What common mistakes should you avoid in your tech startup’s business plan?
What common mistakes should you avoid in your tech startup’s business plan?
The Canadian tech industry is a competitive space — and many startups are emerging in popular sectors such as AI or clean tech. It is important to create a business plan that sets your startup apart from the rest when you pitch to investors. However, a lack of preparation can cause important elements of your pitch to fall through the cracks.
These 10 steps can help you address common mistakes in your tech startup’s business plan. We’ll also discuss why building a realistic financial forecast can help your build investor confidence.
The Canadian tech industry is a competitive space — with emerging clean tech and artificial intelligence startups pitching their business plans to investors every day. While it is important to create a business plan that sets your startup apart, a lack of preparation can cause important elements of your pitch to fall through the cracks.
A lot of work goes into preparing an investment pitch. Between conducting due diligence, marketing your startup, and closing a financing transaction, you may have more things on the go than you can keep track of. And it’s hard to know what will make or break an investment if you’ve never been through the process before.
While we already have a guide to help you deliver your pitch, it’s also imperative to anticipate and avoid any pitfalls which may arise after you’ve left the room and investors study your plan in greater detail.
The following tips will help make sure you’re as prepared as possible.
10 common pitch mishaps
1. Lack of focus
Ensure that you clearly and confidently define your core revenue model and target markets.
2. No executive summary
Separate your business plan into key highlights so investors don’t get lost. Your executive summary will tell investors what to expect from the presentation, provide a copy of the presentation itself, and conclude with an opportunity overview.
3. Too much detail
Ensure you’re conveying the most important and pertinent information to the investors. Don’t dilute your financial or non-financial value propositions.
4. Unrealistic forecast
Factor risk in your financial forecast and include this with your final assessment. A lot of time will pass between the time you’ve made your presentation and when you can show actual results, and investors will hold you accountable for the variances in forecasted versus actual results. Above all, avoid financial forecasts that project an unrealistic growth rate of revenue or the so-called hockey stick projection.
5. Sources and use of cash
Clearly define your sources of cash (including capital expenditures), working capital requirements, cash reserves, debt / liability payouts, planned capital expenditures, and owners draws.
6. Financial model
Include statements of profit and loss, cashflow, and balance sheets along with sensitivity analyses of common variable factors in your projections. Moving forward, financial reports should be provided on a monthly basis to investors in the beginning, and quarterly thereafter.
7. Human capital
Include an organizational chart. Focus on key management bios as well as longer-term plans for identifying, attracting, and securing key human resources for management and below. This is critical as many Canadian industries are currently struggling with a labour shortage. Demonstrating that you have the human capital you need to achieve your goals can help build confidence in your business.
8. Execution risk
Always consider the risk of execution from an investor’s perspective. In other words, is your identified level of execution risk realistic, attainable, and aligned with investors' expectations?
9. Milestones
A three- to five-year timeline can help investors visualize your future success within their desired exit window. Identify past and future milestones and ensure these are measurable and achievable. Investors will want to see an exit strategy, so remember to include liquidity risk as well.
10. SWOT analysis
Be transparent about your strengths, weaknesses, opportunities, and threats, especially in terms of your competition. It’s not about being perfect. It’s about giving investors the information they need to make an informed decision.
Weaknesses and threats can include gaps and limitations, emerging competitors, or negative press coverage. However, they also help you understand how to leverage your strengths and opportunities — including patents, skilled talent, and the growing need for your business — to differentiate yourself from the competition.
Building a financial forecast
A robust financial model can help you build a financial forecast which satisfies investors’ desire for detail without treading into the domain of the unrealistic. Include balance sheets along with cashflow and profit and loss line-item details, such as revenue streams, operating expenses, capital expenditures, and research and development costs.
Investors will want an idea of your short- and long-term financial health. Address benchmarks, growth rates, profit margins and industry-specific success factors. You’ll also want to address strategic partnerships and supplier quotes which could play a role in your finances throughout the year.
Take the next steps
It is important to take the right steps to set your business apart from the rest in today’s competitive tech industry. Prospective investors are inundated with opportunities and information — and a robust, well-defined, and realistic business plan can help you stand out from the competition and achieve success.
Seize the opportunities ahead for Canadian tech
Our advisors work with tech companies across the country to support all areas of the business — from tax planning to exit strategies. To learn more about how MNP can support your organization, contact a member of our Technology, Media, and Telecommunications team.
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