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How To Raise Capital With These 3 Key Documents – Business Plan, Financial Model & Pitch Deck

In order to increase your odds of success with raising capital, you'll need 3 key documents - business plan, financial model (& valuation), and pitch deck.
How To Raise Capital With These 3 Key Documents – Business Plan, Financial Model & Pitch Deck
Business (Idea) → Business Plan → Financial Model (& Valuation) → Pitch Deck → Investor Roadshow (Pitching) → Funded!

This is the typical process you follow. It looks simple on the surface, but behind the scenes, there is a lot of effort. Effort, emotion and time that you’re probably not prepared to put in. So let’s reduce the burden for you, by explaining the process.

Sceptics and fanatics of business plans will both agree on one thing, to secure funding, you’ll almost always require a formal plan. Of course, there are companies that are bootstrapped, or funded by friends, family and fools that may not require it.

But if you ever wish to go for professional funding sources – be it venture capital, private equity, or commercial banks – you’ll need 3 core documents – a business plan, financial model (& valuation) and pitch deck.

You’ll be surprised at how much professional investors value these three documents, especially the business plan. In fact, a study by Palo Alto Software suggests that companies who complete business plans are 2.5x as likely to get funded. It’s not a guarantee, but it sure does increase your odds of success.

Raising Capital With or Without Business Plans

If there’s one thing you take from this it should be… write it down.

It’s only when you start putting things in writing, do you see the bigger picture and set things in motion. Data from the Panal Study of Entrepreneurial Dynamics in fact suggests that business planners were 2.5x as likely to get into business.

A well-written plan not only helps investors understand your business and your vision (trust me, investors are not experts in every type of business, because they can’t be a jack-of-all-trades) but constructing your business plan & financial model and presenting it in a well thought out pitch deck shows that you’ve carefully taken time to think through everything, including the issues your business will face, as well as a more holistic view of the market, economy and how your business model will work in those environments.

In short, business plans are about walking the walk. The mere act of putting together a business plan, forces you to think about various things, which you would have probably just had a vague idea about. Doing research and preparing projections increases the chances of your covering all possible scenarios.

It will open the kimono so to speak, expose your business DNA, elaborate the model of how you intend to create value for all your stakeholders – customers, shareholders, suppliers… the lot. In other words, it is the architects’ blueprint – it lays out the vision for what you’re building, and how you’re going to build it.

A poorly-written plan, on the other hand, indicates to the investor a couple of things:

  1. you’ve not thought about your business seriously
  2. you think your business is the best thing since sliced bread, when clearly you’re clueless or
  3. you outsourced it to your friend who did it for free, and it tells.

Don’t be surprised then if an investor a) ignores you after seeing it (there goes the first impression) or b) asks you to revise it and come back later (that’s your second chance).

High achievers get funded, all the rest get dumb-founded.

Quite often I see startups try to raise capital with just their pitch decks – this is wrong. DON’T. That’s the sales document in the last mile. Over the last decade, I’ve also seen the progress amongst entrepreneurs from producing detailed business plans, to producing just financial models, to some producing marketing plans and now to producing only pitch decks. And very recently, with the ICO craze, to where white papers and a slick website seemed more than enough for raising capital!

I spent a good time of my career in strategy & management consulting, providing strategic advice, and doing strategy documents for the management teams of startups, growth companies as well as established players across a variety of industries, life cycle stages and environments.

Part of that strategy document is the business plan, financial model & valuation. When you draft your strategy, and you combine it with a plan – it becomes a plan of action. It helps in setting the vision for your company. Everyone in your business will now understand what needs to be done and where you need to go. When you distil all this into your pitch deck, you have a winning combination for raising capital.

Is it worth the effort, time and money?

The business and finance world has long debated the need for business plans, given that so much time and effort goes into it, and the market environment changes so fast, keeping the business plan relevant is a task in itself.

However, there is data to suggest that the time spent on constructing a business plan is time well spent, with a greater ROI for larger businesses. While having a business plan may not be the critical success factor, having one does increase the odds of success. And in business, you always want to have an edge. So is it worth it? The answer in our opinion is… a definite YES!

Startups generally struggle with the thought of having to put together a business plan, that’s because they don’t have the full picture of their idea or they don’t have the resources to hire an experienced consultant who can build on that.

What is more striking is that they’re willing to ask for millions of dollars in funding, but they’re not ready to hire an outside professional or willing to shell out a few thousand to put together a business plan that can hold water in front of the investor.

What’s worse, is that they’re not even willing to put in the effort to create one themselves.

You can’t blame them, if you go to any of the large audit or consulting firms, they’ll charge you not less than $25,000 (or if you’re in Bahrain, that’s BD 10,000). That’s considered a minimum, and if you’re receiving a grant from some government or quasi-government entity – well the price just went up!

Even a small early-stage startup should be able to afford a finance expert at $150 per hour to create a business plan. Typically, the time required could range from 30 to 170 hours, so that works out to anywhere between $4,500 to $25,000 for a business plan and corresponding financial model (and valuation as well).

For larger early stage and growth companies, you can expect to see the higher side of these ranges, but the return on investment will be much higher, given the amount you’re trying to raise.

Whether you hire a freelancer, a consultant who has experience arbitrage or bring someone on board as a full-time in-house Chief Financial Officer or Chief Strategy Officer – it all boils down to the size, stage, resource and priority of your company.

Alternatively, you could hire a Business Broker, or Investment Banker and pay them as much as 10% of the target capital raised. Keep in mind, that the percentage goes down as the amount to be raised increases, and you may be required to pay a retainer.

We see founder entrepreneurs get so caught up in their business all the time, they’re almost inseparable. Which is why hiring someone to craft your business plan, also provides you with that independent, dispassionate expert-birds-eye-view on the whole business and its elements. Sometimes, it’s good to step outside the business and look at it, rather than always work in it.

What does an investor look for in a business plan?

Watch this 30 seconds, condensed and brutal truth behind how investors decide on investing:

Building a Business Plan, Financial Model and even a Pitch Deck is difficult, and time-consuming, we understand. So many entrepreneurs try to avoid this, or at best outsource this. That’s the mistake. Instead, we suggest taking the challenge head-on and putting together the Great Business Plan based on the outline as recommended below:

Business Plan Key Elements

Ultimately, a great business plan should include an overview of the business, its market size and product, its go-to-market strategy, pricing (monetization) strategy, team overview, unique value/winning proposition, target customer, and distribution strategy.

And if you’re serious about raising capital – a well thought out funding strategy that distils the business plan, financial model and valuation into the perfect pitch deck that speaks to the investor.

We’d like to say a few last words…. the business plan is not dead.

Make it a living document. Very often, businesses who started off well, forget the importance of strategic planning. They lose direction and start to see a decline. This is because they forget the plan. A KPMG survey of finance professionals found that 56% of respondents agreed that “at some point during the year, the budget ceased to be relevant.”

In fact, McKinsey’s study indicated that corporate strategies create more satisfaction when done, then when not done. Of course strategic planning for the sake of it, really doesn’t help. You really have to think seriously about why you’re doing it.

Given the choice, most are comfortable skipping the planning process – only to find out later on, had they done it, they would be in a far better position today.

Ok, so now what’s the next step?

  • If you’re a start-up or scale-up, before you even embark upon a capital raise – keep in mind that it’s a big commitment of time, effort and emotion. To avoid wasting valuable resources, we strongly recommend you get to the stage of being ‘fundable’ before embarking on the fundraising journey.
  • If you are ready or you’re a growth company and need someone to help you build your business plan & financial model, test your valuation and craft a pitch deck – then schedule a call with me right now. We’d love to hear from you so we can navigate you through the process.