Let’s start with what investors are not looking for.

They’re not looking for a 90-page business plan, says Brett Commaille, CEO of South Africa-based AngelHub Ventures, in a MoneyWeb report.

What they’d rather see is “the Tweet Concept” — a quick summary that shows the entrepreneur can briefly explain what the business does.

After reading through 10 pages of a business plan, Commaille said he sometimes still doesn’t know what the business does — a fundamental flaw. If entrepreneurs can’t explain what the business does, they won’t be able to sell it, he said.

What investors look for is an exciting venture that matches their investment mandate.

Commaille spoke about investment selection in the venture capital market at the South African Venture Capital and Private Equity Association’s Venture Capital Training Course.

According to its website, AngelHub Ventures is an “Angel seed fund investing in lean startups with disruptive business models and technologies.”

Former FNB CEO Michael Jordaan is a co-owner and investor in AngelHub. At FNB,
“he oversaw the move away from traditional banking toward rewarding ecosystem-centric solutions for customers, in other words he made banking cool,” according to his bio. FNB was named the “World’s Most Innovative Bank” in the 2012 BAI-Finacle Global Banking Innovation Awards in Washington, D.C. The former banker received the CNBC Africa Business Leader of the Year for Southern Africa award.

Just one in 100 potential deals in the venture capital market turns into an investment, MoneyWeb reports. This may be depressing, but there are ways entrepreneurs can improve their chances by changing their approach to the venture capital system.

From MoneyWeb

What makes a potential investment exciting is when it has passionate entrepreneurs, a strong management team and it matches an investor’s mandate.

AngelHub has been approached with great business proposals many times, but because the team did not look capable of delivering, they had to walk away.

“We’re the investors, we don’t want to be running the business. That’s what the entrepreneur must do,” Commaille said.

An exciting opportunity also has high growth potential. The business model must be scalable which means revenue must grow faster than costs. This often means there is technology involved.

Commaille said they also look for unique opportunities – something that would be able to stand out in a way that the market will understand.

Since South Africa is a small market, cross-border growth prospects or export potential also creates an interest.

“We’re looking for industries that are showing growth.”

Ultimately, the investment terms have to be favorable and there should be potential for them to add value, he said.

Commaille said they want to see a great team with the ability to launch a product that will address a gap in the market. The market must be big enough and the offering must be clearly differentiated. If the offering is protectable in some way it is even better, he said.

However, the plan must be executable and should have an “element of realism”.

In a pitch deck they typically look for a description of the business or concept and an explanation of the business model.

Commaille said an explanation of how the business makes money is ignored by a lot of entrepreneurs. It should also discuss the industry size and potential.

He said the customer is a major focus point. An entrepreneur should be able to demonstrate that he understands who his customers are and how they can be reached. Potential investors also want to see a competitor matrix.

“It is obviously a big problem for us if they don’t understand who else is in the market.”

The differentiation, the management team credentials and the traction of the business are also important.

Commaille said the part that most entrepreneurs leave to the end or exclude entirely, is the numbers. Yet this is extremely important for investors. They want to know what the funding requirements are and how the entrepreneur plans to use the money.

When pitching a business idea or product, he advises entrepreneurs to tell a story and to get the funders to identify. Explain why the idea makes good business sense and only then raise the issue of funding, he said.

Ultimately funders like passion, integrity and coachability, Commaille said.

It is important that the entrepreneur knows more about their business than the prospective funder does.

They also like a business that has traction. It is the one thing that tends to make all other things somewhat less important, he said.

By Ingé Lamprecht. Read more at MoneyWeb.