Equity Financing Business Plans

Obtaining equity capital financing for your project or business requires a bankable business plan and creating a bankable equity business plan is not something you do with a template or some goofy software if you are seeking more than $1 million in equity financing.  Changes in the securities laws mean these business plans also have to change.

If you are considering issuing securities pursuant to a private placement offering under the Direct Participation Program sanction for a CRE project, then a whole new level of expertise and due diligence is a fundamental requirement.  The business plan for an equity financing is not a stand-alone activity – it is the outcome of a host of due diligence activities and documents that stand in back of the deal and demonstrate both the opportunity and the ability to manage execution risk.  If you don’t have these due diligence activities completed and the supporting due diligence documents, then chances are you are going to have an epic business plan failure as an outcome.  The key elements supporting your bankable business plan are the component due diligence documents that serve to provide arm’s-length credibility of your proposal (see an example bankable business plan).  Without this third-party credibility we have to accept your word that the proposed business will be successful.  There will not be many takers for that proposition.

Every business plan has to answer two basic questions:

Does a market opportunity exist that would support the yield forecast?

If the money was provided today can they pull it off or will the money be lost?

The first question speaks whether or not it is likely the business has a legitimate market it can address.  If the answer is “maybe” or “no”, then the second question has no bearing at all, and the answer is a rejection.

The second question speaks to the critical issue of execution risk and how the business promoter is demonstrating this most important risk is going to be managed.  If there is no demonstrable evidence supporting execution risk management and loss event mitigation, then the answer is “maybe” or “no”, the answer is a rejection.

The first question addresses the market opportunity.  If you are serious about obtaining equity capital financing of more than $1 million, then you have to have third-party evidence that validates the market opportunity on an independent basis.  That evidence comes in the form of a feasibility study.  The feasibility study has to include an independent market feasibility analysis and a financial feasibility analysis that serves to test and verify the key assumptions and findings of the market feasibility analysis.  You must also provide valuation evidence for an existing business or real property development.  Your business plan becomes more bankable if you list these documents as being part of the available due diligence documents supporting your proposal.  Furthermore, your plan must provide a limited discussion regarding their findings.

It is a false assumption that your character, personal wealth, experience, credit score, education, awards or other subjective criteria will demonstrate you will do the right thing to prevent investors from losing money.  The underwriter has to look at your proposal from the worst-case position of what would happen if the promoter were to be removed.  Would the replacement be able to immediately continue operations seamlessly or would there likely be losses suffered due to the business failing to manage its affairs?

A comprehensive business plan of operations can answer this issue if that plan has to define the business activities down to the employee class level.  The business plan of operations will also address management reporting, productivity measurement, communications, regulatory risk management, market penetration means and methods, component goal schedules and budgeting for all departments at a minimum.

If you are serious about financing, then get serious about the due diligence it takes to get the financing.  Talk to an INVIZEN representative today to get information on how to make your proposal a winner by calling 832.663.9634.