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.