Fundraising · Business plan

Do I need a business plan to raise money?

Sean Greene CEO & Founder, Bambino

October 1st, 2015

My business is in the on-demand economy and I'm developing a mobile app. I'm in the process of getting things going and I've raised money from family and friends. My next round will be in the $5 million range with professional angels and VC's, and I'm wondering if I need a traditional business plan, i.e. a 15+ page document with charts and graphs and everything spelled out in complete detail? I've put together an investor presentation, which outlines the market, the competition, the competitive positioning, and the product, and I have a prototype of the app itself. I also have the financials, which explain how I plan to use the investment and what my revenue expectations are. Do today's investors want to see a formal business plan document as well?

Leo PhD Product development executive, serial entrepreneur and Angel Investor

October 1st, 2015

As an angel investor at multiple groups, a full blown business plan is not necessary; but a clear executive summary is a must. If you already know your product/solution/market/financial very well, creating this should be very easy. I can't imagine getting funding without at least a multi-page document with details on how you would execute (i.e. idea is cheap, execution is important). If you know your business well, that shouldn't be difficult.

We know that businesses will pivot, but you must show that you know your market well.

You need to show the problem, the solution, your target segment, market, strategy, financial and traction. Traction, to many, is the most telling piece of how fundable your company is. Getting adoption and traction is the best way for your company to get seed investments.

You mentioned that your next round is in the $5+ million valuation range. In that case, you almost certainly must show traction and revenue. That seems high for a first round beyond friends and family, unless you can show very healthy adoption and revenue. $5 million valuation is certainly below most VCs, you would be looking at Angels.

Anonymous

October 1st, 2015

No. 
A business plan is something that dies the moment your product hits the market. 

Highlight your milestones with goals, features and costs.
You can put out certain predictions and assuptions re traction/revenue, but expect them to be false. 

Do you have a prototype or an MVP? Do you have any traction beyond your friends?
You have an on demand marketplace, the hard part about those is bootstrapping both sides. How will you do this? How will you gain traction in both sides?

Raising institutional money without traction is near impossible, I would go angel/seed first.

Anton Yakovlev Founder of four successful businesses on two continents who can help you do the same

October 1st, 2015

I'd say it's almost impossible to get any valid data for your business plan on early stage,  and even later. Therefore the formal 150-pages plan will never be real. Investors know that. So why should you create a plan that will never be executed? Or even worse - executed right as written, which sure will bring your business to death even faster.


Chris Kitze CEO at Safe Cash Payment Technologies, Inc.

October 1st, 2015

You don't need a traditional business plan, but you'll need a cogent 6-15 slide presentation and a spreadsheet model with 3 years of forecasts and real, verifiable data and customers the potential investor can look at to validate your model.  I don't know anyone who bothers to read long format plans any more, they pretty much went out the window 15 years ago.

Sean Hurley Strategic Marketing Leader with strong financial results for growing organizations

October 2nd, 2015

Clearly there are differing opinions to your question.  The key may be to provide whatever potential investor you feel is most likely to partner with you the documentation they request.

Chris Owens

October 2nd, 2015

Sean, NO, you don't need a business plan. And the reason why is very important, but it might sound strange to you: there is a difference between a company and a startup. A startup is not a smaller version of a large company. A startup, as Steve Blank describes it, is a "temporary organization in search of a business model". This is a different scenario than if you were just buying and opening, say, a McDonald's franchise. With the franchise, you don't have to SEARCH for how to run it. That has already been worked out. The customer base is there, the products, the channels, etc. All you have to do is BUILD and EXECUTE.

But a startup doesn't really know what it is or finally will become until it hits solid product/market fit and it has identified and proven exactly what problem it is solving, that its solution is correct, who the exact customers are and that they will buy it (among another things). And you will likely pivot in small or large ways that will CHANGE your plan as you go along.

This is why a business plan doesn't make sense for a startup. Business plans are made to simply be executed. A startup needs a looser, more fluid framework for their planning. And most investors these days understand the difference and don't require business plans at all.

The normal docs you would be expected to have minimally when approaching angels would be a pitch deck and an executive summary..

For more info on the different approach to planning and executing that a startup needs to do, I really recommend an online course that Steve Blank did (it's a FREE video course) called "How to Start a Startup" and you can find it a Udacity.com. I took the course myself and it helped a lot.

Chris Owens

October 6th, 2015

I think what is really being debated here is terminology.

Investors in startups almost always look for a Pitch Deck and an Executive Summary.  But YES, a lot of the same types of research you do for a business plan go into the construction of these documents.  It's just he FORM is different when you are pitching a startup to investors versus pitching an established business model to, let's say, a bank for a loan.

So the point here is: Do you need a lot of the research on things like customers, the market, channels, the problems you are solving, the financials, etc... YES.  But do you need the standard 30 page document referred to as a "Business Plan".. NO.  A startup founder does need a plan for the business, but not necessarily a traditional "Business Plan".  The plan for a startup is best worked out initially on what's called a "Business Model Canvas", as a person above mentioned..  Then, for presentation purposes for investors, translated into a Pitch Deck and Exec Summary.

Roz Biles Business Development - Strategic Planning

October 1st, 2015

My experience is that you need to tell the story in words and in numbers. This may be an Investment Brief and a Dynamic Financial Model.  Be prepared to create a full blown business plan.  Having done this over 200 times 70% of the effort is on sales development.   Roz Biles Business Development Newport Beach, CA Direct 714-728-2033

Andrea Raimondi Computer Software Consultant and Contractor

October 1st, 2015

Do you need a business plan? Yes, unless you own a Bank ;-)
Do you need a boring, tens and tens of pages one that is most likely to be wrong anyway, as others have already pointed out?  No.

What you really need is a 3-4 pages long summary of what you do and then how to get to profitability and how long it'll take you.
You will also need to include "what-if" scenarios of things that can go horribly wrong.

VCs want to see your ability to put things in perspective and that the numbers are realistic.

Once you got that, you should be mostly good.

I've noticed you said that you raised money between family and friends.
There was a guy asking here a few days ago about dilution.
Have a look at that.

A

Marc Milgrom Business Manager at Bloomberg, LP

October 1st, 2015

I highly recommend reading "Venture Deals"-- it's both informative and funny, which automatically distinguishes it from most business books, and it's from the perspective of both experienced VCs and entrepreneurs. The short answer, as most have said, is a brief pitch deck, but since you have a prototype and investor presentation, that pretty much covers it. Many investors care more about playing with the product and getting to know the founder than reading a book of numbers that have 0 probability of being right.