We talked to about 20 investing entities (maybe 5 or 6 VC firms, a mess of angels, and a few angel groups). Exactly 1 asked for a business plan and they were the lowest quality entity with the least success/experience.
Fred Wilson (one of the top consumer VCs in the world) said that 17 out of 26 of his "successful" investments (with exits) utterly changed their business model between investment and exit. In other words, a business plan has a roughly 60% chance of being obsolete.
Planning is good. You should rough out some numbers. Build a spreadsheet or two. If it's ad supported, get a sense of CPMs in your market and try to figure out how many ad views you'd need to support a real business. If it's a B2B offering, rough out what you can charge, investigate low cost distribution angles (SEO, SEM, etc). In short, prove to yourself (and others) that your business has some legs to stand on.
Write this down in an executive summary and be able to talk about it in some more detail... But writing a formal business plan? Chances are you don't know what business you're really in yet. And if you think you do, there are pretty good odds that you're wrong.
Of course, if you have a mature startup (a year or two old, a pile of customers), then some more structured planning might be appropriate.
I didn't have any spreadsheets handy, but I think the best spreadsheet you could have would be growth/traction data rather than prognostication. Without _some_ traction (or a gold plated team), I think fundraising for web startups is a waste of time for the most part. I think the data you should have at your fingertips varies wildly based on what biz you're in and how mature your business is, but off the cuff, I think you should be able to answer (with some supporting wag numbers):
- How are you going to make money? What if that revenue model doesn't bear fruit... any other ideas?
- How are you going to reach your customers? How much will it cost to reach your customers?
- Roughly, how big is your market? Is there a lot of demand?
- How big a team do you need to test your initial theories and roughly how expensive is that going to be?
- Are there any other significant expenses aside from people?
- How many sales/pageviews/whatever would it take for you to be cash flow positive?
I don't good investors ask these questions to test your planning powers... I think they ask them to test how smart you are and how much you've thought about this stuff.
No, I don't realize that. Go read a book on writing a business plan. :-) Seriously, though-- there's a lot more to a formal biz plan than that.
Being able to toss out some ideas on distribution/marketing is different than having a 2 page section on marketing. Being able to say that you need two more devs to build what you think you need to build in the next 12 months is different from having a 4-stage hiring plan with assorted milestones. Tossing out some ways you could make money is different than a 5-year revenue projection.
I don't think those questions aren't asked because you should have a confident answer to any/all of them. They are asked to confirm that actually think about the issues in question.
It's like agile development vs. waterfall development, IMO.
It's only on YC News that business plans are so black and white. The is no international standard on what sections, how many pages, or how many years into the future a business plan must be.
We talked to about 20 investing entities (maybe 5 or 6 VC firms, a mess of angels, and a few angel groups). Exactly 1 asked for a business plan and they were the lowest quality entity with the least success/experience.
Fred Wilson (one of the top consumer VCs in the world) said that 17 out of 26 of his "successful" investments (with exits) utterly changed their business model between investment and exit. In other words, a business plan has a roughly 60% chance of being obsolete.
Planning is good. You should rough out some numbers. Build a spreadsheet or two. If it's ad supported, get a sense of CPMs in your market and try to figure out how many ad views you'd need to support a real business. If it's a B2B offering, rough out what you can charge, investigate low cost distribution angles (SEO, SEM, etc). In short, prove to yourself (and others) that your business has some legs to stand on.
Write this down in an executive summary and be able to talk about it in some more detail... But writing a formal business plan? Chances are you don't know what business you're really in yet. And if you think you do, there are pretty good odds that you're wrong.
Of course, if you have a mature startup (a year or two old, a pile of customers), then some more structured planning might be appropriate.