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I am helping a friend with some short to medium term scenarios/ projections for a business plan. I worked out some failure scenarios as in if the business folds in 6 months we will be able to salvage x amount of capital from the business. My friend is concerned about the reception of failure scenarios in the business plan. My friend would rather present a "perfect fool proof plan". I think it shows that we are not just swinging for a home run and investors have realistic expectations.

Should they stay or should they go? They were very helpful in guiding thoughts about initial capital expenditure.

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2 Answers

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Realistically there is no such thing as a fool proof plan, serious investors will know this.

Having the fall back positions is good but I wouldn't put them front and centre. I would have them as appendacies or overall "due dilegance material".

If your ever pitching to an investor I would mention that you have worked through these senarios "if they would like to see them" ... you are likely to get a mixed reaction: somewhere between

  • "great you have done your homework",
  • "I feel more comfortable because I'm only in for a percentage not the full amount"
  • "don't you trust yourself to deliver?"

Personally I would be the second one, my worst case is X because you have fall backs, others will differ and you will likely find a suitable match.

To answer you direct question, I think overall for most investors it is better to have these senarios thought out than not. I think they show a realistic streak that many investors will like and may set you apart from the masses ... remember the concept alone is only worth 20-30% the rest is how much they like you and how much the believe and trust in you ... for my money this shows far more than the majority put up.

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up vote -1 down vote

depends, if you are pitching to a conservative, long term investor - then yes leave it in as this shows prudence and security.

however, if you are pitching to your usual startup investor - then remove it completely. they invest money only in sure proof things (or what appears to be a foolproof thing, or at least viable enough). this money is EXTRA (they CAN afford to loose it) and they are not interested in saving x amount of it if you fail. the idea behind their investment is RISK - they invest but they have an y chance of success (y being different for differently risk aware investors).

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