Johannesburg - Entrepreneurs who seek to pitch their business plans to would-be investors should stick to facts and avoid over-optimistic forecasts.
That is the feedback from a number of South Africa's venture capital and private investment sector players, who spoke to Fin24.com on Monday.
With the appetite for start-up businesses on the rise, entrepreneurs are now presenting their plans to banks and private financiers hoping to find backers. However, a 30-page tome is unlikely to win you much support.
"I've never seen a business plan that equals reality 12 months later," Raizcorp head Allon Raiz told Fin24.com.
Raiz said newcomers do not appreciate the time it takes for a small business to generate sales, or acquire the skills needed to generate business plan forecasts.
"Their plans are devoid of plan B and plan C and have no flexibility," Raiz said.
Technology investor Vinny Lingham said he is easily put off by business plans which overstate a case.
"I want to see the brutal truth about the way things are at the point that I invest. It is OK if it's only two people and the product is half-built, but don't tell me that you have five people working on it and it's ready to launch."
However, Justin Stanford from investment firm 4Di Capital said he would rather see an entrepreneur erring on the side of optimism than someone who is too conservative when putting together a business plan. "Venture capitalists (VCs) divide all the numbers by 10 anyways," he said.
Numbers have 10% credibility He added that a great part of the decision come down to the entrepreneur rather than the plan put in front of him. "I want to know what they really want to achieve, not what numbers they think a VC wants to see," he said.
Stanford advised entrepreneurs to do the legwork and investigate their market to determine if it was genuine, and whether it was growing or shrinking.
Justin Spratt from IS Labs also believes entrepreneurs seeking funding should focus on keeping their business plan simple and concise. Companies seeking support from IS Labs are expected to complete a business plan not much longer than five pages. Much of it focuses on the product and the potential market, rather than hard financials.
"I am a numbers guy, but that tells you very little about an idea. I like the [business plan] exercise only because it shows me that an entrepreneur understands numbers, has a scenario planned and has thought of the future," Spratt said.
He added that when his organisation looks at a business plan, it gives a 10% credibility rating to the numbers. "It is the process that matters, and the understanding of them that is important," he said.
The approach seems to work for IS Labs. The organisation has seen about 500 proposals. Fifty of these were invited to pitch to the investment committee, of which three have been pushed forward for funding.
- Fin24.com