Attracting capital: The business plan from the investors’ perspective

Introduction : Entrepreneurs, who want to turn an idea into reality, often face capital intensive investments. In some cases families and friends can help. In other cases suppliers can give credits on payments or the founders can postpone receiving salaries, but in almost every case, sooner or later, outside capital have to be added.The three most common sources of capital are venture capital companies, banks and business angels (see definitions in chapter 3.1). A business plan written by the entrepreneur is usually the first contact with the investor. The business plan describes the potential new business, and it includes descriptions of the business concept, the key players, a market analysis, a strategy to implement the new ser-vice or product and financial forecasts. It is written to attract capital, and it must attract the eye of the investors.

Abstract

For entrepreneurs it can be difficult to attract investors. The business plan is a well-known document for that purpose, and is used widely by entrepreneurs and companies. With this in mind, several questions arise. What information in a business plan is important? Do the criteria for information in a business plan differ between banks, venture capital companies, and business angels? What is the perception of a business plan to these investors? These are questions future entrepreneurs have to deal with before taking action and start searching for investors. This thesis investigates the investors’ perspective on the issue of entrepreneurship and business planning.The purpose of this thesis is to broaden the understanding of the business plan as a mean to attract capital for new ventures. It further aims to investigate the relevance of the business plan and the optimal composition of information, according to the investors. A qualitative method has been used in this thesis. Empirical findings have been captured from interviews with relevant actors in the investing market, and thereafter been analyzed with existing theories. The overall conclusion in this thesis is that there is a very broad view of the business plan as a concept. There are different aspects of the business plans roles as a formal mean to attract capital. Obvious differences between how the three different investors evaluate a business plan have been found as well as that the investors find other things than the business plan to be important in a decision. The investors do not look solely on the business plan and then make the decision whether to invest or not. The third conclusion is that all three investors enter a company with different roles, affecting the business’ activities in different ways. Finally, the business plan as a document is never as formal as the theory states. It is surprisingly different from the theory which claims that formality is an important issue in this kind of documents.

Contents

1 Introduction
1.1 Problem discussion
1.2 Purpose
1.3 Perspective
2 Methodology
2.1 Approaching the field of study
2.2 Method for the study
2.3 Trustworthiness of the thesis
2.4 Collecting data
2.4.1 Qualitative interviews
3 Attracting capital
3.1 The sources of capital
3.1.1 Debt versus equity
3.1.2 Venture capital companies
3.1.3 Banks
3.1.4 Business angels
3.2 The business plan
3.2.1 Role of the business plan
3.2.2 Parts of the business plan
3.3 Evaluating the business plan
3.3.1 Presenting the business plan
3.4 Roles in the new venture
3.4.1 The holder of the strategic assets
3.4.2 The manager
3.4.3 The investor
3.5 Summary of theory
4 Investorsí perspective
4.1 Venture capital companies
4.1.1 Relevance of the business plan
4.1.2 Composition of the business plan
4.2 Banks
4.2.1 Relevance of the business plan
4.2.2 Composition of the business plan
4.3 Business angels
4.3.1 Relevance of the business plan
4.3.2 Composition of the business plan
5 Analysis
5.1 Venture capital companies
5.1.1 Relevance of the business plan
5.1.2 Composition of the business plan
5.2 Banks
5.2.1 Relevance of business plan
5.2.2 Composition of the business plan
5.3 Business angels
5.3.1 Relevance of the business plan
5.3.2 Composition of the business plan
6 Conclusions
6.1 Reflections and further studies
7 Managerial implications
References
Appendices

Author: Aspegren, David,Jacobsson, Karl,Bech-Jakobsson, Martin

Source: Jönköping University

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Attracting capital: The business plan from the investors’ perspective