Business Plan SMuisness Plan: Attracting Venture Capitalists

It is a common idea that having a great business plan will indeed be the major factor in procuring venture capitalist funds. A recent studt from the University of Maryland's business school says otherwise.

In the real world they suggest that venture capitalists look much more at their relationship with the business owner than any sort of business plan to start writing checks. We aren't saying that you should try to wne and dine them with Vegas vacations, but that you need to ge tut there and meet people. The #1 rule of business anyways.

Jon Chait, partner at Dace Ventures in Waltham, Massachusetts, agrees with those observations. "We discourage a lot of effort on business plans for early-stage companies, because their plans evolve at least 50 percent from their initial goal in the course of a year," he says. Obtaining a warm introduction is important not because investors do not read unsolicited plans—in fact, Chait reads dozens of them—but because it shows entrepreneurs' ability to build partnerships. "It's part of the skill set," he says. "By blindly submitting something, you're not taking the opportunity to show off that strength."

Although a formal business plan is not of much use to venture capitalists, the same is not necessarily true of other sources of capital. Azi Gera, one of the University of Maryland study's authors, stresses that a well-written business plan remains critical for funding such as bank or government loans. "VCs can evaluate the soft processes of an entrepreneur better through other means," he says. "A banker doesn't have that ability."