There are software kits out there that turn out’perfectly tailored’ business plans to suit a VC template. However, none of the vendors of such software guarantee funding for your venture obviously.
There are also **N** number of business plan competitions happening all over the globe almost every other week. Buddies of mine have won quite a few. Some of them(the winners) got funded and went on to create some ***spectacular failures*** in every sense of that phrase.
Point I am trying to make is that Business Plan is just a part of the whole excercise of getting a startup of the ground. A Business Plan is an ever-changing document that helps give some orientation to the’team’ of people behind the venture and sometimes acts as a guide for them.
Gone are the days when creating a FANTASTIC BUSINESS PLAN ensured funding. The times have changed, the VCs have become over-cautious. Earlier, the various stages of funding were roughly as under:
Seed Stage: This was usually when a teenager/college drop out, wearing faded jeans used to approach a VC and present a good-looking Business Plan that forecasted **NO** break-even for the next 4 yrs at the least and promised to go IPO(Initial Public Offering) at the end of 3 yrs guaranteeing the VC an exit aka Pets.com
First Stage: This scenario came into play when the ponytail college guy got some buddies of his together, rented a neat office, bought a nice little car, bought some nice projectors, hired some pretty secreterais and some smart MBAs and realised that he just **ran out of money**. Not a problem, ring up the seed investor, ask him to get a First Stage investor in. The Seed Investor gets some part of his return(with premium) back when the First Stage happens. So anyway, now our d00d has money to actually start making something.
Second Stage: This stage came into play when our man has exceeded a head-count of about 40, moved into a larger office, started serving 1-2 beta customers and is thinking of buying a new car and expanding in the US market. So anyway, the Second Stage VC comes in, the Seed Stage guy by now should have more than 80% of his investment out with profit and the First Stage guy roundbouts 40%. The money comes in, our man starts two offices abroad: one in Singapore the other in Bay Area.
4.Late Stage: This used to be called so’cos this d00d(the VC) woke up really late, realised every buddy of his has made a buck so offers our man to come in as the *Late investor*. Our man always on the prowl for money says, ’Yeah ok!’ The Late Stage money in, meaning Seed and First Stage guys totally out with good margins on their investments. The Second Stage guy is also almost 60% liquidated by now. What happens to the venture? Well now the venture has 5 offices: one each in B’lore, B’bay, Delhi, Singapore and California. Has 5 beta customers and thinks they are close to making a sale.
- IPO/M&A: Now comes the real interesting part. It so happens that the space in which my buddy started his company has all of a sudden become real exciting for some heavy players. These guys(the heavies) prefer to just buy/acquire my buddy’s venture instead of entering the space and building their own skill sets. My Buddy now happens to be a millionaire w.o ever having to face Reigis or Amitabh!
Sounds like a fairy tale right?
It happened! Its documented and part of history now! Future Historians will relish studying it and trying to make some sense! Let them’cos I can’t/won’t try. What I will do instead is post a **REALISTIC** scenario on how a startup should go about setting up business nowadays.