Business Plans for Business Angels - Part One

This two-part guide to writing a business plan with business angels in mind was kindly provided for Bytestart readers by John Courtney, Associate Director, Beer & Partners Ltd.

There are many books on writing business plans - all the banks provide a handy checklist for example. Yet business plans should always be written with the audience in mind. This short guide is therefore aimed at helping you put your message across to one particularly critical audience - the business angel. We see nearly 2000 plans a year and we know what our investors are looking for; more importantly perhaps we also know the pitfalls and howlers to be avoided.Think of the Reader

Business angels (private investors) are not some huge anonymous corporation; they are human beings. Most private investors have run businesses before and although they want to make a profit out of their investment, usually they are more interested in the chemistry of working with people. Whilst this can be difficult to put across in the cold pages of a plan, an experienced plan reader (and investors will have seen a lot of plans!) can learn much about the writer from the style of the plan. For this reason the management team/promoters themselves should always write the main body of the plan - not their accountants, advisors, friends etc. Spreadsheets can be delegated, the plan can not.

The plan should be written in a way that enables the private investor to quickly gauge the risks and potential rewards of the business. After all the investor wants to know what is in it for him and where the business would fit with his own particular investment criteria (and prejudices!).

Business plans are written for a variety of reasons - to clarify your own thoughts, to provide a monitoring tool or indeed as a check list for action. However for the purpose of raising finance from private investors, the plan has one objective - to sell you and your business to an outside investor. Never forget that, whilst you may think that your proposal is a heaven sent, once in a lifetime investment opportunity, the cynical investor needs to be persuaded to your view.General Style

Firstly, the plan should not be too long. There is no hard and fast rule, but if you cannot put your message across in less than 30 pages (excluding appendices), then you perhaps have not organised your thoughts with enough rigour. Certainly it is unlikely that a plan of more than 50 pages will hold the reader’s interest sufficiently to persuade him to meet you. It needs to move along with sufficient pace to maintain that interest. Remember that an active investor may have a dozen or so plans to read, so try to avoid turning him off through sheer boredom.

The plan should be typed, bound and properly indexed, so that the reader can easily find the salient points of particular interest to him, perhaps through the selective use of bullet points. Do not make the font size too small - I suggest 11 point (this size) as a minimum; this is particularly important in the spreadsheets - figures that are difficult to read, will simply not be read.

Avoid the use of highly technical terms or jargon. Treat the reader as an intelligent “amateur”. Whilst some investors may know even more about your market sector than you, do not assume this! Number paragraphs and chapters - it makes referencing easier. Make sure that contact names, addresses, phone and fax numbers can be easily seen.

If there are old (say more than one month) dates on the plan, the investor may conclude that the plan is already stale. He wants to believe he is one of the first to have seen it.

Confidentiality can sometimes be an issue, and you should be careful to put nothing in the plan which you would not want a competitor (for example) to see. Confidentiality agreements and patents are all very well, but they cost money to protect.

Financial Services Act

There are pitfalls for the unwary here. Under the Financial Services Act 1986 it is a criminal offence for a person who is not authorised to conduct investment business under the Act to “bring about” investment business. You should not send the plan to the general public - i.e. restrict the circulation to those whom you know and trust, or who are already shareholders in the business. In any event no more than 50 copies of the plan should be in circulation (i.e. out of your hands) at any one time. If there is any danger of exceeding this limit, give each copy of the plan its own number and record the plan numbers sent out, and returned, and to whom and when they have been issued. In order to mitigate your risks under the Act, you should insert an up to date “wealth warning” somewhere near the beginning of the plan such as:

Financial Services Act 1986

This Business Plan is not a prospectus and does not, and is not intended to, constitute an offer or invitation to invest in securities, nor shall it, or any part of it, be relied upon in any way in connection with an offer to subscribe for shares.

You should seek your own independent advice in relation to the information contained therein. Investment in a new business carries high risks as well as the possibility of high rewards; it is highly speculative and investors should be aware that no established market exists for the trading of shares in private companies. Before investing in a project about which information is given, potential investors are strongly advised to take advice from a person authorised under the Financial Services Act who specialises in advising on investments of this kind.

This information is issued on the basis that the recipient is a person to whom an investment advertisement can be issued under Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)(Exemptions) Order 1995, without section 57 of the Financial Services Act 1986 applying and that this person will not issue, cause to be issued, or make the information available to, anyone other than as mentioned above.

Please make sure that you have an up to date version of this “wealth warning.” If you have worries over the implications of the Act, contact your solicitor.

• On to Part 2 - How to present the chapters of your Business Plan