In talking to several entrepreneurs over the last few weeks I heard major frustration over the lack of vc funding available in the marketplace. But it made me wonder: Do entrepreneurs really know how to go hunting for venture capital?
University of Maryland associate professor David Kirsch says the business plan entrepreneurs put together-and obsess over-isn’t the key to landing funding. Kirsch co-authored a paper in the 5th issue of 2009’s Strategic Management Journal http://www3.interscience.wiley.com/journal/122239730/abstractthat looked at whether certain factors in a business plan could be correlated to the funding decision. The answer was no. “The business plan is not an effective marketing tool to get funding,” Kirsch says.
So what should entrepreneurs focus on? One key factor determining success with vc’s was whether a startup came with a referral. So those launching a new business might be better off focusing on networking to bring in the right advisors who can in turn connect them to venture investors.
That’s not to say a business plan has no value of course. Putting that document together helps entrepreneurs think through how to make their business a success in the marketplace. Just don’t expect it to open doors with vc’s.