The venture capital industry exists because of entrepreneurs but it you're an entrepreneur you'd hardly think you existed in the eyes of VCs. And you'd be partially correct is your assessment. The greatest startup challenge after product/market fit or traction may simply be getting a coveted warm introduction to a Union Square Ventures, Kleiner Perkins or other top firm. While venture capital may be not be the primary source of startup funding, it continues to be the most highly sought after. Andreessen Horowitz for example, only considers startup pitches which come through its network and of the several thousand pitches receives each year through this trusted deal funnel, several hundred are taken seriously by the firm to warrant additional diligence and perhaps a meeting with the founding team. At the end of day, the firm it makes approximately 15 investments a year.
If you're an entrepreneur, the odds of securing a meeting are not in your favor but from the VC side, what are the chances you're overlooking a game-changing investment simply because it is outside of your network?
First Round Capital, a seed-stage investment firm has launched an app as a way to source potential investments from outside of its network. As with other top VC firms, First Round acknowledges that a warm introduction through an entrepreneur, services provider or another investor is almost always the best way to reach them. But even when you have built a fund around a strong community and powerful network, you can't help wondering from time to time if you aren't just missing out on the next big thing. First Round launched OpenApp as a way to address this dilemma.
OpenApp mimics an initial meeting with the firm by permitting founders to submit a video interview to the partners at First Round. Pitching is story-telling. By hearing and seeing the pitch in a video format, First Round is betting that they can make a more accurate assessment of the founder (as well as the sustainability of the idea), than comes through the standard ten-page startup pitchdeck attached to an unsolicited email. Video definitely speaks louder than PowerPoint.
Time will tell if the app leads to actual investments. First Round held open office hours for three years as a way to meet entrepreneurs from outside of their established network of connections and that experiment didn't lead to anything (any new investments, that is).
What's the lesson for entrepreneurs?
Network. Network. Network.
- Start building your network of connections that can introduce you to funding sources (angel investors, venture capitalists, strategic investors) long before you "need" to raise money.
- Expand your existing network as you may be limiting or overlooking opportunities for valuable introductions.
- Like First Round, adopt a startup mentality towards networking: be open to trying new activities and exploring introductions to different people.
Building a trusted network takes time. That being said, you don't want to waste your valuable networking time either. Assess what's producing results for you from time to time and make adjustments in your networking activities accordingly.