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Why Isn’t There A Network or Hub Connecting Venture Capitalists With Startups?

One of the questions we get often is whether or not there is a central clearinghouse or hub (social network?) where VCs and entrepreneurs can connect.  The idea is that VCs would find good deals and entrepreneurs would find funding.  The answer is "no."  Lately, on top of the questions, I’ve gotten several business plans that seek to create such a network.  So why aren’t there any?  And if not, should there be?

I’ve always been pretty negative about the idea.  In general, I think there would be a natural adverse selection to those who would populate the network.  Here’s why:

1.  Great VCs already have more great deal flow than they can fund.  Therefore, they will not be interested in such a clearinghouse and will "opt out" from participating.  Also, keep in mind that there is always a higher hurdle to fund a deal that hasn’t been started by someone whom the VC doesn’t have some previous experience with.  If the best VCs opt out, then likely, so will the best entrepreneurs.

2.  Repeat entrepreneurs (who have had success in the past) already have a VC network.  They’ll likely opt out because they already know VCs from their prior successes.  In fact, most of these types of deals are done quietly without a lot of shopping around.  This assumes that the entrepreneur liked his/her VCs at his last company.  If not, it will still be very easy to find backers for a previously-successful team.  Successful founders are always hot properties. 

3.  First-time entrepreneurs who have executive-level experience are at most one degree separated from a VC network.  Even first-time folks who have been part of a successful startup probably got enough "air time" at board meetings to get to know the investor syndicate and thus have their own network.  If not, they can usually gain access through their former CEOs and other management executives. 

4.  It’s not really that hard to find VCs.  Unlike 10 years ago, there are many more VCs out there and many of us have our email address on our web site.  It’s not that hard to just email and ask!

So, who is left to be a part of a community like this?  It looks like first-time founders / unsuccessful repeat entrepreneurs who don’t know how to find email address on the web.  Yes, I’m being a bit glib, but the bottom line is that I’ve never thought that the "best of the best" would end up a part of such a community and is the reason why there isn’t one today and probably not one tomorrow.

February 18th, 2008 by     Categories: Fundraising, General QandA    
  • PRoales

    There are not full on social networks, but there are some social like tools for VC's to easily syndicate deals. Companies like Angelsoft make software that allows you to share deals with individuals you trust easily and quickly.

    Do we need a full on community online? No. Do we need great online tools to do the work we do everyday? Yes, and thats where the innovation lies… there is just a disconnect right now between what entr's need and think VC's need and what VC's want.

  • Tim Berry

    I've been seeing this idea for 15 years now, related to bundle deals with 'Business Plan Pro' software and bplans.com, watching several would-be sites come and go, and I remain convinced that the fatal flaw is that it doesn't go two ways. The deals chase money but money doesn't chase deals.

    What I've seen pretty much confirms your points on this post.

    The best thing I've seen along the way is http://www.thefunded.com (and I have no affiliation, just interest) which is compiling a database of founders' views on funders. That seems to hit a sweet spot of need and interest.

    Thanks for this. It was a good question to tackle.

    • Pure

      As a business broker for entreprenuers & technologists, I would agree with the continuance of an organic network of top entreprenuers and VCs. It's analogous to being on the guest list at an A-list party in Manhattan….it's not posted on your local nightclub website. However, more organized hubs for core technologist and angel investors, serving as feeders to entrepreneurs with the capability of commercializing innovative ideas, is of great value. I've found that most researchers don't have the business accumen or desire to network and build relationships in the VC community. Being involved in several initiatives to encourage relationships among innovators of core technology, angel investors, and entreprenuers, I've seen several sucessful partnerships.

  • http://blog.timberry.com Tim Berry

    I've been seeing this idea for 15 years now, related to bundle deals with 'Business Plan Pro' software and bplans.com, watching several would-be sites come and go, and I remain convinced that the fatal flaw is that it doesn't go two ways. The deals chase money but money doesn't chase deals.

    What I've seen pretty much confirms your points on this post.

    The best thing I've seen along the way is http://www.thefunded.com (and I have no affiliation, just interest) which is compiling a database of founders' views on funders. That seems to hit a sweet spot of need and interest.

    Thanks for this. It was a good question to tackle.

  • http://www.startuplounge.com Mike Blake

    I think the need for a clearinghouse depends on the environment. In Atlanta, we've had good success with StartupLounge (a nonprofit) as a quasi-clearinghouse, because our startup ecosystem is largely dysfunctional. To go point by point.

    1. Atlanta has no “great” VCs. The nearest ones may perhaps be in Research Triangle, NC. We have some decent VCs.

    2. Repeat entrepreneurs in Atlanta and much of the southeast are rare. With a $2 MM exit, you can live very comfortably and many successful entrepreneurs simply take their money off the table and retire while at the same time being revered as a big fish in a small pond.

    3. The Atlanta VC community is not particularly accessible to non-players. Plus, most entrepreneurs in Atlanta aren't coming out of executive ranks.

    4. No VC in Atlanta that I know would respond to an unsolicited e-mail. It's not even obvious such correspondence makes it through the spam filters.

    (If you're an out of state VC please come down and show us how it's done!)

    This having been said, if you're in a strong environment, I agree wholeheartedly that the need for a clearinghouse is dubious at best.

  • Tim Blair

    Perhaps an answer to this question lies in niches. As a first time entrepenuer who did get Angel funding 1) locally, 2) in a rural area 3) in starting a company manufacturing a line of consumer products ( http://www.myyeti.com), I saw and lived through the need to connect to VC's or Angels in a niche investment and in an area outside VC Land.

    Maybe there aren't enough people in our situation, but I think many that are have gotten sucked into less than profitable online venues that give the impression you can connect but in reality are a waste of time. In the end we found what we needed, but it took much longer than we needed it to.

  • Omer K

    As someone whos managed 3 startups and now on the fourth one OUTSIDE of the US I beg to differ.

    In a lot of countries (both in developing and developed) the methods of startup funding are much less advanced and/or none existent and general new economy entrepreneurship itself is limited know-how.

    However at the same time there are many high net worth individuals who are interested in hearing about such ideas (by high net worth individual i dont mean Angels, im talking about couple mil$). This on top of classic economy corporate structure on the lookout for 'new' ideas both in their areas of concentration and out of it.

    So something that is able to concentrate on initial stage in a structured manner and then provide opps for later stages should be viable for the rest of the world. The limiting reagent is to find a mechanism by which Entrepreneur paranoia can be managed while at the same time simplifying/standardizing bus plans to a acceptable form for potential investors…

    There are a lot of positive impacts of social awareness, economic development and support for a new entrepreneur class.

    What alternative is there to markets where there is an abundance of new/different ideas and financial resources in search of opportunities but no connecting line?

  • Jeff

    We have a great service in Utah called http://www.fundinguniverse.com. I've known several people that have found this service to be very beneficial in securing funding. It's worth taking a look at.

  • http://www.alsop-louie.com Corey

    There is a network like this now: http://www.younoodle.com.

  • Donna

    Agreed, I don't think it would ever work. There is no question that VCs want deals that either come in through direct referral or from serial entrepreneurs (or co-investment partner who has already committed). I have a very funny chart that shows the difference of what happens to a deal coming in through a “friend” and a deal coming in cold.
    Many sites have attempted this in the past, both at seed stage and beyond. http://www.offroadcapital.com (usually for a round B or A after an angel round) actually provided auctions and the deal would price based on supply and demand. And they had some very good companies (i.e. Patchlink, etc).
    I do not think this is right – per my previous posts, I don't think it is easy, outside of Silicon Valley, to network your way to a VC even if you've had a successful business before. But I don't think it would work. Just my opinion.
    Also I don't think (with exceptions) VCs really read new business plans they get via email unless it comes with an endorsement of some kind or has repeat entrepreneurs.

  • http://BoycottSoftwareSweatshops.com Raza Imam

    I'd say that this type of social network is better if you're seeking angel funding as people with a little bit of money don't necessarily know how to find companies to invest in. There are pretty good sites like StartupNation and GoBigNetwork.com for that.

    But once you're looking for VC, I imagine you need to have a really killer idea (and a competent team to execute), in which case you'll probably already have inroads to VC's anyway.

    Or you can skip the whole VC process, make some noise, bootstrap an awesome company, and then have the VC's knocking on your door.

    Raza Imam
    http://BoycottSoftwareSweatshops.com

  • Raza Imam

    I'd say that this type of social network is better if you're seeking angel funding as people with a little bit of money don't necessarily know how to find companies to invest in. There are pretty good sites like StartupNation and GoBigNetwork.com for that.

    But once you're looking for VC, I imagine you need to have a really killer idea (and a competent team to execute), in which case you'll probably already have inroads to VC's anyway.

    Or you can skip the whole VC process, make some noise, bootstrap an awesome company, and then have the VC's knocking on your door.

    Raza Imam
    http://BoycottSoftwareSweatshops.com

  • Charlie

    Hmmm, well nevertheless, they do exist. Check out http://www.gobignetwork.com

  • Anonymous

    Why there should be a network connecting VCs with Entrepreneurs:

    The question is how often these “great” VCs can truly recognize a “great” deal. Its important for the VCs to listen and learn something from entrepreneurs the entrepreneurial community.
    There are exceptions, but VCs are often out of touch with whats going on outside their “firewall” limiting who gets in to talk with them (leading to the “lemming” phenomenon of VCs copying each other, etc).. Most entrepreneurs (those funded, not just those complaining about not getting funded) talk about how they need to stroke the egos of VCs and pretend to be getting value from them even when they don't so these VCs often don't have a true picture of how they are perceived. They often talk about how clueless VCs are. Often VCs are out of touch with what the real trends and state of the art thinking is. They should be out asking entrepreneurs which companies (aside from their own) or people the entrepreneurial community finds of interest in case they are missing something since everyone has blind spots. There are sometimes companies where everyone under the sun thinks its great.. except the VCs (or vice versa). In the past I often heard folks talking about how silly it was that X company got funded.. and X would then go and do silly things like say buy a superbowl ad and collapse. Yet the VCs don't then question whether they might be a bit insulated. They should be learning from*entrepreneurs* out there.. rather than going out with the intention of imparting their wisdom to entrepreneurs who can't reach them they might learn something.

    Even entrepreneurs whose business ideas may not be viable for lack of execution or sales skills perhaps, still collectively often have a better sense of the trends out there than VCs do who are middlemen and make money funding other people's insights. The ability to raise a VC fund, and even to have once been a successful entrepreneur or chosen to fund the right company.. doesn't guarantee they know everything or that they aren't missing the boat with the unseen opportunities or trends they could have invested in.. or those they shouldn't have Often the people who aren't able to get to a great VC are those who see a need due to being an insider in niche, or due to being a creative technical person, who are right on target but don't have the business skills to make it happen or the connections to folks who can. That doesn't mean VCs have nothing to learn from them. There are also good bootstrapped entrepreneurs who might not consider a VC.. unless somehow they can be enticed into an interesting community of people where the VCs discover them and land them.. or teach the VCs things which help their investment decisions regarding other companies. (eg, take a look at the silly VCs in the book Eboys, where their only real insight is the importance of assisting with team formation with recruiting to help create the great deals they wish to see (Techstars&Y-Combinator, etc, are in part acknowledgments in a different way of the need to assist those with good ideas but without the right skills/knowledge). It may be inaccurate.. but the book portrays their success (at least as most sharp entrepreneurs who have read it seem to feel) as being based on luck and managing occasionally not to be too clueless when something is handed to them on a silver platter other VCs didn't get).

  • John

    I'd second http://www.younoodle.com. Friends of mine have found great leads to investors there.

    • Anonymous

      btw, I was talking about a physical social networking event hub.. or online if there is an active discussion framework.