I think the biggest problem here is time. VC firms are generally not manpower heavy, and sorting through unfiltered business plans is very time consuming, if not painful. That's why they prefer the referral chain method.
A GP I spoke with recently (on Sand Hill Road, potentially even one of the firms Cringely sent his plan to) put it like this: If you aren't smart enough or dedicated enough to work all possible network connections to get referred to our firm, you probably aren't smart enough or dedicated enough for us to fund you.
This comes down to the idea that most VC's (not all), invest in people\teams, not ideas.
A submission from Cringely followed by an article on his blog definitely qualifies as a filtered referral, so any results from his 'test' wont be very representative. At least he realizes this.
I suppose now it becomes more of a test of whether a prominent blogger's post is enough to prompt these firms to look for his submission and respond. Certainly not representative of the average person. And the fact that the companies aren't named puts no pressure on them to follow through.
But then this begs the question, why do the VC firms' web sites offer the ability to submit in the first place? How about an Amazon Mechanical Turk task to have people screen the proposals for them? Have the Turkers write a bullet point summary and give a thumbs up or down.
Good question about why they offer it, if they dont use it or look at it. I think its just for propriety.
The mechanical turk thing, however, im not sure about. Understanding a good idea and good team is not something everyone can do before the idea and business is out there. If anyone could do it, anyone with money would be a successful VC.
Ideally, this is what Associates at VC firms are for, but web-based sourcing is sort of the last resort.
This whole referral process with VC's seems terribly broken to me. The argument that "If you aren't smart enough or dedicated enough to work all possible network connections to get referred to our firm, you probably aren't smart enough or dedicated enough for us to fund you" appears to be born out of laziness or lack of manpower, not because it's the best process.
Surely there are entrepreneurs that don't have connections on Sand hill (almost all European startups for instance) that have a compelling offer a VC would want to have a look at.
Indeed. The only thing this does is fill a VCs sheet up with folks who are living in the right spot and good at networking.
These guys are getting what they deserve: shiny teams full of great networkers who make them feel warm and fuzzy. It has as much to do with viability and profitability as my pet rock does. I imagine the end to many of these investment adventures is something like Joe and Bill sure stank at building that business, but what a great bunch of guys! Good thing we got in on that opportunity even though it didn't work out. They're going to do something big one day.
At the same time - its not that hard to move to the bay area and get inroads into sand hill road. Why shouldn't you have to do that to get their money? How is getting in the front door of a VC's office all that different from getting in the front door of a customer's office? Why should you be the exception, when so many determined people are willing to make great sacrifices to come to the bay area and demonstrate excellence, get a good reputation and good references, build a network?
I hear boo hoo talk from disgruntled middle aged men in restaurants and coffee shops around the valley and it fucking baffles me. There's more opportunity here than anywhere on earth, and yet people still grumble that it isn't quite convenient enough.
It wasn't meant as a rant, more as a business opportunity. I agree that if you really want to get VC money you should do whatever it takes. I've done so myself with success (In Europe) and couldn't help to notice that the system is broken - say the right buzzwords, namedrop the right people and have a slick power point and your chances are good. It just seems like a bad decision businesswise for VC's to primarily invest in companies that are referred to them. They must miss some gems.
There might be a startup hidden in there somewhere. Maybe you could charge to read through businessplans? Maybe you could crowdsource it?
I don't think there is a more effective vetting system than networking. If you haven't worked with someone, or with someone who has, up to some degree of separation, how can you really know if they're worth a crap?
Networking is a marketing and sales methodology, not a vetting methodology. It leads to groupthink, popularity contests, and running with the herd.
Or put another way: if networking were the do-all, end-all, then how do so many technology teams do so well when assembled without using it?
I agree with max -- there's a big business opportunity here. I know these criticisms sound like sour grapes. All I can say is that I know for a fact that putting together teams with great execution intelligence can happen in a lot of ways. Simply because it happens naturally in one way in the valley doesn't mean at all that's it's an optimum solution.
EDIT: I don't want to come across as criticizing all things SV. There is a huge convenience factor when working near so many startups and Angel funds. I just also think that there are problems associated with the current setup there as well.
Actually, it is a vetting methodology. You get recommended by someone that has worked with you, or that trusts someone that has worked with you, or who has seen fit to invest in your company. Its a chain of reputation.
As to networking being the do-all, I think you'll find that most startups are a product of networking: its how teams form, its how they get funded, its how they grow. In fact: the network IS the wealth of an ecosystem. I'm not talking idle chit chat over martinis, I'm talking shipping and selling products.
I'm not saying the system is perfect. I'm just saying it isn't irrational, it works the way it does for a reason, and it isn't very hard to participate if you're determined.
That only covers half the argument ("I am in a better position to judge those opportunities referred to me"). You still have to acknowledge that there are good opportunities a VC can't/won't find through the network, or won't correctly evaluate. "That's life," though. :)
Max, I sorta glossed over the Europe bit. It could be kinda hard to move to S.V. from Europe, as some friends will attest :) I concede that I had a rant in me, and you triggered it.
I'm looking forward to seeing how this experiment works.
I find the whole funding conundrum so sad as to be funny -- one of those things you just have to laugh about to keep from crying.
So let's see, 9 out of 10 ventures fold. The cost for entry keeps going down. Lots of tire-kickers will submit a business plan no matter how unworkable the business or how ill-matched the VC.
The response? Better web sites! And secretly even more of a reliance on networks and following the herd. Better still, up the amount of money they want to invest keeps going in the opposite direction of the amount that startups need.
16 comments
[ 3.4 ms ] story [ 24.2 ms ] threadA GP I spoke with recently (on Sand Hill Road, potentially even one of the firms Cringely sent his plan to) put it like this: If you aren't smart enough or dedicated enough to work all possible network connections to get referred to our firm, you probably aren't smart enough or dedicated enough for us to fund you.
This comes down to the idea that most VC's (not all), invest in people\teams, not ideas.
A submission from Cringely followed by an article on his blog definitely qualifies as a filtered referral, so any results from his 'test' wont be very representative. At least he realizes this.
But then this begs the question, why do the VC firms' web sites offer the ability to submit in the first place? How about an Amazon Mechanical Turk task to have people screen the proposals for them? Have the Turkers write a bullet point summary and give a thumbs up or down.
The mechanical turk thing, however, im not sure about. Understanding a good idea and good team is not something everyone can do before the idea and business is out there. If anyone could do it, anyone with money would be a successful VC.
Ideally, this is what Associates at VC firms are for, but web-based sourcing is sort of the last resort.
Surely there are entrepreneurs that don't have connections on Sand hill (almost all European startups for instance) that have a compelling offer a VC would want to have a look at.
These guys are getting what they deserve: shiny teams full of great networkers who make them feel warm and fuzzy. It has as much to do with viability and profitability as my pet rock does. I imagine the end to many of these investment adventures is something like Joe and Bill sure stank at building that business, but what a great bunch of guys! Good thing we got in on that opportunity even though it didn't work out. They're going to do something big one day.
I hear boo hoo talk from disgruntled middle aged men in restaurants and coffee shops around the valley and it fucking baffles me. There's more opportunity here than anywhere on earth, and yet people still grumble that it isn't quite convenient enough.
There might be a startup hidden in there somewhere. Maybe you could charge to read through businessplans? Maybe you could crowdsource it?
Or put another way: if networking were the do-all, end-all, then how do so many technology teams do so well when assembled without using it?
I agree with max -- there's a big business opportunity here. I know these criticisms sound like sour grapes. All I can say is that I know for a fact that putting together teams with great execution intelligence can happen in a lot of ways. Simply because it happens naturally in one way in the valley doesn't mean at all that's it's an optimum solution.
EDIT: I don't want to come across as criticizing all things SV. There is a huge convenience factor when working near so many startups and Angel funds. I just also think that there are problems associated with the current setup there as well.
As to networking being the do-all, I think you'll find that most startups are a product of networking: its how teams form, its how they get funded, its how they grow. In fact: the network IS the wealth of an ecosystem. I'm not talking idle chit chat over martinis, I'm talking shipping and selling products.
I'm not saying the system is perfect. I'm just saying it isn't irrational, it works the way it does for a reason, and it isn't very hard to participate if you're determined.
I find the whole funding conundrum so sad as to be funny -- one of those things you just have to laugh about to keep from crying.
So let's see, 9 out of 10 ventures fold. The cost for entry keeps going down. Lots of tire-kickers will submit a business plan no matter how unworkable the business or how ill-matched the VC.
The response? Better web sites! And secretly even more of a reliance on networks and following the herd. Better still, up the amount of money they want to invest keeps going in the opposite direction of the amount that startups need.
But damn, those websites are looking awesome.