.com/ Nashville, TN Health Care Angel Group http://hca.angelgroups.net Houston, TX North Texas Angel Network http://northtexasangelnetwork.org/ Fort Worth, TX SATAI Network http://satai.us San Antonio, TX Central Texas Angel Network http://www.centexangels.org Austin, TX Concho Valley Angel Network http://www.cvangel.org San Angelo, TX Houston Angel Network http://www.houstonangelnetwork.org/ Houston, TX
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Active Angel Investors http://www.activeangelinvestors.com/ Vienna, VA Jefferson Corner Group http://www.jeffersoncornergroup.com Charlottesville, VA New Dominion Angels http://www.newdominionangels.com Warrenton, VA D'Arch Angels http://www.newvantagegroup.com Vienna, VA Virginia Active Angel Network http://www.virginiaactiveangelnetwork.com Charlottesville, VA North Country Angels http://www.northcountryangels.com/ Vermont, VT Puget Sound Venture Club http://pugetsoundvc.com Bellevue, WA Alliance of Angels http://www.allianceofangels.com/ Seattle, WA
Bellingham Angel Group http://www.bellinghamangels.com Bellingham, WA Seraph Capital Forum http://www.seraphcapital.com/ Seattle, WA Tacoma Angel Network http://www.tacomaangelnetwork.com Tacoma, WA ZINO Society http://www.zinosociety.com Seattle, WA Marquette University Golden Angels Network http://www.goldenangelsnetwork.org Milwaukee, WI Phenomenelle Angels http://www.phenomenelleangels.com Madison, WI Silicon Pastures http://www.siliconpastures.com/ Milwaukee, WI Wisconsin Investment Partners http://www.wisinvpartners.com Madison, WI
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Appendix B: Preparing Your Business Plan for Angel Investors
Overview
A business plan is a roadmap for a growing company. It also serves to communicate the company's value proposition to employees, advisors, partners, customers and investors. Business plans are the vehicle by which companies get in the door, and are the documents most heavily scrutinized by angel investors, particularly in today's financing environment. It is critical that your company develop a strong business plan if you seek financing from angel investors.
The 10 Sections of Your Business Plan

A business plan is organized into ten key sections as follows: 1. Executive Summary 2. Company Analysis 3. Industry Analysis 4. Customer Analysis 5. Competitive Analysis 6. Marketing Plan 7. Operations Plan 8. Management Team 9. Financial Plan 10. Appendix To establish credibility with angel investors, it is critical that your business plan does not overestimate market sizes, underestimate competition, or project results overaggressively. Rather, they must present realistic game plans for achieving success, including: Highlighting past accomplishments: The best indicator of future success is a company's past track record. The business plans of previously funded companies must show what milestones they have achieved with those funds. New companies must show how the past successes of the management team will enable the company to overcome expected challenges. Understanding and defining the relevant market: Improper sizing of a company's target market is a telltale sign of a poorly reasoned business plan. For example, though the U.S. healthcare market is a trillion dollar market, there is no
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company that could reap $1 trillion in healthcare sales. Rather, a more meaningful metric is the relevant market size, which equals the company's sales if it were to capture 100% of its specific niche of the market. Defining and communicating a credible relevant market size is far more powerful than presenting generic industry figures. Understanding and catering to customer needs: Investors have a laser sharp focus on the relationship between a company and its customers. In its business plan, a company must clearly communicate how its products and services meet specific customers' wants and needs, and identify which target markets most exemplify these needs. The business plan must also outline an easy to follow and credible roadmap of how the company plans to penetrate its customers. Proving barriers to entry: A business plan must include strategies that demonstrate that the company can and will build long-term barriers around its customers. Claiming a first mover advantage is simply not compelling in today's funding environment. Developing realistic financial assumptions: Many investors skip straight to the financial section of the business plan. It is critical that the assumptions and projections in this section be realistic. Plans that show penetration, operating margin and revenues per employee figures that are poorly reasoned, internally inconsistent or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility.
Your Executive Summary

There are two types of Executive Summaries: 1. Those that precede the full business plan 2. Those that are used as stand-alone documents When the Executive Summary precedes the business plan, its length should be short, typically only one to two pages and certainly no longer than three pages. This is because the Executive Summary is not meant to tell the whole story of the business opportunity. Rather, the summary must simply stimulate and motivate the angel investor to learn more about the company in the body of the plan. The second type of Executive Summary is a stand-alone document. That is, it is given, by itself, to angel investors for their initial review. If interested, the investor will then request the full business plan. A stand-alone Executive Summary is often used to limit the flow of information. That is, if an angel investor is not interested in the general opportunity that your summary presents, you don't want to reveal to them intimate details of your plan.
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Regardless of which type of Executive Summary you are developing, the summary must included the following critical elements: 1. A concise explanation of the business 2. A description of the market size and market need for the business 3. A discussion of how the company is uniquely qualified to fulfill this need In addition, a stand-alone Executive Summary should include summaries of each essential elements of the business plan. This includes paragraphs addressing each of the following:
Customer Analysis: What specific customer segments the company is targeting and their demographic profiles Competition: Whom the company's direct competitors are and the company's key competitive advantages Marketing Plan: How the company will effectively penetrate its target market Financial Plan: A summary of the financial projections of the company Management Team: Biographies of key management team and Board members
The Executive Summary is the most critical element of the business plan. If it does not grab the investor's attention, the investor will neither read nor request the full business plan. As such, spend time developing the best possible summary; create two versions (e.g., stand-alone and full plan predecessor) as appropriate, and work to get it in the hands of the right investors.
The Company Analysis Section

The Company Analysis section of your business plan has three main goals, to give a brief profile of your company, detail your past accomplishments and specify your unique qualifications. 1. Company Profile Start with a detailed profile of your company including your: Date of formation Legal structure (LLC vs. C-Corp., etc.) Office location(s) Business stage (start-up vs. undergoing R&D vs. serving customers, etc.)
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2. Past Accomplishments Include a chart (or bullets) of your company's past accomplishments, including descriptions and dates when:

Prior funding rounds were received Products and services were launched Revenue milestones were reached (e.g., date when sales surpassed the million dollar mark) Key partnerships were executed Key customer contracts were secured Key employees were hired
This information is critical to angel investors as it indicates the company's ability to execute upon a previous game plan. Attaining milestones is an excellent indicator for potential angels that their money will be used to create value and lead to a liquidity event. 3. Unique Qualifications Finally, detail why your company is uniquely qualified to succeed. This is often referred to as the company's unfair competitive advantage. This advantage could include a world-class management team, proprietary technology, proven operational systems, key partnerships, long-term contracts with major customers, as well as other successes-todate.
Detailing Your Industry Size and Trends

In developing their business plans, companies of all sizes face the challenge of determining the size of their markets. To begin, companies must present the size of their relevant market in their plans. The relevant market equals the company's sales if it were to capture 100% of its specific niche of the market. Conversely, stating that you were competing in the $1 trillion U.S. healthcare market, for example, is a telltale sign of a poorly reasoned business plan, as there is no company that could reap $1 trillion in healthcare sales. Defining and communicating a credible relevant market size is far more powerful than presenting generic industry figures. The challenge that many firms face is their inability to size their relevant markets, particularly if they are competing in new or rapidly evolving markets. On one hand, the fact that the markets are new or evolving is the reason why there may be a large opportunity to establish them and become the market leader. Conversely, investors, shareholders and senior management are often skeptical to invest resources because, since the markets do not yet exist, the markets may be too small, or not really exist at all. Growthink has encountered the challenge of sizing emerging markets numerous times and has developed a proprietary methodology to solve the problem. To begin, it is critical
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to understand why traditional market sizing methodologies are ill equipped to size emerging markets. To illustrate, if a research firm were to use traditional methods to size a mature market such as the coffee market in the United States, it would consider demographic trends (e.g., aging baby boomers), psychographic trends (e.g., increased health consciousness), past sales trends and consumption rates, price movements, competitor brand shares and new product development, and channels/retailers among others. However, conducting such an analysis for emerging markets presents a challenge as several of these factors (e.g., past sales, demographics of the customer when there are no current customers) don't exist because the markets are presently untapped. Use two approaches The methodology required to size these new markets requires two approaches. Each approach will yield a different approximation of the potential market size, and often the figures will work together to provide a solid foundation for the market's potential. Growthink calls the first approach peeling back the onion. In this approach, we start with the generic market (e.g., the coffee market) that that company is trying to penetrate, and remove pieces of that market that it will not target. For instance, if the company created an ultra high-speed coffee maker that retailed for $600, it would initially reduce the market size by factors such as retail channels (e.g., mass marketers would not carry the product), demographic factors (lower income customers would not purchase the product), etc. By peeling back the generic market, you eventually will be left with only the relevant portion of it. The second methodology requires assessing the market from several angles to approximate the potential market share, answering questions including:
Competitors: who is competing for the customer that you will be serving; what is in their product pipeline; once you release a product/service, how long will it take them to enter the market, who else may enter the market, etc. Customers: what are the demographics and psychographics of the customers you will be targeting; what products are they currently using to fulfill a similar need (substitute products); how are they currently purchasing these products; what is their degree of loyalty to current providers, etc. Market factors: what other factors exist that will influence the market size -government regulations; market consolidation in related markets, price changes for raw materials, etc. Case Studies: what other markets have experienced with similar transformations and what were the customer adoption rates in those markets, etc.
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While these methodologies are often more painstaking than traditional market research techniques, they can be the difference in determining whether your company has the next iPod or the next Edsel.
The Customer Section

The Customer Analysis section of the business plan assesses the customer segments that the company serves. In it, the company must 1. Identify its target customers 2. Convey the needs of these customers 3. Show how its products and services satisfy these needs Precisely Define Your Customers The first step of the Customer Analysis is to define exactly which customers the company is serving. This requires specificity. It is not adequate to say the company is targeting small businesses, for example, because there are several million of these types of customers. Rather, the plan must identify precisely the customers it is serving, such as small businesses with 10 to 50 employees based in large metropolitan cities on the West Coast. Once the plan has clearly identified and defined the company's target customers, it is necessary to explain the demographics of these customers. Questions to be answered include: 1. How many potential customers fit the given definition and is this customer base growing or decreasing? 2. What is the average revenues/income of these customers? 3. Where are these customers geographically based? Detail the Needs of Your Customers & Show How You Satisfy Them After explaining customer demographics, the plan must detail the needs of these customers. Conveying customer needs could take the form of past actions (X% have purchased a similar product in the past), future projections (when interviewed, X% said that they would purchase product/service Y) and/or implications (because X% use a product/service which our product/service enhances/replaces, then X% need our product/service).
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The business plan must also detail the drivers of customer decision-making. Sample questions to answer include: 1. Do customers find price to be more important than the quality of the product or service? 2. Are customers looking for the highest level of reliability, or will they have their own support and just seek a basic level of service? Show An Understanding of How Customers Make Decisions There is one last critical step in the Customer Analysis -- showing an understanding of the actual decision-making process. Examples of questions to be answered here include: 1. Will the customer consult others in their organization/family before making a decision? 2. Will the customer seek multiple bids? 3. Will the product/service require significant operational changes (e.g., will the customer have to invest time to learn new technologies and will the product/service cause other members within the organization to lose their jobs? etc.) It is essential to truly understand customers to develop a successful business and marketing strategy. As such, sophisticated investors require comprehensive profiles of a company's target customers. By spending the time to research and analyze your target customers, you will develop both enhance your business strategy and funding success.
Competition
When developing the competition section of your business plan, companies must define competition correctly, select the appropriate competitors to analyze, and explain its competitive advantages. Who are your competitors? To start, companies must align their definition of competition with investors. Investors define competition as any service or product that a customer can use to fulfill the same need(s) as the company fulfills. This includes firms that offer similar products, substitute products and other customer options (such as performing the service or building the product themselves). Under this broad definition, any business plan that claims there are no competitors greatly undermines the credibility of the management team. In identifying competitors, companies often find themselves in a difficult position. On one hand, they want to show that they are unique (even under the investors' broad definition) and list no or few competitors. However, this has a negative connotation. If no
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or few companies are in a market space, it implies that there may not be a large enough customer need to support the company's products and/or services. Direct and Indirect Competitors Business plans must detail direct and, when applicable, indirect competitors. Direct competitors are those that serve the same target market with similar products and services. Indirect competitors are those that serve the same target market with different products and services, or a different target market with similar products and services. After identifying competitors, the business plan must describe them. In doing so, the plan must also objectively analyze each competitor's strengths and weaknesses and the key drivers of competitive differentiation in the marketplace. Perhaps most importantly, the competition section must describe the company's competitive advantages over the other firms, and ideally how the company's business model creates barriers to entry. Barriers to entry are reasons why customers will not leave once acquired. In summary, too many business plans want to show how unique their venture is and, as such, list no or few competitors. However, this often has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough customer need to support the venture's products and/or services. In fact, when positioned properly, including successful and/or public companies in a competitive space can be a positive sign since it implies that the market size is big. It also gives investors the assurance that if management executes well, the venture has substantial profit and liquidity potential.
The Marketing Plan

The Marketing Plan section of the business plan demonstrates to angel investors how a company will penetrate the market with its products and services. The Marketing Plan should include the four P's -- Product, Promotions, Price, and Place. Products and/or Services The first P stands for Product, but includes all products and services that the company offers. This section of the business plan should detail all the features of the products and services, how they work, their unique/proprietary attributes, etc. For products that are patented and/or technical in nature, drawings and backup materials should be presented in the Appendix. Most growing companies offer certain products and services today but expect to offer more in the future. It is important to mention both current and future products/services here, but to focus primarily on the short-to-intermediate term horizon.
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Promotions Promotions include each of the activities that induce a customer to buy the company's products and services. Promotional activities could include advertising, public relations (PR), free samples, discounts, direct mail, telemarketing, partnerships, etc. This section of the business plan discusses which promotions will be used and how they will be used. For instance, if partnerships will be used to secure new customers, the plan must explain which companies are partners, how they will be able to provide new customers, how the partnership will work (from operational/ financial standpoints), etc. This section must be as specific as possible, particularly as it relates to discussing future promotions. To say that a company is going to generate PR in trade magazines is simply too vague. Rather, the plan must explain the type of article/feature that may be written about the firm and why, which specific trade journals that will be targeted and/or the projected publication dates. In discussing how the company will promote itself, it is important to discuss how the company will position itself. This positioning statement details the attributes that customers will assign to the company, its products and services. The choice of promotional activities must support this positioning. For example, discounts might not be consistent with a desire to be considered an upscale brand. Price This section of the plan should detail the price point(s) at which the company's products and services will be sold. If the products/ services are sold as bundles, these should be detailed in this section. Rationale for the pricing should be given when applicable (e.g., why the company has chosen an initiation fee plus monthly membership fees versus a one-time lifetime membership fee). Place The final P refers to Place or Distribution and explains how a company's products and/or services will be delivered to customers. This section is crucial because if customers cannot access products and services, they cannot purchase them. This section is especially critical for high-growth, capital-constrained companies. Attaining profit-effective distribution channels is often the most vexing challenge for these businesses. Examples of distribution methods include retail locations, website, distributors, wholesalers, direct mail catalogs, etc. Many companies have multiple distribution methods to deliver their products and services to customers and each should be detailed here.
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Detailing the the four P's in the marketing plan is critical in proving to investors that your company will be able to efficiently and effectively penetrate its market.
Partnerships
Forging partnerships to improve market penetration has become commonplace, particularly for new economy businesses. And, most companies proudly mention their many partnerships in their business plans. It's the TERMS of the Partnership that Are Really Important The fact is that, regardless of whom the partnership is with, partnerships by themselves are meaningless. What are meaningful are the terms of the partnership. For instance, while it sounds great to have a partnership with a Fortune 500 company, the details of the partnership are what investors find important. For instance, investors will look poorly upon a partnership in which the Fortune 500 Company earns 90% commissions on customers it refers. On the other hand, investors would look favorably upon a more equitable partnership. As such, be sure to detail the specifics of the partnerships. This includes factors such as how the partnership will work, payment terms, contract length, minimum and/or maximum guarantees, the type of customer leads expected from each partner, timing of payments, etc. In addition, if partnerships are a key part of the business plan, expect prudent investors to interview the partners and scrutinize partnership contracts. Partnerships can be a major factor in the success of growing companies, providing leads, sales, capital and/or other critical benefits. However, ventures should be careful not to place too much emphasis on any one partner in their business plan. Partnership agreements, like other legal agreements, can be breached, and if the venture positions any one partner as critical to its success, this will become a risk factor to investors. Explain the VALUE of Your Partnerships in Your Business Plan Overall, partners can provide a great boost to growing ventures. Business plans should not only discuss who the partners are, but detail the terms of the partnerships and how they will benefit the company. Finally, the business plan must not place too much emphasis on any one partner in order to convince investors that the business is capable of success even without it.
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The Operations Plan

The Operations Plan is a critical component of any business plan as it presents the Company's action plan for executing its vision. The Operations Plan must detail 1. The processes that are performed to serve customers every day (short-term processes) and 2. The overall business milestones that the company must attain to be successful (long-term processes).
Everyday Processes (Short-Term Processes) Every company has processes to provide its customers with products and services. For instance, Wal-Mart has a unique distribution system to effectively move products from its warehouses to its stores, and finally to its customers' homes. Technology products manufacturers have processes to convert raw materials into finished products. And service-oriented businesses have processes to identify new areas of customer interest, to continually update service features, etc. The processes that a company uses to serve its customers are what transform a business plan from concept to reality. Anyone can have a concept. And more importantly, investors do not invest in concepts -- they invest in reality. Reality is proving that the management team can execute the concept better than anyone else, and the Operations Plan is where the plan proves this by detailing key operational processes. Business Milestones (Long-Term Processes) The second piece of the Operations Plan is proving that the team will execute the longterm company vision. This is best presented as a chart. On the left side, there should be a list of the key milestones that the Company must reach, and on the right, the target date for achieving them. Sample milestones include expected dates when:

New products and services will be introduced to the marketplace Revenue milestones will be attained (e.g., date when sales will surpass million dollar mark) Key partnerships will be executed Key customer contracts will be secured Key financial events will occur (future funding rounds, IPO, etc.) Key employees will be hired
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Additional text should be used, where necessary, to support the projections laid out in the chart. The milestone projections presented in the Operations Plan must be consistent with the projections in the Financial Plan. In both areas, it is important to be aggressive but credible. Presenting a plan in which the company grows too quickly will show the naivet of the management team, while presenting too conservative a growth plan will often fail to excite the potential investor who will require a high rate of return over a relatively short time period.

New products and services will be introduced to the marketplace Revenue milestones will be attained (e.g., date when sales will surpass million dollar mark) Key partnerships will be executed Key customer contracts will be secured Key financial events will occur (future funding rounds, IPO, etc.) Key employees will be hired
The Financial Plan

The Financial Plan section of your business plan must explain how the execution of the company's vision will reap great financial rewards for the angel investor. As such, it is the section that angels often spend the most time scrutinizing. There are five key elements to include in this section: 1. Detailed Revenue Streams The Financial Plan should verbally present the revenue model of the company including each area in which the company derives revenue. These revenue streams could include, among others:

Sales of products/services Referral revenues Advertising sales Licensing/royalty/commission fees Data sales
2. The Pro-Forma Financial Statements The Financial Plan must numerically detail the revenue model through past (if applicable) and pro-forma (projected) Income Statements, Balance Sheets and Cash Flow Statements. It is critical that the figures used in these statements flow from the analyses in every other section of the business plan.
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For instance, the relevant market size (Industry Analysis) should be reflected, as should competitors' operating margins (Competitive Analysis), customer acquisition costs (Marketing Plan), employee requirements (Operations Plan), etc. A summary of the financial projections should be presented in the text portion of the plan, while full projections should appear in the Appendix. For existing companies, the Financial Plan should note any significant deviations (e.g., increase in margins) between past and projected results. 3. Validating Assumptions and Projections The Financial Plan must also detail the key assumptions such as penetration rates, operating margins, headcount, etc. It is critical that these assumptions are feasible. For instance, if the company is categorized as a networking infrastructure firm, and the business plan projects 80% operating margins, investors will raise a red flag. This is because investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high. A key point is that while every company is unique, each bears similarities to other companies. Accessing and basing financial projections on those of similar firms will greatly validate the realism and maturity of the financial projections. 4. Sources and Uses of Funds The Financial Plan should detail the sources and uses of funds. The sources of funds primarily include outside investments (e.g., equity investments, bank loans, etc.) and operating revenues. Uses of funds could include expenses involved with marketing, staffing, technology development, office space, etc. It is critical that you dont run out of money! As such, it is a good idea to be conservative regarding your revenues and expenses. 5. Exit Strategy Equity investors greatly desire and are motivated by a clear picture of the company's exit strategy, or the timing and method through which they can cash in on their investment. This picture best comes into focus when the key valuation and liquidity drivers of the company are clearly delineated. An excellent method to accomplish this is through descriptions of comparable firms that have had successful liquidity events, either through acquisition, merger or public offerings. The most common exit strategies in business plans are IPOs or acquisitions. While the method of exit is not always crucial, the investor often wants to see the choice of exit laid out in the plan in order to better understand the management team's motivation and commitment to building long-term value.
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Developing Realistic Financial Assumptions

Many angel investors skip straight to the financial section of the business plan. It is critical that the assumptions and projections in this section be realistic. Plans that show penetration, operating margin and revenues per employee figures that are poorly reasoned; internally inconsistent or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility. Make sure your assumptions are consistent with industry averages For instance, if the company is categorized as a networking infrastructure firm, and the business plan projects 80% operating margins, investors will raise a red flag. This is because angel investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high. As much as possible, the financial assumptions should be based on actual results from your or other firms. As the example above indicates, it is fairly easy to look at a public company's operating margins and use these margins to approximate your own. Likewise, the business plan should base revenue growth on other firms. You are not the only successful company. Make sure you can point to other companies who have enjoyed similar growth rates. Many firms find this impossible, since they believe they have a break-through product in their market, and no other company compares. In such a case, base revenue growth on companies in other industries that have had break-through products. If you expect to grow even faster than they did (maybe because of new technologies that those firms weren't able to employ), you can include more aggressive assumptions in your business plan as long as you explain them in the text. The financials can either enhance or significantly harm your business plan's chances of assisting you in the capital-raising process. By doing the research to develop realistic assumptions, based on actual results of your or other companies, the financials can bolster your firm's chances of winning investors. As importantly, the more realistic financials will also provide a better roadmap for your company's success.
Documenting Your Exit Strategy

All investors greatly desire and are motivated by a clear picture of a company's exit strategy, or the timing and method through which they can cash in on their investment. This picture best comes into focus when the key valuation and liquidity drivers of the company are clearly delineated. An excellent method to accomplish this is through
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descriptions of comparable firms that have had successful liquidity events, either through acquisition, merger, of initial public offerings (IPOs). It is helpful to show other companies in your market, or similar companies in other markets, who have successfully exited, and how and why these companies were successful. For instance, were they successful since they acquired a large customer base? Or were they successful since they accomplished fast growth or high profit margins? It is also important to tie their success to their exit price. Was the exit price based on earnings or the number of customers the firm had at the time? The business plan should tie these metrics (e.g., exit price of $X per customer) to the business to determine its future price. The most common exit strategies in business plans for angel investors are acquisitions or IPOs. While the method of exit is not always crucial, the angel investor often wants to see the decision to better understand the management team's motivation and commitment to building long-term value. If acquisition is the selected exit path, then the business plan should detail potential companies that might want to acquire the firm in the future and why. Likewise, if an IPO is expected in the future, the business plan should document the financial metrics of the company that make it ripe for this type of exit. In most cases, investors only make money when the business reaches a successful exit event. As such, it is critical that business plans explain the expected exit, detail why this exit was chosen and validate a realistic exit price.
The Management Team

Even the best new concept or existing plan will fail if executed poorly. The Management Team section of the business plan must prove to the investor why the key company personnel are eminently qualified to execute on the business model. The Management Team section should include biographies of key team members and detail their responsibilities. It is important that these biographies are not merely resumes that include the educational backgrounds and previous job titles and responsibilities of the team members. Rather, biographies should highlight the most relevant past positions that the individuals have held and specific successes in each. These successes could include launching and growing new businesses or managing divisions of established companies. Tailor team bios to your growth stage. Team member biographies should be tailored to the company's growth stage. For instance, a start-up company should emphasize its management's success launching and growing companies. A more mature company should emphasize how team members have successfully operated within the framework of larger enterprises.
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Depending upon the stage of the company, key functional areas may be missing from the team. This is acceptable provided that the plan clearly defines the roles that these individuals will play and identifies the key characteristics of the individuals that will be hired. However, it is generally not favorable if personnel are missing for ultra-critical roles. For example, a plan that is fundamentally a marketing play should not seek financing without a stellar marketing team. The Management Team section should also include biographies of the company's Advisory Board and/or Board of Directors. While having well-known advisors/board members adds credibility to the business plan, it is highly effective to explain how these advisors will directly impact the company through strategic advice and/or providing conduits to key clients, partners, suppliers, etc. Prove yourselves. In summary, the Management Team section of the business plan is an opportunity to prove to investors that your company has the necessary talent to succeed. Rather than waste this opportunity by merely showing employee resumes, which could be included in the Appendix, the section should be used to explain precisely how the team is uniquely qualified to execute the venture in its present state.
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Good to Great: How to Make Your Business Plan Truly Shine

Unique Qualifications
By adding these seven words to your business plan you will improve it 100-fold. They need to be added on the first page of your Executive Summary AND be reiterated throughout your business plan. So, what are these magical words: We are uniquely qualified to succeed because: Having these words, and obviously supporting them with the appropriate bullets/text is typically the difference between a company that successfully raises capital and one that doesn't. So what makes a company uniquely qualified to succeed? Here are a few examples: Management team who knows the market better than anyone Management experience launching/growing businesses (been there, done that) Proprietary technology Key partnerships in place Customer contracts or customer relationship with significant barriers to exit Competitive barriers to entry Major time lead over competitors (would take competitors a long time to catch up) Proven industry trends that support your business
Realism vs. Optimism

Your Goal: Create a compelling story while maintaining credibility The most important function of your business plan is to create interest among angel investors so that they write a check. In achieving this goal, companies are often challenged by determining the proper level of optimism in their plan. That is, they must create a compelling story to investors while maintaining credibility. Optimism shows investors that a company is confident about the market opportunity, its ability to execute on the opportunity, etc. Over-optimism, however, leads investors to believe that the management team does not fully understand the opportunity or the tough road ahead. As such, business plans must be sure to limit over-optimism and show investors they are realistic and credible.
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Realism, the opposite of over-optimism, should be used in business plans to portray sobriety and credibility to investors. Realism should manifest itself in management team bios that tell the actual accomplishments of managers, rather than fluff. It should manifest itself in credible market forecasts and sober assumptions of the company's growth. Balancing optimism and reality creates excitement and credibility While business plans must excite investors so they take action, if they are too optimistic, investors will discount their merit. Conversely, if they are too sober, investors may not feel they will get an adequate return on their investment. As such, business plans should present a compelling, optimistic picture, but continuously refer to hard facts and realistic assumptions to build credibility and genuine excitement.
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Other Key Business Plan Issues

Updating Your Business Plan
Business plans are not static documents. Rather, they are dynamic documents that change often. Keeping your business plan up-to-date can be a critical factor in both your ability to raise capital and your ability to execute on the opportunity at hand. There are many parts of a business plan that need periodic updates. Sections that most commonly need to be modified include the milestones, competition, management team and financials sections. Milestones: What milestones has your business achieved since the last version of the business plan was prepared? Showing investors that your company continues to execute on the opportunity and meet milestones is a key way to gain an investment. Competition: Particularly in emerging markets, the competitive landscape changes rapidly. It is common for new ventures to enter the market and established companies to extend business lines into it. Updating the competitive section of the business plan is critical to letting management and investors understand the new landscape and adapt accordingly. Management team: As companies add management team members, it is important to update the plan with their bios. A fuller management team is a positive sign to investors that the company is poised for success. Financials: Business plan financials often have a plethora of assumptions such as customer penetration rates, prices, margins, etc. As a company begins to execute on its opportunity, it is able to replace the assumptions with real figures. Making these substitutions in the financial model is critical in understanding the cash flow needs of the venture. Misunderstanding financial needs is a key reason why some companies fail. Strong management teams know the importance of their business plan and update their plans constantly to make sure their focus and action plan is always crystal clear. Likewise, they recognize the importance of sharing their updated plans with investors and management team members to keep everyone in synch.
Business Plan Length

How long should a business plan be? A business plan needs to be whatever length is required to excite the investor, prove that management truly understands the market, and detail the execution strategy.
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From surveys of angel investor needs, Growthink has found that 15 to 20 pages of text is the optimum length in which to accomplish this. Any more and the time-constrained investor will be forced to skim certain sections of the plan, even if they are generally interested, which could lead them to miss essential elements. Any less and the investor will think that the business has not been fully thought through, or will simply not have enough information to make an investment decision. Your business plan is NOT meant to tell the WHOLE story Many management teams feel that their company is too complex to describe in 15 to 20 pages. While this is sometimes true, the business plan is not meant to tell the whole story. Rather, the company must be boiled down into its essential elements. If the investor is interested, there will be plenty of additional time to tell the whole story. Business plans, like other marketing communications documents, should be visually appealing and easy-to-read. This can be accomplished by using charts and graphics and by formatting the plan for readability. Effectively using these techniques will enable the investor to more quickly and easily understand the company's value proposition within fewer pages. While the body of the business plan should be 15 to 20 pages, the Appendix can be used for supplemental information. The Appendix should include a full set of financial projections, and as appropriate, technical and/or operational drawings, partnership and/or customer agreements, expanded competitor reviews, and lists of key customers among others. If the Appendix is long, a divider should be used to separate it from the body of the plan, or a separate Appendix document should be prepared. These techniques ensure that the investor is not handed a thick business plan, which will make them queasy before even opening it up. The goal is to create interest To summarize, the goal of the business plan is to create interest -- not to have an angel investor write you a check. In creating interest, the full story of your company need not be told. Rather, the plan should include the essential elements regarding why an investor should invest and spend more time examining the business opportunity. The shorter length does not mean that your business plan should take less time to prepare. Rather, it will take more time. As Mark Twain once said, If I had more time, I would write a shorter story. Likewise, condensing your business plan to a concise, compelling document is challenging and time consuming. Fortunately the rewards are significant.
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Business Plan Appendix

The Appendix of your business plan is used to support the rest of the plan. Every business plan should have a full set of financial projections in the Appendix, with the summary of these financials in the Executive Summary and the Financial Plan. Other documentation that could appear in the Appendix include: Technology: Technical drawings, patent information, etc. Partnership and/or Customer Letters: Letters from partners and/or customers stating their interest in working with the company can add enormous credibility and validation. Expanded Competitor Reviews: Most companies have several direct and/or indirect competitors. While the Competitive Analysis section of the plan reviews the most direct competitors, adding a more thorough list and description in the Appendix shows that management truly understands the players in the market. Customer Lists: Including a list of key customers that the company is serving in addition to their status and/or type or quantity of product/service being offered.
Use of Graphics
Many people ask how many graphs or charts they should have in their business plans. As with most other business planning questions, the answer is it depends. Here are the key factors influencing the number of graphs and charts to include in your business plan. How long will your audience spend in reviewing your plan? To begin, the key point to consider in developing your business plan is the time restraints of your audience. If your audience is a retired angel investor, he may have few obligations and can spend an hour reviewing your business plan. However, the more likely scenario is that a venture capitalist, corporate investor or loan officer will review your plan while sitting at a desk topped with fifty other business plans. As such, it is critical that your plan conveys its key points quickly and easily -- this is where graphs or charts come in. In determining whether to use a graph or chart, consider the old adage, a picture is worth a thousand words. The point here is that the picture should save a thousand words. That is, the graph or chart should supplement the text; it should not be explained ad naseum in the text, or that defeats its purpose. Likewise, the graph or chart must be relevant and support the text, rather than detract from it.
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In addition to respecting the time constraints of the audience, the business plan must respect the audience's energy level. That is, after reading seven business plans, an investor is likely to skip a page with 400 words of straight text. Even if no charts are applicable to support the page, Growthink suggests using appropriate spacing and/or callout boxes (e.g., key text phrases highlighted in boxes) to make the page more readable. Technical drawings, product specifications, etc. MUST be included in the body of the plan Clearly, technical drawings and operational designs need to be visually presented in the business plan. Without them, huge volumes of text are often needed to explain relatively simple processes. Importantly, when the text references these charts, the charts should be easily accessible. That is, the chart should be on the same page as the text, rather than forcing the audience to continually turn to an appendix. If the chart is referenced on numerous pages, each page should show the piece of the chart that reflects the text, with the full chart appearing only once in the plan. Finally, if the business plan is being presented to one or few investors, the amount of graphs and charts should reflect the wants, needs and sophistication of those few readers. For instance, if the plan is being presented only to strategic investors who understand the market, more graphs may be appropriate to convey information for which these investors already have background knowledge. But remember your business plan is different from your investor slide presentation Conversely, always keep in mind that the plan is not a slide presentation, and too many graphs and charts may position the company as one that is too lazy to complete the process of developing a formal business plan. To summarize, the amount of charts and graphs used in the business plan must reflect the audience for the plan; an audience that is usually time and energy constrained. The charts and graphs must complement the text, enable the audience to quickly and easily digest the information, and as always, interest the audience in taking the next step (e.g., scheduling an in-person meeting) in the investment process.
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Step-By-Step Guide To Raising Capital From Angel Investors

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Step-By-Step Guide To Raising Capital From Angel Investors

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Step-by-Step Guide To Raising Capital from Angel Investors

How to Raise Capital from Angel Investors

Understanding the Angel Investor Psyche.................................... 8

Step 2: Find Angels ........................................................................................15

Step 3: Pitch Angels ........................................................................................18 Step 4: Close the Deal ....................................................................................20

How to Raise Capital from Angel Investors

Other Key Business Plan Issues .....................................................................47

How to Raise Capital from Angel Investors

Understanding the Difference Between Equity & Debt Capital