"Go ahead and write that 50-page business plan about your fledgling venture if it helps you to focus. Just do not bother showing it to venture capitalists, because it will do nothing to improve your chances of getting financing.
That, The New York Times’s Brent Bowers writes, is the surprising conclusion of a new study by researchers at the University of Maryland’s business school.
Researchers found that venture capitalists, who screen hundreds or thousands of solicitations each year, pay little or no heed to the content of business plans. Instead, the study said, because they make decisions “under conditions of high uncertainty,” venture capitalists rely on instinct and their expertise in ferreting out information by other means to evaluate the prospects of a business.
That means, the study said, that they pay little attention to the documentation from entrepreneurs about their academic credentials, work or start-up experience, previous success in raising equity capital, ability to form a top-notch management team or even how much money they want.
“In general, business plans don’t matter,” said Brent Goldfarb, an associate professor of management and entrepreneurship at the Robert H. Smith School of Business, who wrote the study with David A, Kirsch, also an associate professor at the school, and Azi Gera, a doctoral student. “Nobody is going to read them.”
That assertion flies in the face of the conventional wisdom that writing a business plan is one of the first and most essential tasks an entrepreneur should undertake, Mr. Goldfarb acknowledged. But, he says, the report’s conclusions jibe with the feedback he gets from venture capitalists.
Jeff Fagnan, general partner of Atlas Venture in Waltham, Mass., which provides seed money for young businesses, said he agreed with the study’s main premise. “I’ve never given funding to an entrepreneur who had a business plan with him when he walked into my office,” Mr. Fagnan told The Times. “Never. Most of the information you find there, five-year financial forecasts and so on, is not relevant.”
He says he looks for “market validation,” hard evidence that the entrepreneur has actually sold his product or at least lined up enthusiastic potential customers. Mr. Fagnan says that, rather than reading a report, he wants to hear the evidence in PowerPoint slides, white board presentations or “somebody just talking.”
But if he does not look at their business plans, how do entrepreneurs gain an audience with him? “The No. 1 way is referrals” by a respected figure in business or banking, Mr. Fagnan said. If he asked the people referred to him for a business plan, “they would probably say they don’t have one,” he told The Times.
Greg Herro, chief executive of LifeGem, a maker of specialty jewelry in Elk Grove Village, Ill., laughed when asked about the business plan he wrote to show to venture capitalists and other professional investors a few years ago.
“It was no use to us whatsoever,” Mr. Herro told The Times. “Investors might read a business plan’s executive summary, but they have no interest in the endless pages of nonsense that entrepreneurs like me put out. If you don’t have a track record or actual sales, they are leery.”"
"In the early stages of startup, focusing on ‘execution’ will put you out of business. Instead, you need a ‘learning and discovery’ process so you can get the company to the point where you know what to execute."
"President Obama revealed Monday that he's half a supply-sider. If only someone could explain to him the other half. We have a tax code, the President said, "that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." That sounds like a great argument for lowering taxes on the guy creating jobs in Buffalo. Alas, that's not what he has in mind.
Set aside that India is a poor example to make Mr. Obama's point, since its corporate tax rate on foreign-owned companies can be as high as 55%. The President's argument is that U.S. tax-deferral rules make it more expensive for American companies to reinvest overseas profits at home than abroad. This, he claims, creates a perverse incentive for companies to "ship jobs overseas" and reduces investment and job creation in the U.S.
He's right, except that his proposals would only compound the problem. His plan would limit the tax deferral on income earned abroad by tightening the rules, limiting allowable deductions and restricting eligibility for foreign-tax credits. This "solution" is antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue Mr. Obama predicts. Other than that . . .
The current tax-deferral system is a clumsy attempt to deal with the fact that most other countries don't tax their companies' overseas profits. A German firm doing business in Ireland, say, pays no German income tax on its Irish profits, but it does pay Ireland's corporate income tax at its 12.5% rate. The U.S. company competing with that German business in Ireland, by contrast, pays Ireland the same 12.5% on its profits -- and it then pays Uncle Sam up to 35%, minus a credit for what it paid the Irish. And because almost everyone else's corporate tax rates are lower than America's (see nearby table), U.S. companies end up paying higher taxes than their international competitors.
[Review & Outlook]
Congress long ago created the corporate tax deferral to compensate for this competitive disadvantage. Under deferral, a company doesn't have to pay the U.S. corporate rate until it repatriates its earnings. It can retain them overseas or reinvest them abroad with no penalty. But if it brings them home or pays them as dividends, the tax bill comes due.
The German company faces no such quandary. It pays the Irish tax, and it's free to invest that money in Ireland or Germany or anywhere else. This territorial tax system, embraced by most of the world, eliminates the perverse incentive to hold money abroad that America's deferral system creates. Adopting a territorial system would be the most obvious and simplest way to eliminate the distortion that tax deferral creates. Alternatively, Mr. Obama could lower the U.S. corporate tax rate to a level that is internationally competitive.
Yes, we know: Few major U.S. companies pay 35% of their profits in taxes because of the foreign tax-deferral and other deductions, credits and loopholes. But that's precisely why Mr. Obama should want to take the better path to corporate tax reform by reducing the rate and removing loopholes. America now has the worst of both worlds -- a high statutory rate and a tax code so riddled with complexity that it is both expensive to administer and inefficient at collecting revenue. And yet Mr. Obama's proposal to limit deferral only layers on the complexity.
In promoting its new global tax raid, the White House fingered the Netherlands, which it lumped with Ireland and Bermuda as "small, low-tax countries" that supposedly account for an outsize share of reported foreign profits of U.S. firms. The Dutch corporate tax rate is 25.5% -- which isn't even all that low by current European standards. And the U.S. is the largest foreign investor in that "small, low-tax country," according to the Dutch Embassy. Perhaps reducing American investment there and slamming the Netherlands as a tax haven is Mr. Obama's way of reaching out to friends and allies.
But the Netherlands won't be the only country hurt. The explicit goal of this plan is to reduce the incentive for U.S. companies to invest abroad, which Mr. Obama derisively calls "shipping jobs overseas." Foreign companies may relish the loss of U.S. corporate competitiveness that his proposal will bring in the short term. But in the long term, reducing U.S. investment globally will hurt everyone. And that investment is a two-way street -- the Netherlands is also the fourth-largest foreign investor in the U.S.
Some of Mr. Obama's advisers understand all this, but then their real goal isn't tax reform or U.S. competitiveness. It's a revenue grab, one made easier by the fact that overseas tax "avoidance" is easily demagogued. To that political end, Mr. Obama conflates tax deferral with the offshoring of jobs -- hence the sly reference to Bangalore, India. With trillions of dollars of new spending, the White House and Treasury are desperate for new tax sources to pay for it all.
But even as a revenue raiser, this is likely to fail. Fewer companies will keep their headquarters in the U.S., especially small or mid-sized firms that can slip away without becoming a political target. Those companies that can't flee will sooner or later demand relief from Congress, which will be happy to create even more loopholes.
If Mr. Obama's proposal has a silver lining, it is that he has embraced the principle that tax rates matter to investment decisions. If his new and short-sighted proposal becomes law, he and all Americans will discover just how much."
"Ironically, the asyncronicity of Twitter was hotly contested by a lot of early adopters who pressured the Twitter team heavily to change it to an auto-follow model. Evan Williams & crew always held out, convinced it was of key importance to how the site would grow and scale. Looks like they were right."