What do investors look for in a SaaS startup's development plan?


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Funding Business

asked Aug 7 '11 at 15:42
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Will Ko
268 points
  • "development plan" -- is that a plan for the development of the required *technology*, i.e. the underlying product; which is a (short) chapter in the business plan? Or is it what I would call a "business plan", which is the full ~10 pages document presented to the investors? – Jesper Mortensen 7 years ago
  • Clarified as "... in a SaaS startup's development plan." – Will Ko 7 years ago

2 Answers


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Based on your question, it sounds like you are asking about "developing your technology" vs. "developing your business" (although the two are closely related), so I'll answer in that context. Here are things that most investors will be looking for:

  1. Barriers to entry - how easy is it for your idea to be copied or duplicated? Can I get 5 engineers in a garage for three months and duplicate or beat what you have? How proprietary is the technology?
  2. Who is your competition, and why are you better? Why should someone pick YOUR company over the competition - have an answer for this, and no matter how brilliant you think your idea is, you answer should NEVER be, "We don't have any competition. There are rare cases where that is true, but those are literally .001% of the ideas that are out there. There is almost always one or more direct (companies who do pretty much exactly what you do) or indirect (companies who something VERY similar to what you do, and whom the typical consumer for your product might consider) competitors for your product or service. Giving that answer tells the investor that you are out of touch with the market you are trying to enter. Stating who your competition is, and why you are more unique (and thus, why someone would chose to do business with you vs. the competition), is the answer they are looking for from you.
  3. Do you own your Intellectual Property (IP) "free and clear" - with most software companies - especially SaaS companies - their only assets are their IP. Can anyone else make a claim to some or all of it? For example, suppose you and 2 friends build the SaaS app; one of your friends works at IBM and one is a professor at a University. Unless you are very clear (and ideally have a verifiable "paper trail"), if your company starts to achieve success, the University and/or IBM could try to make a claim for some or all of the ownership in your company. Look at Facebook, etc.; there is precedent there, so before you go and speak to investors, get legal agreements to account for these types of issues. Fees will vary, but you could probably find an attorney to do this for you (make sure at least part of their specialization is in technology / Internet / software companies) should cost you between $2,500 - $5,000 to get this done and it will be money well-spent. It protects you (which you need to do anyway) and it show the investors that you are serious and understand the "business-side" of your technology.
  4. How tightly can you "tie up" your key individuals - when you bootstrap, often times those involved have employment elsewhere, so they can eat & pay their bills as it grows. Do you have agreements in place that outline ownership, participation, day-to-day responsibilities and involvement, when certain milestones are hit? For example, if you get $500,000 in funding, do the principals have to quit their jobs to work on the startup full time?
  5. What is your revenue model like - ideas don't care who have them, only how well they are executed. It's one thing to have a great idea; it's another one entirely to build a grow a business out of it. Clearly show your revenue projections. Avoid proclamations such as, "We are going after a $500 Billion market, and if we only get 1/2 of 1%, we all will be fabulously wealthy." I've heard it thousands of times, and it does NOT enhance your credibility. Make sure you show your expenditures for Sales and Marketing. HINT: if you are continually spending more on R&D than you are on Sales and Marketing, you better be able to support it. At some point, you will need to release a product to the market that you might not feel is ready, but "the business" feels is "good enough" to sell.
  6. What is your support model like - building good software is only one part of the equation. Make sure you have good, cost-effective answers for when it breaks, adding new features, etc.
  7. What kind of Service Level Agreements (SLAs) and/or Penalties do we need to sign up for? What should we reasonably expect to incur - with the rise of SaaS and freely-available web-based apps over the last 6 - 10 years, users have come to expect increasing levels of quality and service with the User Experience. When "things go wrong", what's the impact on the company? Cash Flow is King - how money is expected to come in and how money is anticipated to go out. This is the bane of all startups, and the death knell of most...make sure you can account for this, and have several backup scenarios with early-warning indicators if things go wrong.
  8. What kind of insurance coverage do you have - you will want to talk w/a good, independent insurance agent about this, but the types of coverages you may want to inquire about could include:

    • Key Man Insurance
    • Errors & Ommission (E & O) Coverage
    • Cyber Liability Coverage (especially if you collect any personally identifiable information on your customer, over a website (i.e. - name, address, email, phone, credit card #, etc.)
Many investor groups (whether they are VCs, Private Equity (PE) groups, or Angels are aware of this, and may already have people they are sued to working with on this - but the investors are going to look out for THEIR interests FIRST> You need to look out for YOURS, because no one will do that as well as you

  1. Does your software development roadmap align with your company development plan AND revenue model - again, "free" can be a good model for a while, but unless you have investors who will support your sales, marketing and operations expense, you need to be able to show how and when you're going to make money with it.
  2. What is the exit plan? When / how will I get my money AND a return back - assuming you are making money, the investors want their money AND a return back, at some point in the future. They are greedy; know this. Nothing wrong with that, but their motivation for investing in the company is NOT always aligned with yours (that's part of the idea of "smart money" vs. "dumb money"; investors who can help the company grow by facilitating introductions, etc. vs. investors who can only write a check).
  3. Is the current management team the right management team - very often, "inventors" have very different skill sets than "managers". Usually, it is the brilliant inventor (and they usually are very, very smart) will not get out of their own way for the sake of company growth. Sometimes it's ego, sometimes it's an insecurity / control-thing, or it could be something else entirely. But the investor is thinking about this from the moment they meet you; they are sizing you up. Understand your own strengths & weaknesses (of you & your team), and speak to this as part of your company's development plan & exit strategy.

I hope this is a helpful starting point for you; let me know if I can clarify anything here - good luck! Chris

answered Aug 8 '11 at 04:54
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Chris Kauza
116 points
  • Your answer was quite elaborate on the point of a complete business development plan. Although my question was pertaining more specifically to just the software development plan, I think having had clarified some of these other points will definitely help. Thanks Chris! – Will Ko 7 years ago

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If it's an internet technology, investors are most likely going to be looking for a prototype, and some actual users. If not that, they'll likely be looking for a slide deck, and that you've thought through all the important factors (that should be laid out in your business plan).

  1. what do you mean by development buffer?
  2. This is a document created by a Yale professor (Maureen Burke) on "how to create a business plan" How to create a business plan (document)
  3. This is the podcast from itunes of Maureen speaking on how to create a business plan How to create a business plan (itunes lecture)
answered Aug 8 '11 at 02:42
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Bertrood
314 points
  • The question has been clarified with a Foreword and limited scope to SaaS development plan. – Will Ko 7 years ago

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