Does writing a business plan still matter for searching and obtaining external equity finance?

Abstract

This study analyses the importance of business plans for founders and professional equity investors in the process of acquiring venture capital. How do the founders’ efforts spent on writing a business plan relate to obtaining the equity funding asked for? Based on a sample of 301 nascent ventures, we first ran a two-step selection model. This quantitative analysis shows that, while a founder’s effort to write a business plan positively correlates with the likelihood of the founding team seeking external financing, business plans are no longer a determining factor for actually obtaining external equity funding. Through additional qualitative analysis, we shed light on this finding and point to other tools venture capitalists increasingly use to forecast venture performance, thereby substituting business plans as core documents of venture assessment. Our study thus contributes to a better understanding of new matching tools between entrepreneurs and investors, thereby adding new knowledge to entrepreneurship scholars and policy-makers alike.