For any Startup, biggest challenge is to create a financial projection for the investor at the phase where they are yet to develop the project and define the market. For an investor, its a risk to trust an idea even before its matured and came on ground. Moreover at Investor’s point of view, your Business may still be undefined business and evaluating it on basis of assumptions is another hurdle and challenge. At this point, most of investors actually access the potential viability of the Idea, implement logics to your projections and compare it with the experience and rational business norms. Always base your funding requests on projected cash shortfalls rather than for future plans and projections planned. A good and viable option to raise fund for Startup is through Crowd Funding. It actually opens opportunity for any start-up to diverse range of investors, ease of pitching online, brings you feedback and Media exposure is enhanced.
Points to be Considered for Investors in your Business Plan and Financial Projections for your Startup
- Financial Projections must show a Rational Business Strategy
- Team Slide in your Projection must have a Core Team (Management) which have Expertise and Experience – Investor definitely looks for the Team which will handle the Project and what’s the level of its experience to handle innovative undefined business idea at an elementary phase
- Target the Company’s Growth that can product average premium returns. Too little growth with small potential investor return will not appeal the investor, whereas too high returns implies greater risks or irrational exuberance
- Growth projections should be Aggressive, never Conservative; Premium startup-acquisition targets usually at least double revenues every year
- Revenue projections must show penetration of target market, 5 Years of revenues based on your projections must at-least penetrate 10% target market segment
- Gross margins should be in line with the industry. Also it also depends on the economics of expected growth potential and projections of particular industry or sector. (Most ecommerce businesses operate with a gross margin of 20 to 50 percent. That range may be greater depending how you price individual products, what your overall product mix is, what your sales channels are, what you pay for individual products, and other factors)
- Many startup miss to mention competition in their pitch. Some claim to have no competition while some claim minimal competition. This is where you start losing trust with your investors.
Some Recent News on Indian Startup:
- Ratan Tata investing in BlueStone has lent the brand a sense of self-pride, says Gaurav Kushwaha, Founder and CEO
- Indian Startups! Pitch Your Business Plan to an Investor During #UberPitch