VC's don't read business plans; So, what to do?
A recent UMD study has found that VCs pay little attention ot the content of business plans.This is not much of a surprise. I’m generally bearish on business plans, but I do recognize their important role.
Having written several business plans and having successfully competed in business plan competitions, I’ve recognized that many of the highly structured elements of business plans are simply inappropriate for biotechnology firms. Elements such as five-year financials will almost certainly change, but what is important — and which has not been ruled out by the UMD study — is that the thought processes behind the business plan are important indicators of investment.
One of the things I look for in reviewing business plans (and in reading papers for the Journal of Commercial Biotechnology) is evidence of higher-level thinking. Is the entrepreneur just filling out the sections of a business plan with crude numbers (i.e. the market size is $x and we intend to acquire y% of that market) or have they thought about the numbers and identified the factors contributing to the market size and the steps which will be necessary to acquire any portion of market share?
Despite the recent claims that VCs don’t read business plans, I suspect that they will continue to request them — if only to see if the entrepreneur can define the business proposition. Rather than seeing business plan writing (which, incidentally is not the same as business planning) as a rote exercise, one should look at it as an opportunity to demonstrate advanced understanding of the commercial opportunity and the steps required to realize it.
In a previous post I introduced a slideshow — Beyond the Business plan — which is a companion lecture to my textbook, Building Biotechnology. The focus of this talk is on addressing the elements beyond a traditional business plan — when conditions change (and they will), what will you do?
The UMD study results are not surprising to me and in my personal experience the thought process behind the plan in more important then the final plan. An early stage or emerging biotechnology company will need to change directions rapidly several times before locking down on a path and witnessing steady growth.
When I review plans for PhysioGenix I want to see a level of in depth intelligence that gives me some confidence the team will be able to strategically manage company objectives.