The National Venture Capital Association recently released data for 2008 venture capital investments.  Venture capital firms invested $28.3 billion in 3,808 companies in 2008.  This represents an 8% decrease in dollars and a 4% decrease in deal volume from 2007.  

One big bright spot is clean tech.

Venture capital firms invested $4.1 billion into 277 clean tech startups in 2008, a 52% increase from 2007.  Popular investments include solar, biodiesel, nuclear energy, and battery start-ups.

When we step back and try to view these investments over the long-term, it becomes clear that only a handful of these start-up companies are going to become extremely successful.  Only a few of them will dominate their marketplaces and become the "Googles" of solar, wind, water, and biodiesel.

While the majority of individual investments into start-up companies will fail, the asset class as a whole has historically produced superior returns to most other alternatives.  Seed stage and early stage venture capital investing has achieved historical 20 year returns of over 20%.  The asset class as a whole is only able to achieve these returns by investing in a handful of "home runs" -- the startups that grow to be multi-million and billion dollar acquisitions and IPOs.

Despite what the admittedly brilliant minds on Sand Hill Road in Silicon Valley would have us believe, it is nearly impossible to predict which of the hundreds of thousands of promising new companies launched every year will become the "next Google" of their industry.

That's why diversification is a critically important "best practice" for successful venture capital and private equity investing.  As such, the investor's goal should be to aggregate positions in several promising early stage companies in order to improve the chances of finding that "Black Swan."

And as the public stock markets take a beating, real estate continues its downward spiral, and cash is endangered by the long-term threat of inflation as a result of record U.S. government deficits, we at Growthink believe that the early stage private equity asset class is among the most attractive long-term investment alternatives available to qualified investors.

To learn more about our perspectives on this subject, we welcome you to attend our webinar:

Webinar: Keys to Successful Private Company Investing

To register, click here: http://www.growthink.com/livedeals
 

Earlier this week, Growthink's Co-Founder Dave Lavinsky spoke with Dave Humphrey, COO and Senior Investment Professional for Oklahoma Equity Partners, based in Tulsa OK. Humphrey has served as a principal at Davis Tuttle Venture Partners (the oldest VC firm in Oklahoma). Also, in over 10 years with Koch Industries, he led $300+ million of expansions and acquisitions, and served as the CEO of a $200 million business where he increased profitability by six-fold.

You can click here to listen to the entire interview: http://www.growthinkuniversity.com/public/248.cfm

In the interview Dave discussed how networking plays a role in both capital raising and bolstering a management team, as well as a way to approach financial projections that will show investors your true capacity to execute on a market opportunity.

Also discussed are the 3 key elements that Humphrey looks for in every business plan.

To listen to the interview, visit this link: http://www.growthinkuniversity.com/public/248.cfm

We welcome you to attend our webinar "How to Successfully Invest in Venture Capital and Private Equity."

In the webinar, Growtthink's CEO Jay Turo provides an overview of venture capital and private equity investing, including commentary on current market conditions (credit crunch, decline in stock market, real estate bust) as well as private equity investing "best practices" for success in the current environment.

During the webinar, Jay provides his perspectives on:

• The credit crisis and the stock market correction
• Why smart investors are engaged in a "quest for value" and how this relates to private equity
• The importance of applying portfolio theory to private equity & venture capital
• How to assess risk and price venture capital & private equity deals
• Why most private equity investors fail -- and what to do about it
• Which sectors present opportunities NOW

Use this link to learn more and reserve your spot:

Growthink's Private Equity & Venture Capital Webinar

Special Announcement:
Are you an entrepreneur looking to raise capital from private investors? With Growthink's Private Placement Memorandum Template, you can finish your PPM quickly and easily, so that you spend less time "preparing," and more time speaking with investors.

Sometimes things are so obvious as to be hard to see.  

That is certainly the case right now with the incredible flood of federal stimulus pouring into the economy - both in terms of fiscal and monetary policy.   But saying it in this way, as it is often done by the chattering media classes, makes the issue unnecessarily opaque and complex.   We agree with Milton Friedman (and not just because of his long Stanford connection) when he describes inflation as "always and everywhere a monetary phenomenon."

Clean technology (“cleantech”) is one of the fastest growing areas of investment within the venture capital and private equity community, showing constant growth since 2003 and accounting for 7.4% of total venture investment in 2007. According to data compiled by Cleantech Group, LLC, the 3rd quarter of 2008 saw $2.6 billion invested in 158 deals in the sector, with total investments in 2008 projected between $7.6 and $8.1 billion. This represents 30% growth in comparison to 2007’s $6.01 billion, $2.2 billion of which was invested in U.S. companies.

The cleantech category is comprised of a variety of subsectors that represent products, services, and technologies created to reduce greenhouse gas emissions, develop energy independence, promote energy efficiency, and conserve natural resources. Subsectors within the category include:

- Solar, wind, biofuels and geothermal energy generation
- Infrastructure to support alternative energy generation
- Energy storage (batteries, fuel cells, etc.)
- Agricultural productivity and natural pest control technologies
- Materials and manufacturing processes requiring less resource intensive inputs
- Pollution control, recycling, clean coal, and wastewater/water technologies

Despite the economic downturn, cleantech is one of the only sectors still projecting investment growth, particularly once President Elect Obama takes office tomorrow. Obama’s energy plan calls for a $150 billion investment in clean technologies over the next 10 years, aggressive targets for greenhouse emissions reductions, and programs to promote energy efficiency, low-carbon biofuels, and renewable energies. Obama has also called for a national Renewable Portfolio Standard (RPS) requiring that utilities generate 10 percent of electricity from renewable sources by 2025. New mandates, tax incentives and the recent Energy Independence and Security Act of 2007 will continue to drive domestic growth within the sector.

Internationally, interest in cleantech has grown in countries around the world, particularly in the Middle East, Europe, and China. Sovereign wealth funds from countries in the Middle East were involved in six of the top ten largest financings within the cleantech sector in the 3rd quarter of 2008. More specifically, countries such as Qatar have been raising funds solely for cleantech, such as the recent $396 million Qatar Investment Authority cleantech fund. The European Union has targeted 20% of its energy to be derived from renewable resources by 2020 and China has targeted 15% under its Circular Economy Law. As new regulations are put into effect globally, particularly in emerging markets such as China, demand for innovative energy sources and cleantech solutions will grow as existing resources are depleted.

Through its consulting and capital raising advisory services, Growthink has worked with innovative emerging growth companies across all of the various cleantech sectors. Through this unique combination, Growthink is able to provide cleantech entrepreneurs with the perspective required to identify and capitalize on prevailing trends in their respective markets and industries.

Learn More

If you are an entrepreneur or a potential investor seeking more information about investment opportunities within cleantech, contact us at (800) 260-6630.  

As a supplement to our consulting practice, we're pleased to announce the launch of Growthink University, our new membership club dedicated to teaching entrepreneurs and business owners how to raise capital for their businesses.

The club assembles 10 years of capital raising expertise and methodologies developed and refined by Growthink, and gives entrepreneurs an additional "Do-It-Yourself" option to perfect their business plans.

Growthink University covers topics including, but not limited to:

• The biggest mistakes that entrepreneurs make when trying to raise capital and how to avoid them.
• How to overcome the capital-raising challenges faced by first-time entrepreneurs.
• The difference between pre-and post-money valuations and making sure you don't get taken by investors.
• The ten biggest mistakes that companies make in their business plans.
• The winning ways to get meetings with investors -- and the most important things to know before sitting down at the table.
• What financial projections need to prove about your business

Go to Growthink University (http://www.growthinkuniversity.com) to learn more.

For the new entrepreneur, there are few factors with a higher correlation to unbridled success or devastating failure than the ability to raise capital. In an economy of questionable strength, dreaming up a shiny new venture of revolutionary proportions is no longer the battle; the new challenge is finding the minds that will fuel that venture with dollars. In New York, one business-woman named Yao-Hui Huang has borrowed from popular culture to devise a sensational way to bring new ventures face-to-face with potential investors.

Admittedly, the project known as the Gauntlet is far from the first organized attempt to bring entrepreneurs and investors together. How this differs, is that it emulates the strategies of the highly successful TV show: American Idol. Similar to the show, which employs a panel of industry experts, the Gauntlet has a panel of judges with expertise in law, accounting, finance, technology, and investment.

Contestants who make it through the rigorous application process are chosen in groups of three to present at the monthly gathering. In front of the panel and an audience of over 100, entrepreneurs get seven minutes to pitch their venture along the areas of: problem, solution, market, industry, overview, operations, and financials. Presenters are then inundated with feedback from the audience and panel, and a select few go on to receive venture capital.

It is nice to see a refreshing approach to matching the right investors with the right entrepreneurs. Also, this structure provides the ability to share a business model with peers and experts while allowing the entrepreneur an attractive opportunity to refine, revisit, and hopefully improve areas of their business strategy.

Would your business plan be ready to go through the Gauntlet?

Are you looking to raise venture capital?

You need a good idea – and an excellent business plan.

Business planning and raising venture capital go hand-in-hand. A business plan is required for attracting venture capital. And the desire to raise capital (whether from an individual “angel” investor or a venture capital firm) is often the key motivator in the business planning process.

But how exactly will your business plan persuade investors to sign a check?

This article provides advice on how to position each section of the business plan for an investor audience. These tips draw on Growthink’s decade of experience consulting to start-ups in the business planning and capital raising process.


Executive Summary

Goal of the executive summary: Stimulate and motivate the investor to learn more.

• Hook them on the first page. Most investors are inundated with business plans. Your first page must make them want to keep reading.



• Keep it simple. After reading the first page, investors often do not understand the business. If your business is truly complex, you can dive into the details later on.



• Be brief. The executive summary should be 2 to 4 pages in length.

Company Analysis

Goal of the company analysis section: Educate the investor about your company’s history and explain why your team is perfect to execute on the business opportunity.

• Give some history. Provide the background on the company, including date of formation, office location, legal structure, and stage of development. 



• Show off your track record. Detail prior accomplishments, including funding rounds, product launches, milestones reached, and partnerships secured, among others.



• Why you? Demonstrate your team’s unique unfair competitive advantage, whether it is technology, stellar management team, or key partnerships.

Industry Analysis

Goal of the industry analysis section: Prove that there is a real market for your product or service.

• Demonstrate the need – rather than the desire – for your product. Ideally, people are willing to pay money to satisfy this need.



• Cite credible sources when describing the size and growth of your market.



• Use independent research. If possible, source research through an independent research firm to enhance your credibility. For general market sizes and trends, we suggest citing at least two independent research firms.



• Focus on the “relevant” market size. For example, if you sell a portable biofeedback stress relief device, your relevant market is not the entire health care market. In determining the relevant market size, focus on the products or services that you will directly compete against.



• It’s not just a research report – each fact, figure, and projection should support your company’s prospects for success.



• Don’t ignore negative trends. Be sure to explain how your company would overcome potential negative trends. Such analysis will relieve investor concern and enhance the plan’s credibility.



• Be prepared for due diligence. It’s critical that the data you present is verifiable, since any serious investor will conduct extensive due diligence.

Customer Analysis

Goal of customer analysis section: Convey the needs of your customers and show how your company’s products/services satisfy those needs.

• Define your customers precisely. For example, it’s not adequate to say your company is targeting small businesses, since there are several million of these.



• Detail their demographics. How many customers fit the definition? Where are these customers located? What is their average income?



• Identify the needs of these customers. Use data to demonstrate past actions (X% have purchased a similar product), future projections (X% said they would purchase the product), and/or implications (X% use a product/service which your product enhances).



• Explain what drives their decisions. For example, is price more important than quality?



• Detail the decision-making process. For example, will the customer seek multiple bids? Will the customer consult others in their organization before making a decision?

Competitive Analysis

Goal of the competitive analysis section: Define the competition and demonstrate your competitive advantage.

• List competitors. Many companies make the mistake of conveying that they have few or no real competitors. From an investor’s standpoint, a competitor is something that fulfills the same need as your product. If you claim you have no competitors, you are seriously undermining the credibility of your plan.



• Include direct and indirect competitors. Direct competitors serve the same target market with similar products. Indirect competitors serve the same target market with different products, or different target markets with similar products.



• List public companies (when relevant, of course). A public company implies that the market size is big. This gives the assurance that if management executes well, the company has substantial profit and liquidity potential.



• Don’t just list competitors. Carefully describe their strengths and weaknesses, as well as the key drivers of competitive differentiation in the marketplace. And when describing competitors’ weaknesses, be sure to use objective information (e.g. market research).



• Demonstrate barriers to entry. In describing the competitive landscape, show how your business model creates competitive advantages, and – more importantly – defensible barriers to entry.

Marketing Plan

Goal of the marketing plan: Describe how your company will penetrate the market, deliver products/services, and retain customers.

• Focus on the 4 P’s. They are: Products, Promotions, Price, and Place.
  
  
  • Products. Detail all current and future products and services – but focus primarily on the short-to-intermediate time horizon.
  
  
  
  • Promotions. Explain exactly which marketing/advertising strategies will be used and why.
  
  
  
  • Price. Be sure to provide a clear rationale for your pricing strategy.
  
  
  
  • Place. Explain exactly how your products/services will be delivered to your customers.
  
  
  
• Detail your customer retention plan. Explain how you will retain your customers, whether through customer relationship management (CRM) applications, building network externalities, introducing ongoing value-added services, or other means.



• Define your partnerships. From an investor’s perspective, what partnership you have with whom is not nearly as important as the specific terms of the partnership. Be sure to document the specifics of the partnerships (e.g. how it will work, the financial terms, the types of customer leads expected from each partner, etc.).

Operations Plan

Goal of the operations plan: Present the action plan for executing on your company’s vision.

• Concept vs. reality. The operations plan transforms the business plan from concept into reality. Investors do not invest in concepts; they invest in reality. And the operations plan proves that the management team can execute on your concept better than anybody else.



• Everyday processes. Detail the short term processes and systems that provide your customers with your products and services.



• Business milestones. Lay out the significant long-term business milestones for the company, and prove that the team will execute on the long-term vision. A great way to present the milestones is to organize them into a chart with key milestones on the left side and target dates on the right side.



• Be consistent. Make sure that the milestone projections are consistent with the rest of the business plan – particularly the financial plan.



• Be aggressive but credible. Presenting a plan in which the company grows too quickly will show the naiveté of the management team, while presenting too conservative a growth plan will often fail to excite an early stage investor (who typically looks for a 10X return on her investment).

Financial Plan

Goal of the financial plan: Explain how your business will generate returns for your investors.

• Detail all revenue streams. Be sure to include all revenue streams. Depending on the type of business, these may include sales of products/services, referral revenues, advertising sales, licensing/royalty fees, and/or data sales.



• Be consistent with your pro-forma statements. Pro-forma statements are projected financial statements. It is critical that these projections reflect the other sections of your business plan.



• Validate your assumptions and projections. The financial plan must detail your key assumptions, and it is critical that these assumptions are feasible. Be sure to use competitive research to validate your projections and assumptions versus the reality in your market place. Assessing and basing financial projections on those of similar firms will greatly validate the realism and maturity of the financial projections.



• Detail the uses of funds. Understandably, investors want to know what, specifically, you plan to do with their money. Uses of funds could include expenses involved with marketing, staffing, technology development, office space, among other uses.



• Provide a clear exit strategy. All investors are motivated by a clear picture of your exit strategy, or the timing and method through which they can “cash in” on their investment. Be sure to provide comparable examples of firms who have successfully exited. The most common exits are IPOs or acquisitions. And while the exact method is not always crucial, the investor wants to see this planning in order to better understand the management team’s motivation and commitment to building long-term value.

Above all, the business plan is a marketing document that helps to sell the investor on the business opportunity, the management team, the strategy, and the potential for significant return on investment.

Raising venture capital is a difficult and time-intensive challenge. There is no easy shortcut or silver bullet. However, you can greatly improve your chances of raising venture capital by writing a business plan that speaks directly to the investor’s perspective.

Ready to get started? Download Growthink's business plan template and finish your business plan today.

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About Growthink

Since 1999, Growthink's professional business plan writers and investment bankers have assisted more than 2,000 clients in launching and growing their businesses, and raising more than $1 billion in growth financing.

Need help with your business plan?

Speak with a professional business plan writer today.

Raising money from individual "angel" investors?

Contact our private placement memorandum experts.

Or, if you're developing our own PPM, consider using Growthink's new private placement memorandum template.