What is the primary difference between a venture capital business plan and a small business or other business plan? The answer is typically risk. Venture capital business plans have much more risk than other plans, and as a result, the potential rewards from success are much higher.
When preparing a plan for venture capitalists, it is critical to try to mitigate the risks inherent in the venture. To mitigate the risks, the plan should stress areas in which the venture excels. This will give the investors validation that their chance of success is highest. To accomplish this, the plan must, among others, stress the qualifications of the management team, prove that the size of opportunity is formidable, show competitive advantage, and detail the operations plan that will allow the venture to effectively and efficiently go “from here to there.”
When venture capitalists read a business plan, they constantly ask “what if.” By giving them the confidence that the team, the opportunity, and the strategy are all sound, answering the “what if” questions positively becomes easier. This in turn pushes them to the next step which is typically to meet with the management team and assess whether it is the right team to execute the venture.
When developing a venture capital business plan it is also critical that the plan be properly edited. Most venture capitalists have advanced degrees and have spent many, many years in school. As a result, they naturally spot typos and other inconsistencies, which cast a negative light on the venture. Likewise, since venture capitalists must review so many plans per week, making them visually appealing enhances their impact.