The first step to a new business may be getting a
new business idea, but the first
step to getting seed funding for the new business is by developing an effective
business plan.
A good business proposal is a tool that an entrepreneur uses to convince business
investors about the attractiveness of the idea and the product. Any new business
proposal that hopes to raise capital should describe the fundamentals of the
business
idea and provide financial data to show that you will make good money.
To attract a
business investor, a business plan should include a persuasive introduction
and request for funds, statement of the business, detailed description of the nature
of the business and its structure, number of employees, structure of the business,
analysis of the market, evaluation of main competitors and description of the marketing
strategy.
The
business plan should highlight to the business investor the beauty and uniqueness
of the idea. In addition, it should communicate to potential investors that it has
the chance to make it big in the market. It is only after the business plan is developed
can an entrepreneur approach an investor for business capital.
Usually the first source of funding for a
small business is family and friends as
well as private savings. It is only after tapping into these sources does an entrepreneur
usually approach a venture capitalist or an Angel Investor.
A
Venture capitalist is very similar to an Angel Investor in how they analyze businesses.
But the main difference between the two business investors is that most times Venture
Capitalists are looking to support a new business only for a few years. By the end
of that period, they look to move on to other new business proposals.
Most venture capitalists get their money from various institutional and pension
fund investors. Like other investors, venture capitalists also go through a process
of raising funds. They do this by raising funds from foundations, endowment funds
and retirement funds. To raise capital from venture capitalists and angel investors,
the financial projections in the business plan are very important. Therefore, an
entrepreneur needs to develop a new business proposal that shows the potential to
make profits. However, an over optimistic financial projection is not going to receive
any credit either from the business investor.