If You Are Raising Money, You Need a Business Plan

The NY Times article Investors Pay Little Heed to Business Plans, Study Finds covers a University of Maryland study showing that venture capitalists "pay little or no heed to the content of business plans."

This is correct, but totally misses the point. 

The goal is not to get a VC to read your plan.  The goal is to get a VC to invest so you can build a successful company. 

I've spent time on both sides of the fund raising table and I agree that VCs do not read business plans.  They are too busy, get too many plans sent to them and want to discuss the business directly with the founders.  Key quote about how one VC learns about a business:

"rather than reading a report, he wants to hear the evidence in PowerPoint slides, white board presentations or “somebody just talking.”

These discussions happen in formal "pitch meetings" and less formally throughout the investment process. 

I've been through this many times.  VCs always ask lots of detailed and specific questions that cover all aspects of the start-up's business. 

And entrepreneurs that cannot succinctly explain the opportunity and show they have thought through the key issues facing the business do not get funded. 

In my opinion, the best way to prepare for the pitch process is to develop a business plan.  Preparing a plan organizes the entrepreneur's thinking, requires going through all aspects of the business and helps to identify important issues facing the company.

I don't think the plan has to be in a specific format or pre-determined size.  But I do think it has to be comprehensive enough to force the entrepreneur to think through all aspects of the business.

So if you are trying to raise money, do a business plan.

For another angle, see business planning expert Tim Berry's take on this.

Comments

[Lucy]

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Lucy

http://businesseshome.net

[Patricia]

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Patricia

http://dataentryjob-s.com

[david ronick]

The trick is to strike a balance between planning and action. Focus on your powerpoint pitch deck http://tinyurl.com/c9nprd not on a text-based plan. Here's a guide to what to include on each slide: http://tinyurl.com/cnpzqv

[Anne Field]

And I also agree. Business plans are vital for developing your business. Also,while venture-backed firms get a lot of press, how many small companies actually seek VC funding? Not that many.

I wrote about this on my blog, Not Only for Profit, on the True/Slant blog network. I do find it frustrating that so much ink is devoted to companies with VC money.

[John Krech]

I agree - do a business plan - not to obtain funding but to survive. Two thirds of new businesses fail within seven years. Inexperience and poor inventory management are among the top reasons.

Do a business plan to go thorough areas and details that will overcome inexperience, lack of resources, etc....Don't put your head in the sand. Create a plan and use it regularily - adapt and evolve as you go.