In the last few years we’ve seen hundreds of business plans from companies seeking equity capital. Together with my colleagues from Nutrition Capital, we put together a list of criteria used by experienced investors to screen potential food and nutraceutical investment opportunities.
 
Unique Position
 
A new product or service must be unique and have a meaningful benefit to the intended consumer. It must occupy a clear position in the mind of that consumer. When coconut water first appeared as a consumer product, it took a while to evolve a clear positioning as a natural sports drink. Today with three brands battling for share in a growing category, it would be very hard to imagine an investor backing a new entrant unless it had a novel and unique position in the market.
 
Competitive Insulation
 
So your product is differentiated and your consumers confirm this. In other words, you occupy a share of their mind. You’re already well on your way to having the most secure insulation from competitive threats. It is extremely difficult to displace a product once it has “mindshare” with consumers. Of course, you can lose your position through neglect and failing to understand your consumer’s evolving needs and how your product should adapt to meet those needs.
 
Some businesses can protect themselves through patents or proprietary know-how. Some may be able to develop a lock on the supply of a key ingredient. This is what’s happening with coconut water, as Coca-Cola and PepsiCo, which own controlling interests in two main brands, utilize their global supply chain know-how.
 
Economic Potential
 
How big can the business realistically become? Most successful new products enter existing categories (coconut water entered the $2 billion sports drink category). Your investors need confidence, so they can get a good return when they sell their stake. Make sure you have a clear path to an exit and can show a realistic and attractive economic return to your potential investor(s).
 
The Team
 
Probably the single biggest determinant of success is the track record of the management team and the Board of the company. Professional investors like to put their money behind people who have already had success. Successful entrepreneurs with a new venture can often take their pick of potential investors for funding their new business.
 
Product or Service Benefits

For product companies this is closely linked to the very first point. Great branding, outstanding, shelf-evident packaging graphics and superior organoleptic properties are all essential for food and beverage products. For technology or service businesses, great care needs to be taken to understand how the technology will benefit the intended user (often a B2B customer) and scientists need to be wary of “technology in search of a market”.
 
Intangible Factors
 
We call this the “WOW” you express after hearing a new business idea or seeing a new product. Hard to describe, but you’ll know it when you see it. I like the example of 5-hour Energy. The company saw an opportunity in a large category and came up with a product and a brand that defines exactly the positioning gap they had identified. Of course, they also executed superbly well.
 
So, as you put your investment memorandum together think of these criteria and make sure you address each of the points to make your investment proposal more compelling.