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No One Pays Attention To Business Plans - Who Knew?

Turns out that even venture capitalists ignore business plans, instead investing according to their gut feelings and personal recommendations. Maybe that explains the dot.com bust?
Turns out that even venture capitalists ignore business plans, instead investing according to their gut feelings and personal recommendations. Maybe that explains the dot.com bust?The New York Times cites a new study by researchers at the University of Marylands business school claiming that "venture capitalists rely on instinct and their expertise in ferreting out information by other means to evaluate the prospects of a business. That means, the study said, that they pay little attention to the documentation from entrepreneurs..."

Given the kinds of businesses that get funded, and the continually low success rates of VC-backed start-ups, I can't say I'm surprised. But I am surprised that the Times was able to get VCs to own up to it:

Jeff Fagnan, general partner of Atlas Venture in Waltham, Mass., which provides seed money for young businesses, said he agreed with the studys main premise. Ive never given funding to an entrepreneur who had a business plan with him when he walked into my office, Mr. Fagnan said. Never. Most of the information you find there, five-year financial forecasts and so on, is not relevant.

Once again, it turns out to be not what you know that matters, but who you know. Fagnan told the Times that to get his attention:

The No. 1 way is referrals by a respected figure in business or banking.

So if the VCs won't even listen to anything longer than a 150-word elevator pitch from someone they already know, what's the point of a real entrepreneur spending all the time and energy writing a business plan the way every MBA Course and self-help book on entrepreneurship says you're supposed to? Basically, the only point is to clarify your own thinking about your business. No one else will take the time read it.

Could be the financial mess and credit crisis runs deeper than we thought.

Editor's Choice
Samuel Greengard, Contributing Reporter
Cynthia Harvey, Freelance Journalist, InformationWeek
Carrie Pallardy, Contributing Reporter
John Edwards, Technology Journalist & Author
Astrid Gobardhan, Data Privacy Officer, VFS Global
Sara Peters, Editor-in-Chief, InformationWeek / Network Computing