What to do when an investor asks you for your business plan

Posted: September 2nd, 2011 | Author: | Filed under: Startups | 25 Comments »

I’m digging in to Brad Feld and Jason Mendelson’s outstanding new book, “Venture Deals”. It’s full of both thoughtful analysis and commonsense wisdom about how to make a financing successful.

In one section, they discuss the “business plan”:

“We haven’t read a business plan in over 20 years. Sure, we still get plenty of them, but it is not something we care about as we invest in areas we know well, and as a result we much prefer demos and live interactions…. However, realize that some VCs care a lot about seeing a business plan, regardless of the current view by many people that a business plan is an obsolete document.

They go on to caution you:

Regardless, you will occasionally be asked for a business plan. Be prepared for this and know how you plan to respond, along with what you will provide, if and when this comes up.

Unfortunately, this is where the topic ends – they don’t tell you what to do when an investor requests that you conjure an obsolete 30-page document from the ether and send it to them that evening.

A straightforward executive summary

I’ve been in this situation, and it’s very disconcerting.  With my first company, Ontela, we pitched about 70 VCs for our Series B.  More than half of those were in person, and not a single one asked for a business plan.  We talked to dozens of VCs (I didn’t keep track of how many) during our Series A as well, and got zero business plan requests.  But during Ontela’s seed round, when we pitched probably 100+ angels, it came up more than a few times.

Whenever it did, we (“we” was usually my cofounder Brian Schultz and I; Charles Zapata, the third cofounder, was busy building product) were somewhere between guilty and scared.  Guilty that we had skipped something that was clearly important, and scared we’d look like idiots.  There was a lot of hemming and hawing before we figured out a foolproof solution.

Whenever an investor asks you for your business plan, send them the same damn packet you send to everyone else.  In our case, that was a 3-page “executive summary” and a dozen slides giving an overview of the business with some screenshots of the product (it was mobile, and 2006, so there wasn’t any easy way to send them a demo). Don’t apologize and don’t mention the business plan.

We did this at least a dozen times and had precisely zero complaints.

One final note: investors who want business plans are probably not your target market, if you’re founding a high growth technology startup.  We had lots of great followup conversations with the angels who wanted them, but ultimately none of them turned in to investors.

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  • Great advice! I’m digging into “Venture Deals” currently too, and I also had some requests for business plans when I was pitching my previous startup… and I actually had one! But not for my new one — and I don’t plan to make one either. Things move too fast today to make creating a huge static document like a business plan worth it.

    Jono, http://www.twosides.co

  • Guest@gmail.com

    I noticed that you said that none of the people who asked for business plans invested with you. Without being funny, could it have been that you did not send them the business plan that they were hoping for the reason that they did not invest?

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  • Cypherpunks

    I’d be curious to hear Dan’s response too, but given that (a) that business plans are more common in other industries (esp. for companies launched by MBAs), and (b) none of the more-experienced tech VCs from either of Dan’s later rounds also asked for a business plan — it’s natural to assume that the angels asking for a biz plan probably were less experienced in tech investing.

  • Anthony Feint

    I do the same thing.  I have a two page executive summary which is send them, and I usually encourage them to play with our app in lieu of a deck.  It does the trick. In the end, none of the angels who requested a business plan were a good fit  for the our company.

  • Great post Dan! My first startup had a business plan and looking back it was a waste of time. EveryMove doesn’t have a business plan written. We have a mental plan, and that plan is being updated on the fly as we go. Stopping building the business to write how we’ll build the business seems counter to what tech startups should be doing, which is testing the existence of the need for your product and business model.

  • Good question – it was asked in HN too, so I’ll recycle my reply. :)

    We had plenty of
    conversations with many of these folks; I’m pretty sure that they had
    their questions answered and understood the business. I don’t think
    there was a lingering resentment at a probably-forgotten request that
    was never mentioned again.
    But in the
    course of those conversations, their reason for passing also became
    clear – generalizing across the group, they were used to more
    traditional investments like restaurants and real estate. Not
    coincidentally, investments for which a business plan is both a sensible
    and standard document. They passed because our profile (tech company
    swinging for the fences) wasn’t the right fit for them.

  • Anonymous

    Venture Deals is a must read book if you are going to be raising money. 

  • or if you’re sufficiently cheap, you can read @bfeld:twitter’s original blog posts and get most of the value that way. I’m pretty sure he’ll forgive the advice – I don’t think he’s counting on his book royalties to retire. :)

  • Correct (that the royalties don’t matter to me!) but I think the term sheet stuff is only about 20% of the book. We’ve also worked hard to update it / clean it up to be a lot easier to read and understand. But it is definitely based on the original term sheet series that Jason Mendelson and I wrote in 2005 that is at http://www.feld.com/wp/archives/category/term-sheet. We’ve also got a lot of new info up at http://www.askthevc.com and – look for a fun special surprise on Tuesday morning!

  • You did exactly the right thing. In a lot of cases “business plan” seems to be short hand for “whatever material you have describing the business.” Your 3-page executive summary and a dozen slides is perfect. I’m going to put a short post up about this on http://www.askthevc.com – it’s a nice add to the discussion that we clearly missed in the book.

  • I commented prematurely – I’m still only halfway through the book and the majority of stuff is new since the term sheet series (which comes early in the book, hence my mistake). The $25 you spend on it may well be paid off several thousandfold.  Literally.

  • Absolutely.  And while it’s easy to get religious about tools, I find that presentation software is infinitely better suited to refinement and iteration than word processing software.  It’s easier to keep hundreds of slides current than 30 pages of prose.  And it’s easier to tweak the message to the audience, too.

    (Note that I don’t have hundreds of slides in a single deck, but will have a dozen-plus decks, each with anywhere from 3 to 30 slides)

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  • Mark Travis

    Great blog! I just found this blog based on another blog I follow.

    My unsubstantiated opinion on business plans is that the investor wants to get insight into how you think. They want to understand what your approach to the market is and see how your financial allocations and financial expectations correlate with how the investor might see the market and your solution within that market. 

    What if instead of a business plan, you create a document that encapsulates your philosophy of how you  plan to make business decisions to enter a market. This is where you would talk about your opinions of being engineering heavy or sales heavy and why. Or, what  you plan to do if the market doesn’t quite pan out the way you planned; “The pivot”. 

    I’ve never really seen a document like this, but it is a reoccurring thought in my head that screams that there is a better way to cutting to the chase of getting an investor on board than a static business plan that represents 1 out of a thousand outcomes.

  • guest

    I really do not see the point here. Why would you despise and have contempt for somebody wanting to see your thinking and your plans laid out in a simple, concise and rigorous way? If you really have thought seriously about your company, writing that “damn” business plan should not take you more than 2 hours.

    At least you have a solid base for rational and documented discussion. I am not saying that the BP should replace the demo – they are complementary in my opinion.

  • I wish I had this advice a year ago! I now have a: business plan, cap table, use of funds, one pager, executive summary, pitch deck, marketing plan and a ‘sell-sheet’?! All because I was asked for them, said, “no problem!” ran back to the office and produced them. Now instead of one or two things to update, I have 6 things to update whenever something happens. Oy.

  • Dina

    Most helpful–thank you for sharing this info. We have put together several documents fashioned after successful business plans, but none of them were a good fit for our online healthy cooking & food safety blog: http://www.FreeRangeClub.com. Too many variables & uncertainties made the planning part useless. So now we just describe the content, why it is unique & valuable (its reliability, because of in-depth research, thorough fact-checking, top-notch investigative reporting, high quality & entertaining writing, etc.) & why it is a perfect & cutting-edge fit with the current trend of health pursuits (avoiding pharmaceuticals by using specific foods instead, to help prevent, reverse &/or heal disease). We’re still looking for (a) VC or other funding for IT, to jazz up the site, (b) buyers for outright sale of the site or companies /organizations with which to partner, (d) revenue sources (i.e. advertising, acquisition or collaboration with paid writing, editing &/or managing the online content & possible spinoff into other media).
    Any & all leads & advice would be greatly appreciated–dina@freerangeclub.com.

  • Based on your description, this probably isn’t a good fit for VC investors.  @msuster:twitter has a good blog post (and video) that explains what does and doesn’t work for VC here:


    If there’s an opportunity to grow much faster than revenue would allow, then I’d recommend looking to angel investors who are going to be passionate about your site and your cause. 

  • My advice, FWIW: Abandon the business plan.  “Use of funds” should be a slide (you can a few extra detail slides in the appendix) in the deck and a paragraph or two in the exec summ.  Ditto the marketing plan.  I have no idea what a sell sheet is.  And good luck. :)

  • In general, this is not a place to be innovative.  So while that’s an interesting idea, you probably want to stick with a set of familiar documents.  That means the executive summary and the pitch deck. 

    Business plans are also standard and familiar in some businesses, just not in tech startups.  If someone’s asking for one, it’s a good sign that they’re looking for a different kind of investment.  (Much the same way that someone who asks a restauranteur about their engineering methodology might not be a great fit for a restaurant investment!)

  • Business minded people always have a business plan when investor asking for it.That is all i can say :D

  • Yoescott

    I agree.

  • DavyDev

    Technical founders are no business minded people. They are problem solving nerds who want to build something changing the world. MBA suckers from Banks and a few Angel en VC investors are not knowing how things are going in SV. Banks and this kinda Angels and VC’s are good for small business investments. They do not understand the way the Tech Product creators move.

  • Una King

    My business plan? To not need your money.