An independently calculated mammoth opportunity offered by market circumstances is a better indicator of a project's prospects than any set of marketing figures. Most VCs look for emerging markets that are likely to boom. In the early '80s everyone knew that PCs were going to be massive—although they weren't able to put an exact figure on it, the orders were of a magnitude that couldn't fail. It has been a similar story with Internet and Web growth recently. Conversely, try to avoid venturing into saturated or highly competitive markets.

You then need to explain how you are going to make success happen. How much is it going to cost to develop, test, launch, distribute, and sell your product? In this area, VCs are looking for strong repeat sale signals—products and mechanisms that encourage customers to come back for more.

You must back up your thinking with figures. These are all the more interesting to VCs if they ride on a surging trend. However, VCs are wary of month-by-month breakdowns. They know from sad experience that such figures are almost always overly optimistic. Your figures should show that you can produce and sell the product at a profit. Make sure you know what you have to do to break even, when this is likely to occur, and what key inputs will alter these figures up or down. Additionally, make sure you have realistic cash flow summaries that provide for realistic time delays between supply and payment for both suppliers and clients. Assume and include the current industry allowance for bad debts.

Many business plans presented to venture capitalists affirm that theirs is a completely unique proposition and that the proposed product has no competition. This is very unlikely. Even when Netscape announced their browser, there were several others under development. If yours is a unique proposition, you are still in a weak position. The burden of educating the market is likely to be beyond the budget of any single startup company.

Was this article helpful?

0 0

Post a comment