As a successful venture capitalist, Howard Hartenbaum had grown accustomed to some measure of deference from the entrepreneurs who pitched him. So when one particularly brash CEO called him a "nut case" and then said that a meeting with him "made me want to vomit," Hartenbaum was livid.
Hartenbaum, a partner at Draper Richards in San Francisco and an early backer of the online phone service Skype, stumbled upon those comments, posted by an anonymous entrepreneur, on a website called TheFunded.com. Incensed, Hartenbaum fired off a series of e-mails, threatening litigation and demanding to know who ran the site. He also expressed interest in investing.
If this reaction seems a tad schizophrenic, it reflects the mix of indignation and curiosity that The Funded has sparked in the world of venture-backed companies. The site, which was launched in March, is at once a Zagat guide to VCs and a place for disgruntled entrepreneurs to gather. More than 350 funds have been ranked and reviewed, with the juiciest postings sending BlackBerrys buzzing throughout Silicon Valley. Although the site is ostensibly off-limits to all but the founders of fast-growing companies, they're not its only readers. "We all have friends who have passwords," says David Stern, a partner with Clearstone, a venture firm in Santa Monica, California.
Complaining about VCs is a practice nearly as old as venture capital investing itself, of course. But the VC world is small and entrepreneurs have had to keep their complaints under wraps if they hoped to attract future rounds of funding. Now the 1,500 company founders who have signed up for The Funded feel liberated enough to share opinions (most often anonymously) that range from balanced to harsh.
Adding to The Funded's mystique is the fact that no one knows who runs it. The site's founder is known only as Ted, and guessing his identity has become something of a Silicon Valley parlor game. Prime suspects include Kevin Rose, the founder of Digg (a company Ted is fond of referencing), Blogger co-founder Evan Williams, and Gawker founder Nick Denton, who until recently edited the site Valley Wag. Then there's Jason Calacanis, a former entrepreneur in residence at Sequoia Capital and the founder of Weblogs, a company that he sold in late 2005. Calacanis, who is now running Mahalo.com, a Sequoia-backed search start-up, was one of the first CEOs to tout The Funded on his blog. He says he "knows" Ted but denies that he's running the site. (Rose did not respond to Inc.; Williams and Denton declined to comment.)
Of course, it's entirely possible that Ted is an obscure, rejected entrepreneur with an ax to grind (Hartenbaum's favored theory) or a tech-savvy student. After exchanging a few e-mails, Ted agreed to call Inc. for a phone interview. He claims to be a well-known serial entrepreneur who is currently the CEO of a venture-backed company. He says he started The Funded following a run-in with a firm. A VC wooed Ted initially, treating him to sports tickets and fancy dinners. But after the deal was signed, the relationship soured. "It was straight-up bad behavior," says Ted, who has a youthful voice and a distinctive, slightly devious laugh. "The person was cursing in meetings and insulting other board members." Ted's revenge: a site that is, he asserts, "changing the venture capital world."
Some VCs dismiss The Funded as idle chatter. Money, after all, is money, and a start-up that intends to burn some cash can rarely afford to dismiss an investor no matter how rude he or she is. But The Funded's supporters hope to upset that balance of power. The growth of the venture capital industry--VCs raised $28.5 billion last year, up from $3.8 billion in 2002--coupled with a tepid market for initial public offerings has made the competition among VCs for good deals more intense than ever. Simultaneously, the very social networking technology that produced home-run returns for investors--and disrupted industries from publishing to air travel--is now being used against them, as entrepreneurs organize themselves into online communities and share information.
Indeed, The Funded is just one of dozens of insider blogs on venture capital that have sprung up recently, most prominently Pmarca, a site written by Netscape co-founder Marc Andreessen, whose "The Truth About Venture Capitalists," a 4,400-word essay posted on the site, has become a must-read for any CEO raising capital. (One section, "How to make a VC's head explode in one easy step," suggests needling investors about preferential tax treatment.)
Some of the blogs are even written by upstart VCs themselves, who see a no-holds-barred online diary as a cheap and easy way to build a name and market their services. These young turks are all too eager to point out the shortcomings of their competitors. Earlier this year Naval Ravikant, a serial entrepreneur and the founder of HitForge, an early-stage VC firm, co-founded a site called Venture Hacks. Ravikant became something of a celebrity in the Valley when he led a shareholder lawsuit against the firm that had invested in his prior company, Epinions.com. An acquisition netted the VCs millions but left him with nothing. Like The Funded, the Venture Hacks website provides an insider's perspective on the process. When negotiating with a top-tier VC firm, for instance, Ravikant recommends trying to get a term sheet from a lesser firm to use as leverage.
What effect will these sites have? Will they empower entrepreneurs at the expense of VCs? "I'm doubtful that the imbalance in power will ever disappear completely," says Noam Wasserman, a Harvard Business School professor who studies the interactions between founders and investors. "But these kinds of efforts are shifting things." The sites remind founders to investigate their potential investors thoroughly, he says.
Hartenbaum meanwhile has been warming up to The Funded and vice versa. To improve his image, he encouraged people who pitched him to post nice comments about him on the site. More than a dozen have obliged. "Howard's the man!" reads one post.
"The problem," notes Hartenbaum, "is that the negative opinions tend to be more visible than positive ones." Because of The Funded, he's modified his behavior in an effort to be more polite. "Now I ask entrepreneurs if they want direct feedback or if they prefer that I just say, 'No, thank you," he says. "That way they're not pissed off afterward." As for his interest in investing (as an angel) in TheFunded.com, it still stands. "Maybe $200,000 for half the company," Hartenbaum says. So far, Ted has demurred.
Suspect No. 1: Kevin Rose
Founder of Digg, Pownce, and Revision3
He's young enough to do something semi- crazy; plus, The Funded feels like a Digg for business.
Suspect No. 2: Evan Williams
Founder of Twitter, Odeo, and Blogger
This blogging pioneer once returned funds that his company had raised rather than deal with his VCs.
Suspect No. 3: Jason Calacanis
Founder of Mahalo and Weblogs
An über networker prone to public squabbling, he recently raised VC money for his search start-up.
Suspect No. 4: Nick Denton
Founder of Gawker Media
The gossip king's Valley Wag blog has been oddly silent on The Funded. Why is he holding back?
Staff writer Max Chafkin can be reached at firstname.lastname@example.org.