Investors need to feel a high level of confidence in a startup’s potential before they decide to fund them. This could mean financial confidence, market growth confidence, team or leadership confidence, problem-solution fit confidence, proprietary product or service confidence, and many more.
In order to check these boxes, founders used to write lengthy business plans that run up to 50+ pages in a Word Doc for investors to review.
The problem? This slowed down the fundraising process. Like, way down.
Business plans are text-based documents that have everything an investor might want to know about a given company, it’s product or services, how it conducts business, and what its plans for growth are. It contains growth plans, marketing strategies, financial forecast, and more.
But since 1992, PowerPoint has changed the game. This single piece of software turned the world of business, and fundraising, on its head forever.
Today, startups have turned their lengthy business plans into an easy-to-understand format: slides.
Enter, the pitch deck.
What was once 50-100 pages and tens of thousands of words, is now 15 slides and a thousand words or so.
As the pitch deck has successfully dethroned business plans in the world of fundraising, an important question remains: is the business plan dead?
The answer depends on who you ask. Yup, we hate this answer too.
So, we conducted some research to finally put the argument to rest.
We conducted a thorough online search for credible sources on the use of business plans and pitch decks in fundraising. We found 27 sources in the form of books and articles from both investors and consultants.
Here is a breakdown of our sources:
We analyzed all 27 opinions and scored each mention under three categories:
Let’s analyze each recommendation.
Pitch decks tell the story of your startup through a unison of text and visuals. It’s the most crucial piece of fundraising collateral that investors require and often comes in a variety of versions depending on the intended use.
Our study revealed that 70% (19 out of 27) of our sources favor pitch decks over business plans. According to these sources, investors only want to see pitch decks and they simply don’t have the time or the patience to review lengthy, text-heavy documents like traditional business plans.
According to investors and consultants in this group, business plans should only be used as an internal guide for developing a business. The business plan nay-sayers also believed that business plans are no longer fundraising tools and that they can actually even kill the chances of a startup getting funded when submitted in place of a pitch deck.
“…nothing slows down a VC as much as a comprehensive business plan. PowerPoint presentations, in contrast, can be quickly emailed and skimmed, eliciting much faster indications of whether there is a fit. And if there is a fit, the VC will have an easier time educating the firm about the opportunity. So PowerPoint plans greatly increase your chance of getting a term sheet, or at least the dignity of a quick No.” - Babak Nivi and Naval Ravikant, Co-Founders of AngelList
Here’s what a few others sources had to say:
“The biggest single mistake founders make with their business plans is when they treat their business plan as a fundraising tool.”
- Paul Lee, CEO and Co-founder of 11 RONIIN
"Investors are not particularly interested in the business plan”
- Katherine Hague, Serial Entrepreneur, Investor, and Founder of Female Funders
“Up until the mid-nineties, you needed a detailed business plan if you wanted to raise money for your venture. The simpler, PowerPoint pitch deck presentations eventually took over, and they are a significant improvement on epic business plans.”
- Howard Love, Entrepreneur, Angel Investor
“Business plans. Nobody reads them and nobody executes them. Investors who want a long plan look bad and so do companies that generate them. But, don’t send investors a 50-page sales pitch that you call a business plan. An elevator pitch and deck are sufficient. You don’t need an executive summary either.”
- Babak Nivi and Naval Ravikant, Co-Founders of Venture Hacks and AngelList
“The best way to get our attention is not with a 100-page business plan.”
- Charles River Ventures
On the other hand, there are still some who believe that business plans are important in raising funds. Our research revealed 26% (7 out of 27) believed that startups should prepare a business plan for investors.
Investors and consultants under this category claimed that a great business plan inspires a great pitch deck. And despite the increase in pitch deck popularity, some believed pitch decks don’t necessarily replace business plans. On the contrary, they emphasized that investors won’t invest unless they see a business plan.
“As we know the pitch deck and the business plan include mostly the same sections and while the business plan is more detailed, the pitch deck offers high level information. We recommend having all of them prepared.”
- Visual Hackers
Here’s what our other sources are saying:
“A solid business plan demonstrates to investors that you’re serious about your business and that you’ve given thought to your plans to make money. While your business plan alone won’t be enough to convince investors to back you, no investor will put money in without one.”
- Accio Opportunity Fund
“In short, write your business plan first, and then develop your pitch deck.”
- AOK Creative
“A pitch deck is usually created after creating your business plan. The business plan is the foundation for your pitch deck, and therefore is equally important.”
- Pitch Skills
“Pitch decks are usually teasers for investors, and should not play the role of a business plan.”
- Sophia Sunwoo Principal and Founder at Ascent Strategy
Out of our 27 sources, one angel investor/consultant claimed that not only are business plans necessary, they also believed that a business plan is all you need to raise funds.
This source claimed that the death of the business plan is only a myth. Rather, business plans are still necessary fundraising tools.
“Regarding the myth that investors don’t read business plans, I’m in a regional group of angel investors, we’ve had maybe 80 people as members during the eight years since it started, and the vast majority of us would never even consider investing in a company without seeing the business plan.” - Tim Berry, Founder of BPlans
While he agreed that there are many investors that don’t read business plans, they, “Read the plans during due diligence, as a way to dive into the details of a startup they are interested in. They don’t read them as a screening mechanism.”
He further adds that,
“Even a great business plan won’t get any investment for any startup. Investors invest in the team, the market, the product-market fit, the differentiators, and so forth. And they evaluate the risk-return relationship based on progress made, traction achieved, and market validations. The plan gets information the investors need; it doesn’t sell anything.”
While this source differed in their views from the rest of our sources, it’s clear that a business plan may still play a role in fundraising depending on the investor.
Our research revealed that the vast majority of investors would rather see a visual and scannable presentation as opposed to a massive business plan as a Word doc. Most no longer consider business plans as necessary fundraising tools. You can simply show your business model in a slide.
Here is the a recap of our data:
To summarize, a solid business plan usually leads to a better pitch deck that wins over investors. Why? Writing a full business plan likely means startups have thought through plans at a deeper, more strategic level. On the contrary, deep thinking can most definitely be acquired without writing 100 pages of text. Sometimes, all you need is a napkin and a ballpoint pen and you’ve got your go-to-market strategy sorted.
Some might need a long business plan (especially during due diligence). But startups that only send a long-winded business plan to investors instead of a pitch deck will likely end up in the unread pile.
Want to learn more about pitch decks and fundraising? Check out our past pitch deck research.
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