Business Plan help - investors

Phate

Phate

Phate

Caporegime
Joined
1 Nov 2003
Posts
35,691
Location
Lisbon, Portugal
Hi all,

As some of you are aware. I am in the process of writing a business plan to begin a startup. I believe I have found a gap in the market which could prove very successful (hopefully!) I have 80-90% of the plan figured out and documented including start up costs.

I have two iterations of start up costs. The first being if I start the company part time whilst keeping my existing role (to fund it) The second being if I were to drop my current role and go full time from the beginning.

Focusing on the second. I have calculated/estimated that it would cost around €26,000 for the first year. This includes my salary, home office costs, hardware costs and initial starting costs as well. I have rounded this up to €30,000 to give some more contingency. Also for the record, €26k is already quite "generous" in terms of estimations.

With this in mind. I would require an investor to do this. Now, I have a potential investor. He is a very successful businessman here in Portugal (and I am guessing he's in the top 1% as well) and he's always open to hearing about new business opportunities and welcomes new start ups and businesses.

I am fairly sure when it comes to discussing investment he will have his own idea on how to proceed with this, but I wanted to at least make some suggestions so I don't sound like a complete plank. However...I've never done this before, I feel like a noob :o

So, to anyone with better knowledge than me. How do I approach the subject. When it comes to stating the € needed I have no problems with that. But I could use some advice on:

- A suggestion for an agreement to for his return
- How often to give updates to the investor

Anything else around the subject as well.

Sorry if some of this sounds ignorant/obvious. But anything I've ever started in the past has been with my own money and whilst there is a side of the plan to do this I would really like the explore the possibility of ditching my current job and jumping in with both feet, therefore investment needed.

Well, it's either that or a business bank loan.

TIA for your help :)

Jake
 
I've never looked at an investor, mainly due to the complications you've raised here. Granted if I was going for something worth several hundred thousand and upwards an investor would be a great idea.

For €30,000 I think I'd be looking at a bank loan if I am honest. You'll get the support of their business advisors, as well as knowing exactly what will be paid back, when and total interest. You're also guaranteed that the business is yours, no chances of someone with a much larger wallet and legal force behind them muscling in.
 
Business model canvas... fill this in (I am happy to help) and then test the assumptions in your canvas. This will give you all the information you need to fulfill the old style of business plan. The downside of a traditional business plan is that it's very static, whereas things change quickly and as such you need to be able to adapt to fit that and the canvas allows you to make changes and as such then test those changes.

Look at:

If you have no traction (in terms of sales, which most investors want evidence of), they will want to know that you have tested the assumptions in your canvas and what that looks like; i.e. how you know there is a market? What have you done to validate this? How do you know your value prop is something people want? How do you know the price point you're considering is palatable for your market? How do you know that the customer channels you're aiming to use are going to be right? How have you tested all of this?

All of this data allows you to be able to answer pretty much anything that could come up when speaking to an investor, bar, of course projections. Then you need to look at your TAM, SAM, SOM, market sizes and work out what is a realistic chunk of that you aim to command and what that looks like in monetization terms and then ideally your "hockey stick" curve over 5 years to hit that number. Most of the projections are BS as you have no idea, and they're very much based on "if the world, moon, stars and all the money I need landed on my lap" but it satisfies and they know this too.

Let me know if you need anything.
 
AHarvey said:
I've never looked at an investor, mainly due to the complications you've raised here. Granted if I was going for something worth several hundred thousand and upwards an investor would be a great idea.

For €30,000 I think I'd be looking at a bank loan if I am honest. You'll get the support of their business advisors, as well as knowing exactly what will be paid back, when and total interest. You're also guaranteed that the business is yours, no chances of someone with a much larger wallet and legal force behind them muscling in.
Click to expand...

There are MANY angels out there who invest anything from 5-100k, sometimes more. They're your little individuals, or small groups of investors who pool together. It's not unheard of to ask for this amount. More likely though, you'll get told you need more money, as to hit the projections they want to see, they want to see rapid growth, which involves more money etc.
 
AHarvey said:
I've never looked at an investor, mainly due to the complications you've raised here. Granted if I was going for something worth several hundred thousand and upwards an investor would be a great idea.

For €30,000 I think I'd be looking at a bank loan if I am honest. You'll get the support of their business advisors, as well as knowing exactly what will be paid back, when and total interest. You're also guaranteed that the business is yours, no chances of someone with a much larger wallet and legal force behind them muscling in.
Click to expand...

The problem is I've no idea if I would actually be able to secure a business loan from a bank :o - I have only been in the country since July. My bank account is a joint one with my girlfriend. It was extremely hard for me to get a bank account of my own in the beginning because of me being brand new to the country. So our bank advised and said it's way easier just to add my name to her account and make it a joint one. So my credit trail started from there.

I could easily arrange an appointment with the bank to find out if it's even a possibility though :)
 
randomshenans said:
Business model canvas... fill this in (I am happy to help) and then test the assumptions in your canvas. This will give you all the information you need to fulfill the old style of business plan. The downside of a traditional business plan is that it's very static, whereas things change quickly and as such you need to be able to adapt to fit that and the canvas allows you to make changes and as such then test those changes.

Look at:

If you have no traction (in terms of sales, which most investors want evidence of), they will want to know that you have tested the assumptions in your canvas and what that looks like; i.e. how you know there is a market? What have you done to validate this? How do you know your value prop is something people want? How do you know the price point you're considering is palatable for your market? How do you know that the customer channels you're aiming to use are going to be right? How have you tested all of this?

All of this data allows you to be able to answer pretty much anything that could come up when speaking to an investor, bar, of course projections. Then you need to look at your TAM, SAM, SOM, market sizes and work out what is a realistic chunk of that you aim to command and what that looks like in monetization terms and then ideally your "hockey stick" curve over 5 years to hit that number. Most of the projections are BS as you have no idea, and they're very much based on "if the world, moon, stars and all the money I need landed on my lap" but it satisfies and they know this too.

Let me know if you need anything.
Click to expand...

Dude that is AWESOME, thank you! I'll begin looking into this tonight/over the weekend. A lot of it I have figured out already so should be able to fill it in quite quickly. I'll drop you a mail via LinkedIN if I need anything though :)

randomshenans said:
There are MANY angels out there who invest anything from 5-100k, sometimes more. They're your little individuals, or small groups of investors who pool together. It's not unheard of to ask for this amount. More likely though, you'll get told you need more money, as to hit the projections they want to see, they want to see rapid growth, which involves more money etc.
Click to expand...

Well this is my other thought. Business is almost always "spend money to make money" - the investor may very well say "add X amount more to hire additional sales staff" (or something similar to help with marketing) to help the business grow and become successful.

So if he wants to go for it he may actually say "I'll invest but you'll get X" and it could be substantially more than what I am asking/proposing.
 
Side note - the investor in question is an Uncle in law. Also my startup could directly help drive more business to his daughters startup, in turn her startup could drive additional business to mine as well. This is one of the selling points.
 
Phate said:
Side note - the investor in question is an Uncle in law. Also my startup could directly help drive more business to his daughters startup, in turn her startup could drive additional business to mine as well. This is one of the selling points.
Click to expand...

Taking into account the above and how long you've been in the country, I would approach them both with the idea at the same time, take a business plan with you and talk it over. They'll have feedback and he's more likely to invest if she is behind it as well. :)

You could still try a bank, nothing wrong with a chat about it.
 
AHarvey said:
Taking into account the above and how long you've been in the country, I would approach them both with the idea at the same time, take a business plan with you and talk it over. They'll have feedback and he's more likely to invest if she is behind it as well. :)

You could still try a bank, nothing wrong with a chat about it.
Click to expand...

Yes, I have already spoken to the daughter (SWMBO's cousin) and we're sorting out a time for a Skype about it. All she knows is that I could help her business. So we'll see :)
 
I have a bit of good news.

I just spoke with the investors daughter (gf's cousin) and explained in brief what the business is and how our two businesses could potentially drive work to each other.

She loves the sound of it. Thinks it's a great idea. So she's on board.

As others have said. If the daughter of the investor is keen and it could her help business (which he funded the start up for) this gives me more reasons to go ahead with it :)

I also found out today what my biggest competitor charge. GF is doing detective work this afternoon to find out what other competitors charge (well, attempt to)

It's all very exciting :)
 
That's great news phate! Exciting times coming up, and a lot of hard work!

Well if you need someone in the UK to do some investigating you can trust me the details, I can enquire from my work email, make it look official :D
 
AHarvey said:
That's great news phate! Exciting times coming up, and a lot of hard work!

Well if you need someone in the UK to do some investigating you can trust me the details, I can enquire from my work email, make it look official :D
Click to expand...

For me I just hope I can secure funding so I can quit work and really make a proper go of it, rather than trying to balance work/life/startup. Thats what I am really hoping for. Be it from the investor, crowdfunding or the bank :)

Thanks very much for the offer. The business itself is nothing ground breaking (it's a form of IT Consultancy Company) but rather than trying to be a jack of all trades it specialises in a certain field which is where the gap here is in Portugal.


When I know whether or not its going to go ahead and the website is ready I'll drop you an email and anyone else who would like it as well :)
 
Can you actually run the first year as you suggested, self funded whilst you maintain your current job? Your attractiveness to investors will be significantly more and your ability to maintain equity significantly stronger if you have a going concern that you have taken the initial risk with rather than just an idea. One assumes most of your first year costs are actually your salary?

Also, is the value of your investor purely predicated on their money, or do you seek their time and connections too? Your valuations are very small so my argument would be why do you need an investor who will seek equity when you could just pull down some cash on a mortgage or a bank loan?
 
Housey said:
Can you actually run the first year as you suggested, self funded whilst you maintain your current job? Your attractiveness to investors will be significantly more and your ability to maintain equity significantly stronger if you have a going concern that you have taken the initial risk with rather than just an idea. One assumes most of your first year costs are actually your salary?
Click to expand...

I have broken it down into two different startup costs. One if I self fund it and work part time, t'other if I quit my job and go full time.

As you say, with the latter the majority of the it is salary. It is an increase on what I earn now but only as a safety in case my gf loses her job so we're suddenly up the creek without a paddle.

So you're saying that to an investor, it would be more appealing if I am just opting for quitting my current job and going full time?

If I do it part time, I do not need an investor.
 
Housey said:
Also, is the value of your investor purely predicated on their money, or do you seek their time and connections too? Your valuations are very small so my argument would be why do you need an investor who will seek equity when you could just pull down some cash on a mortgage or a bank loan?
Click to expand...

Time & connections is important. Said investor is very well connected and already works in the IT/technology industry over here. If I want to get in touch with someone "on the inside" for almost any named player over here, I can call him and he will now someone. This kind of knowledge is invaluable. (For example about an hour ago I had an email from him with the rates the biggest IT Consultancy company over here charge, after speaking with him on the phone last night)

Also I've already mentioned in the thread. I have only been in this country for 6 months. Without a chat to the bank (which I'm arranging anyway) I do not actually know my chances of securing a bank loan. Another reason to look at the investor.

With it being an uncle in law, it might not be a full blown investor deal anyway. I need to speak with him and find out.
 
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