Business Plan Presentation

Josh Peters, a friend of yours, asked you to sit in on a dry run of his business plan presentation. You know that Josh is looking for $200,000 to launch his venture. At the end of the presentation, you ask Josh why he never mentioned how much money he’s looking for. He replied, “That’s a point of negotiation. I don’t want to disclose how much I’m looking for or how much of the company I’m willing to give up, until I know how interested someone is in my venture.” 

Discuss the pluses and minuses of Josh’s approach.

Before reviewing Chapter 10 in PEBP, I had no firm train of thought. This chapter shared that if the venture's goal is to raise funds, a “Source and Use of Funds Statement” should be included within the business plan. This document shares two main categories of financial figures- “sources of funds” and “uses of funds.” This document provides the potential investor with thorough information on where the initial funding of the venture came from, the expected costs of the venture, and the delta between the two. The idea is to provide a clear picture to the investors so that they can make an educated decision on whether they should invest and with how much.

Regarding Josh, there is some logic to the train of thought that entrepreneurs should keep their cards close to their chest when interacting with investors. Perhaps the investor is willing to contribute at a higher valuation than you ever conceived. However, an intelligent investor will likely demand the Sources and Use of Funds Statement. If they recognize that you do not understand this, they may be detracted from the venture or want to take advantage of your perceived naïveté and offer to fund the venture at a lower valuation.

Ultimately, you do not want to leave money on the table, but you also want to show respect to the investor partnering with you in the venture. Transparency is a good rule of thumb throughout the relationship, so no party feels slighted by the other. Further, acknowledge that this relationship is ongoing. You may require additional funding and do not want to sour your investors in any way possible, as they are likely the easiest way to raise more funds.

Josh should be very transparent with his capital requirement to future investors and ultimately understand how much equity he is willing to give up. Start with a realistic valuation higher than your floor and see where the negotiations take you.

Posted 9/27/23