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While business plans are an important part of raising capital they are not properly designed to be investment documents. Business plans normally just provide general information about the company's business model, goals, etc. While this information is important to investors, it does not provide a basis or structure for accepting capital investment. A business plan does not allow a company to accommodate multiple individual investors. Most business plans state a total amount of funding needed, "$250,000" for example, but provide no structure to allow for partial investments. This means the company must find one single investor with $250,000 to invest; not to mention the time and legal fees to develop the transaction and documents to process that investment. This limitation is probably the biggest reason why so many companies fail at raising investor capital. Raising capital effectively and properly from investors requires very specific documentation that far surpasses what a business plan provides. Public companies don't raise capital from investors by putting out a business plan. If you wanted to invest into Microsoft - do you think Bill Gates would send you a business plan to process your investment? Of course not! You would invest into Microsoft through a securities offering. The same holds true for private companies seeking capital from investors. Don't expect an investor to invest unless you have presented them with a securities offering. Business plans serve a purpose (especially for start-up companies) - but they should not be considered investment documents. Remember this the next time you send your Business Plan to a potential investor; investors don't know you, or your threshold for being able to negotiate effectively. It could take months of their valuable time to structure your investment opportunity so that it would be a fair transaction for both of you. On the other hand, if you have this information prepared, in writing, for them to review, chances are that you'll get more opportunities to present to investors and increase your possibilities of obtaining capital. Good Luck, Mike Stapleton President |
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