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 I
have a great idea-will you fund me?" one has lost count of
the number of times one has heard this either in person, on phone
or even on e-mail. My friends in the VC community share the same
gripe.
Some people take it even further. "I have
a great idea", they say, "but I can't tell you what it
is, otherwise you might steal it and do it yourself. So can you
please commit me funding and then I might tell you what it is?"
Right, I feel like saying, why even bother telling me, here, just
take the money, help yourself! I trust you completely.
Not!
Of course, a pall of that proverbial doom descends on their faces
when I start with my standard line: "Ideas aren't worth a thing".
We've all been brought up to believe that all
we need to do is come up with a stroke of brilliance-and voila-the
heavens will open up and several cumulonimbuses full of US dollars
shall rain down upon us.
I continue: anybody can have an idea, but the
person who succeeds is one who can turn it into a successful business.
Execution, my friend, is a far more difficult feat. One very few
lightbulb-over-head idea people can do. The test of this is to write
a thorough business plan. Even if you aren't writing one for a VC's
benefit, write it for yourself. If nothing, it'll help you organise
your thoughts and show you where you're weak.
One has been repeatedly asked how one judges
business plans. This coincided with actually being asked to judge
a couple of biz plan competitions-so I took the opportunity, sat
down and actually wrote out a formula that codifies my 'gut feel'-and
makes my job easier.
Here, for the first time in print, is "Mahesh's
Formula"-feel free to use it to evaluate your plans. On a sheet
of paper, mark off three columns-call them "Potential Impact",
"Potential Executability", and "Potential Fundability".
Allot them 40, 40, and 20 marks respectively.
''Potential Impact'' is the basic robustness
of the idea. Within this, have these subheads: Market Understanding,
Competitive Analysis, Opportunity Identification, Idea Innovativeness,
Potential Disruptiveness, Potential Market Size & Share, and
Sustainable Competitive Advantage. Allot them 4, 4, 3, 10, 7, 6,
and 6 marks respectively to add up to the 40.
Bored? Bear with me. Now write a document that
covers each of those points as you envisage for your idea. I hope
they're self-explanatory.
The second set of benchmarks, Potential Executability,
sees if you've thought through how to take the idea to a profitable
business. Under this head, note down Team Strength, Marketing &
Sales Strategy, Technology Strategy, Finance Strategy, Hiring Strategy,
Corporate/Administrative Strategy, Deterrence to Competition and
Backup Strategies. Give them a maximum of 5, 10, 4, 7, 2, 2, 5,
and 5 marks respectively within the 40.
Now detail how your idea will be executed against
these heads. Trust me, think this part through carefully.
The third set of measures only come into use
when you go to an equity investor. For, ideas can be highly impactful
and thoroughly executable-but still not be VC fundable: as your
business may not have the potential to go public or be acquired.
In which case it doesn't make sense for a VC to invest his money
in you. There are as many successful private companies as there
are public ones. You don't need a VC if you intend to stay private.
Under Potential Fundability, have three heads:
Intellectual Property Value, Potential for Revenue Growth and Potential
for IPO/Acquisition. Give them 6, 7 and 7 marks respectively in
the 20 allotted here.
Now see how your idea stacks up against these
issues. Be honest, or better-ask a friend to judge it against these
criteria. Go back, revisit your plan and freshen it up till it shines.
Find the right team you lack. Re-visit the financial assumptions.
Revise it like you were preparing for the most important job interview
of your life.
Now you'll be readier than ever to go to a
VC. And who knows, having come this far, you might say, heck, who
needs to bother with those VCs anyway-I'll go ahead and start this
on my own steam. And that would be a wonderful idea.
Mahesh Murthy, an angel investor, heads
Passionfund. He earlier ran Channel V and, before that, helped launch
Yahoo! and Amazon at a Valley-based interactive marketing firm.
Reach him at Mahesh@passionfund.com.
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