There is a lot of popular advice about how to structure your business plan to attract angel investors. But let’s examine business plan features that repel angels from investing.
A primary cause of concern by angel investors is business plans that state there is no competition for the company. There is always competition. The business plan must describe alternatives that consumers are utilizing for what the company supplies. At the least, competition consists of customers simply continuing to fulfill needs that are more highly valued that those addressed by the company.
A business plan should never fail to mention competition. In fact, the existence of substitutes for what the company provides tells investors that a proven market exists. It’s true that angels don’t want a saturated market. But they are reluctant to provide capital for unproven markets.
Next, business plans that fail to provide consumer insight are usually rejected for funding. Customer input is essential to demonstrating the viability of a company. This can simply involve testimonials from potential customers about what they want. Conducting a focus group or survey is valuable. A common solution is inviting responses to an online survey on the company’s website in exchange for free or discounted products.
The best startup companies already have a working prototype. This permits direct response to the company’s product in addition to obtaining insight about market desires. Having consumer input about product features, size, price, and delivery time is important for angel investors to see.
By far the biggest turnoff to angel investors is business plans that emphasize a revolutionary technology. A business plan should avoid statements about break-through or disruptive innovation provided by the company. Investors will not believe it and are therefore likely to disbelieve other elements of the business plan.
Truly break-through technology can only be assessed in a retrospective approach. Nothing is considered revolutionary in its infancy. Only in an historical perspective are things recognized for their breathtaking changes. Predicting that something new is the next big thing is impossible and investors are savvy enough to know this.