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No Business Plan? Don't Worry

Mark Marich on May 19, 2009 Source: Policy Dialogue on Entrepreneurship

Business plans are an important tool for entrepreneurs, but a new study revealed that when it comes to obtaining venture capital, business plans are of little importance. Researchers Brent Goldfarb, David A. Kirsch, and Azi Gera from the University of Maryland’s Robert H. Smith School of Business found that venture capitalists pay little or no attention to the content of the hundreds of business plans they receive every year. Instead, venture capitalists rely on instinct and their expertise in evaluating the prospects of a new venture.

This finding implies that that entrepreneurs’ work or start-up experience, social network (and other “intangibles”), previous success in raising equity capital, and the ability to form a strong management team are more relevant determinants of venture funding. It also suggests that an elevator-pitch or a power point may be better ways to sell an idea.

For a copy of the report, see “Form or Substance? The Role of Business Plans in Venture Capital Decision Making” in the May 2009 issue of Strategic Management Journal.

Category:  General  Tags:  venture capital, finance

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