Should startups invest resources into a business plan? Vishal Harnal from 500 Startups

If you’re presented with a business plan with
detailed financials for a company that doesn’t exist for an opportunity that hasn’t been
tested and a product that doesn’t exist, you’re pretty much making up everything that’s on
that business plan. For us, it’s a lot less about the plan that
is presented and a lot more about the entrepreneur behind it. Our investment decisions tend to be focused
on the entrepreneur and the way that that particular entrepreneur thinks about the problem
or the opportunity that they want to tackle. The business plan, which is usually in the
form of a deck, is usually an elucidation of the way that they think and slice it up,
some big points about the industry that they’re tackling, why they have a competitive advantage,
what they’re looking to raise, what they’re going to be doing with the money. It’s some sort of skeletal framework to frame
their thinking. That’s at least what a business plan is at
the early stages of a company’s growth and life cycle. I think the more important question is whether
any of those plans actually end up reaching fruition, or do those companies actually follow
those plans, and do their histories take that record as time goes by? We’ve seen a variety of entrepreneurs. Most of them gravitate away from the business
plan even over here in Southeast Asia. In fact, when I receive a business plan from
an entrepreneur, and it is something that is very, very detailed, I don’t immediately
dismiss it, but it gives me a signal that this entrepreneur may not be a part of the
startup ecosystem, or may not fully understand it, or may come from a more traditional business
and finance background where they’re not used to the take a deck, get the idea, think about
the problem clearly and effectively, but there’s no way to give this 60 page summary of what
you’re going to do and what you’re going to tackle. I never hold it against the entrepreneur,
but I think the way that I look at business plans and the information I glean from them
is no more meaningful or valuable than a 10 to 20 slide deck. I’m not sure whether the time spent on the
business plan was worthwhile. The second thing I’d say is about investors
who demand business plans. Usually, at least in my experience, these
investors tend to be newer angels in the ecosystem. You’ve got people who are trying to break
in and become angel investors or people who are perhaps more high up, like people who
are heads of banks, financial institutions, consultancies, things like that. When they’re approached by someone who would
like them to come in as an investor, so they can put their name on the deck or do something
like that, occasionally, these people may ask for a business plan. It’s more a sign of the areas that they’re
more used to more traditionally investing in more than their competence or ability of
investors. It says that they’re not familiar maybe with
venture capitalist and asset class. They’re probably more familiar with other
asset classes, but that doesn’t mean that they’re bad bad venture investors or angels.

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