There’s an excellent post yesterday from Steve King of Emergent Research on his Small Biz Labs blog: If You Are Raising Money, You Need a Business Plan. Steve acknowledges that people say venture capitalists don’t read plans, but adds: “that is totally missing the point.” He says:
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.
Yes, VCs like to get most of their information through pitches, pitch meetings or just talking to entrepreneurs. But they have to have a plan to make that work.
Steve explains:
I’ve been through this many times. VCs always ask lots of detailed and specific questions that cover all aspects of the startup’s business.
And entrepreneurs [who] 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.
So I agree with him about the plan, and I think it’s important to not take the fake here: When people say venture capitalists don’t read business plans, most entrepreneurs are tempted to take that as a reason not to plan. It isn’t. Planning isn’t just a document that somebody else reads. It’s how you run your company.
And if you are talking to venture capitalists, then the plan is also the backbone of what you have to say. Whether they read it or not.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
