When private equity firms evaluate potential investments, the business plan is a crucial document. It allows investors to understand the company’s products, market, financial projections and more. Here are some of the key criteria PE investors look for when reviewing business plans of target companies:
Clear value proposition and competitive advantage
The business plan must clearly articulate the company’s value proposition – what core problem it solves for customers. It should also demonstrate sustainable competitive advantages versus rivals. Unique technology, patents, distribution rights, etc. can help create barriers to entry.
Large, growing market opportunity
Investors want to see evidence that the company is targeting a sizable market that is expanding rapidly. Total addressable market size, growth projections, customer demographics and other market data help quantify the opportunity.
Proven management team
A strong management team with relevant industry experience and a track record of success is attractive to private equity firms. They want operators who can efficiently execute the business plan.
Realistic financial projections
The financial projections in the business plan should be grounded in reality, with clear assumptions. Hockey stick growth projections will raise skepticism unless there is a compelling rationale.
When reviewing business plans, private equity investors focus on the value proposition, market opportunity, management team and financials. A cogent, realistic plan builds credibility and can help secure financing.