Strong business plans lure investors to start-ups

April 9th, 2009 - 5:44 pm ICT by ANI  

Washington, Apr 9 (ANI): A strong business plan and a strong management team is what lures an investor towards a start-up company, say researchers.

Lead researchers Steven N. Kaplan, Berk A. Sensoy, and Per Stromberg looked at 50 start-ups that went public in an initial public offering for which there was a very early business plan.

The second sample included all start-ups that went public in 2004.

The researchers say that strong management no doubt is important, but ultimately a strong business idea matters most to investors.

The team found that a bad management team does not necessarily kill a good idea, but a good management rarely overcomes a bad idea.

According to them, investors and entrepreneurs should spend more time making sure the business idea is solid.

“Our findings are useful for investors, particularly venture capitalists,” said the authors.

However, it doesn’t mean that good management does not matter, say researchers, for a strong management is also valuable and important.

“Results indicate that you should invest in great business ideas. If the founders or management are not getting the job done, be ready to replace them quickly,” the authors added. (ANI)

This study has been published in The Journal of Finance. (ANI)

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