Entrepreneurs often ask me for a sample business plan they can use as a model for their fundraising efforts. They are surprised when I send them a powerpoint file.
It's always a good idea to put down on paper your plans for the business, so that your team can build consensus around objectives and metrics. Make it as thick and wordy as you like (though show some restraint--over-modeling the future only wastes your time). I'm sure that Brad Feld's upcoming series on business plans will become the authoritative online reference for this kind of internal operating document.
But my advice is to never send a document like that to a VC.
Keep in mind that you are not alone--entrepreneurship is thriving around the world. In fact, we assess about 100 times as many investment opportunities as we fund, so as everyone knows, it's hard to get a VC's attention. It's not exactly true that all VC's are stupid (not exactly), but we do not have the luxury of an attention span. Drop a thick document on a VC, and it will, wrapped in good intentions, go straight to The Pile.
The Pile is a dark, evil tower--impervious to attack--that looms over every VC's desk. My Pile, like many, is constructed out of business plans, white papers, analyst reports and scientific journals, waiting to be read with quiet thought and deliberation... Who Has Time For This? My only opportunity to curb the Pile's growth is airline travel, where I have some downtime to chip away at it (that is, until I can email and Skype using on-board WiFi). You'd think that with the recent surge of VC activity in Asia, we'd really have time to work down our Piles, but instead our Piles only grow taller, fortified by new material imported from China and India.
That's why nothing slows down a VC as much as a comprehensive business plan. Powerpoint presentations, in contrast, can be quickly emailed and skimmed, eliciting much faster indications of whether there is a fit. And if there is a fit, the VC will have an easier time educating the firm about the opportunity. So powerpoint plans greatly increase your chance of getting a term sheet, or at least the dignity of a quick No.
I was first exposed to this notion in 1995 by a super smart CEO, whose name I regretfully forget. His company (Eo Networks, I think) developed fiber termination units optimized for rural networks. He was walking me through his slides, and when I asked him for his business plan, he pointed to the laptop, looked me in the eye, and said, "this is my business plan." I thought, What? Oh. Okay.
So here are my specific tips on constructing a business plan...
Your presentation should not exceed 10 slides. The appendix can include as many slides as you want. The more the better. Nothing beats responding to some VC's question with a slide from the appendix. Sales productivity? Here are the historical numbers. The competitor's software? Here's a screenshot. Most operating details will remain safely ensconced in the appendix, eliminating unnecessary friction in the presentation.
You might structure the 10 slides as follows:
1. The cover slide should offer complete contact info, and a tagline if you've got it. One of the benefits of a powerpoint plan is that it forces you to perform the critical exercise of describing the business in very few words.
2. A mission statement is a good idea to present, unless it's rather obvious from the tagline (as in BlueNile.com: Education, Guidance, Diamonds and Fine Jewelry). Select a mission statement that is achievable, but not yet achieved. Bad mission statements:
"To create the world's largest software company." [too broad and unrealistic to practically guide decision-making]
"To develop the world's best technology for defending DNS servers from worm attacks." [er, you said you've already done that, right? Mission accomplished!]
A clear mission statement also includes a clear idea of what the startup will NOT do. Here are some nice ones...
"Healthia will operate America's most widely used comparison shopping portal for consumer driven healthcare, enabling businesses and their employees to choose health plans, ancillary health benefits, and medical services objectively and transparently."
"Prolexic will create and dominate a new network service category that defends web applications from distributed-denial-of-service attacks."
Sometimes the white space on the slide is filled with customer logos or testimonials.
3. Introduce the team. On one slide, highlight the backgrounds of the key members of the team, and any directors or advisors (not too many) who bring something special to the startup. Explain verbally whom you intend to add to the team in the next year. (If that includes a CEO, say so up front, without waiting to be asked.)
4. Without yet getting into your product or service, describe the nature of the problem you address. Emphasize the pain level and the inability of incumbents to satisfy the need.
5. Introduce your product, and the benefits (which should obviously address the market problem you just described).
6. Elaborate on the technology or methodology you have developed to enable your unique approach. If appropriate, mention patent status.
7. Show off early customer or distribution progress: numbers, logos, testimonials.
8. Sales strategy. Show the expected cost of customer acquisition.
9. Competitive landscape. Be sure to anticipate competitive responses (before the VC does), and never deny that you have competitors, no matter how unique you think you are. Really, it's okay to compete. Even against Microsoft (as Flock will prove).
This is also a good slide on which to show market size estimates.
10. Earnings Statement, historical and forecast. For each time period, add headcount and cash balance. It should be clear how you expect the company to perform top line and bottom line three years out, and how much capital will be required now and later. Prepare lots of backup slides to illustrate the assumptions behind these financials.
Okay, so you might need an 11th or even 12th slide to cover all the financials, to describe the follow-on businesses that may arise, or to provide a timeline if you have a complex product road map.
Ideally, find the opportunity to walk the VC through your powerpoint plan in person, or at least by phone. If not, at least find a mutual friend to persuade the VC to review the powerpoint on his or her own.
If it's helpful, comment on this post with a link to a powerpoint plan that you have crafted along these guidelines--I'd be happy to publicly critique one such powerpoint, and others might weigh in, too.
Update: Before presenting your pitch, be sure to read Boris' tips. Also, here is advice from Matt Cutler that marries my tips with those of Brad and Guy.