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By CoWin Investment, China. From the web. (Not endorsed.)

How Entrepreneurs Win Venture Capital
Five Guidelines for an Effective Business Plan

Sheng Lijun

1.Determine what will make the company product/service unique in the market

Ensure there is enough of a need or a problem to solve, creating enough demand for the product orservice around which to build the company.
Develop a solution that is unique enough to give the company a strong competitive position in themarket.

2. Perform a detailed market analysis

Obtain an in-depth understanding of the market niches to be pursued, as well as the current and futurecompetitors the company expects to encounter.
Insufficient market research can result in the outcome suggested by the axiom: GARBAGE IN, GARBAGE OUT.

3.Develop realistic financial projection

Utilize the data gathered through market analysis to generate financial projection.
Be conservative in developing the projections as business and investment decision will be based uponthese numbers

4.Determine the company liquidity position

Ensure that the company will have sufficient short-term liquidity¡ªcash flow.
Determine what the venture capitalist long-term liquidity or exit strategy will be before entering into a VC agreement.

5.Assemble a strong management team

Ensure the management team brings the necessary technical, marketing, financial skill to enhance the company potential for success.
Consider bringing on a board of advisors or directors that will complement the management team skill.

Outline of Business Plan

1.Executive summary

A description of the business and the target market for the product r service, the distinct competence the product or service brings to the marketplace.
A description of the management team, emphasizing the relevant experience and special skills of each key executive.
A summary of financial projections for the next 5 years and the amount of capital being sought and how that capital would be used.
An overview intended principally to catch the interest of prospective sources of financing and encourage them to read the detailed information in the business plan.

2. Business history

Before prospective investors can evaluate where a business is likely to go in the future, they need to know where it has been in the past.

3.The product/service

Define precisely what the company intends to develop and market
Written in layman terms so it can be understood easily by non-technical readers
Describe the distinct benefit the product or service brings to the marketplace.

4.The market

A clear and comprehensive description of the present and future market opportunities
Provide reasonable market research data to support all market assumptions.
Describe what the historic and forecasted growth rates are for those market and which specific customers the company intends to pursue in each of those market

5.The competition

Identify all of the company current and future competitors and their strengths and weaknesses.
Address how the company expects competitors to react to its entering the marketplace
If no other firm currently offer the product or service, then the competition is going to keep the customer continue purchasing the company product or service.

6.Martketing

Develop specific strategy to be implemented to sell to those target markets
How the company plans to convince buyers that its product or service is superior to alternatives available in the market.

7.Manufacturing and operation

Summarizes the nature, quality and extent of its manufacturing and research facilities and processes if the business is a manufacturer. Or Identify the operation to deliver the planned service and all necessary resources to successfully
bring the product or service to the marketplace.

8. Management

Many investors consider the presence of a first-rate management team to be the single most important criterion in the evaluation of any funding opportunity. So this part should emphasize the experience and competence of each key management executive, especially in three primary areas: understanding the technical aspects of the business, possessing the marketing ability to sell the product or service and the financial ability to oversee the fiscal aspects of the business.

9.Financial projections

The company historical financial statement for the last three years if applicable
Current financial statement Projected balance sheet for the next 5 years.
Revenue and expense project and cash flow projects on a monthly or quarterly basis for the first two years and on an annual basis for the subsequent three years.
All underlying assumptions Working with the Venture Capital

Step 1.

To make sure the company and its financing request meet the general investment criteria set forth by the venture capital firms to be targeted: preferred investment stage---seed capital, first and second stage funding, mezzanine or expansion stage financing etc; industry preference, geographic preference, minimum and maximum investment amounts.

Step 2.

Submit the business plan for venture capitalist to review and follow-up in 2 weeks to inquire on the status of the review. If the VCs is interested in the business, he will have an meeting with the company to obtain more information about the business. Then the VCs will begin conducting a detailed review of the company, known as due diligence: visiting company facilities; speaking with key employees, creditors, customers and suppliers; reviewing its record.

Step 3.

The company also should conduct due diligence to see

if the VCs can be a partners/alliances in growing other companies in which the VCs invests;
if the VCs brings more than just money to the deal such as strategy consulting, networking contacts, industry experience;
if it is easy to develop a positive working chemistry between the entrepreneur and the venture capitalist.

Step 4

Develop the term sheet to outline the major terms of the proposed deal. After all negotiation are completed, a contract is signed and the entrepreneur receives the funding and begins implementing the strategies st forth in the business plan.

Step 5

The company should keep the venture capitalist abreast of major events occurring within the company and dram on the VCs expertise in making major business decision.

By doing so, the company will benefit from its insight and contributions and the venture capitalist in turn will feel more comfortable about the overall control the entrepreneur maintains over the company.

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