Business

When presenting to an angel investor group or private equity investors, two rules of thumb should be followed:

1.    The investment opportunity should be easy to understand (Focus on the investment opportunity, the market opportunity and why this particular management team can pull this off). 
2.    Know your numbers and your assumptions.

I read a business plan this past week that segmented cash flow projections into four options, each with a weighted probability of occurrence.  They were referred to as Strike Out, Base Hit, Home Run and Grand Slam.  For example, Strike Out means the business tanks – this was assigned a 5% probability.  Base Hit was a conservative projection – assigned a 45% probability.  Home Run was a more aggressive projection – assigned 40% probability.  Grand Slam was a highly aggressive projection – assigned a 10% probability. 

There are a few problems with this.  Where did the probability stats come from?  It appears they were pulled out of thin air.  There were no assumptions stated that the reader could rely on.  All projections have assumptions.  Make sure to state them.  Sophisticated investors will be looking for them.