Grimm TalesThis is the fifth in a six part set of blogs about “how not to raise money for your start-up”. The grim stories you read here are based on real life events – meetings and conversations I have had over the years, and will no doubt form the basis for my next book.


So far I’ve covered:





This time we’ll take a look at Exit..

A great majority of the business plans I’ve seen in the last 10 years (maybe 4-5,000) have had a paragraph somewhere towards the end with the title “EXIT” and a single paragraph which states that the Company (or the Directors) anticipate that investors will achieve an exit by means of a trade sale or flotation in 3-5 years.

You can rearrange the words a bit, pad it out a bit, but at the end of a quick edit this majority all say the same thing.  One of the simple tests you can apply to a business plan is to take any section and if it can be dropped into another business plan with little or no editing, it is adding limited value.

Take a look at ” 10 things you shouldn’t write in your business plan ” and you will see two common errors that tend to appear in the exit section of any plan – the one stated above and promising (or guaranteeing) a return for investors.

However possibly the worst example of poor thinking in this regard was a company I saw in a Dragon’s Den style investor pitch at the old Patent office in 2006. As usual I will spare the people involved their blushes, and in fact I cannot for the life of me remember what the company actually did – except that it made a product.

I do recall that the CEO presented for 5 minutes his vision of the future and finished with a request for £100,000. At this point I naturally asked what his valuation was – how much equity? His response was that he wanted to give 10% and that in three years time he would buy the equity back at the same price I bought it for!

As exits go, that is “broken”. I give him £100,000 for a high-risk start-up and get 10% of the equity – and 3 years later I sell the shares back to him for £100,000!

My second example of the problems around exits relates to another common failing in business plans – guaranteeing (or promising) a specific return on exit.

It should be obvious that if you write the words “guaranteed return of 10X” someone is likely to expect you to live up to your commitment – whatever it costs you personally. More to the point, whilst you will no doubt believe you will achieve or exceed your plan, there are many reasons why you won’t – most of which you don’t know yet.

“Confidence is the folly of fools” as Seth Klarman says here.

And yet time and again I see plans with the words “guaranteed return” in relation to a pre-revenue technology investment – and the absolute worst case was for a new airline which was raising money back in 2007 – it put the words guaranteed return in its plan and went bust within 12 months – the investors set the dogs on the management team!

Next and final chapter will address Scalability…

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