Thursday, August 2, 2007

Dirty Little Secrets About VCs

After covering venture capitalists for about ten years, I've finally learned two things (I'm a slow learner):

    1. They need to hear about companies before their competition. (As a journalist, I can relate.)
    2. They compete fervently with other VCs to get their money into the best start-ups at the right valuation

Though they like to portray themselves as omniscient and omnipotent, they're actually quite anxious about missing the next big deal.

Blogging is still a new phenomenon among VCs here in Boston. (Jeff Bussgang at IDG Ventures has been at it the longest, as far as I can tell.)

One major purpose that blogging serves for the less-established VCs who do it is to raise their profile among entrepreneurs, to show entrepreneurs that they understand a particular space, that they are totally in sync. Older, more established VCs have a reputation, and entrepreneurs are magnetically pulled to them because of their track record, or because successful entrepreneurs make an introduction -- go see Mr. Greybeard, who's a partner at Established Venture Partners at the Bay Colony Center. They don't have to blog. (Yet.)

But the less-established VCs blog, and I suspect that is going to make them appealing to a new generation of not-yet-proven entrepreneurs with compelling ideas...and help them hear about these ideas first. On the West Coast, David Hornik of August Capital is the best example of a VC who has built his reputation atop his blog. Entrepreneurs know who he is.

I think the same is beginning to happen out here with the VC-bloggers (there's a list of them at right). The Rolodex and schmoozing and personal connections are still going to be important, but a blog is a great way to broadcast that you understand what's changing in the tech world -- both to entrepreneurs in New England and elsewhere.

What got me thinking about this was David Beisel's great post on "Seven Coming Digital Uber-trends which are Ripe for Startup Opportunities." This kind of stuff is flypaper for entrepreneurs; I know David's going to get e-mails from a bunch of start-ups saying, "Hey, I'm working on trend #2, can we set up a meeting?"

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Anonymous Dharmesh Shah said...

Great article.

One thing that is a little concerning when it comes to VCs blogging (and generally being more transparent) is that the "big names", as you noted, don't need to blog (or don't think they need to blog). As a result, there's an inherent reluctance to blog even by less prominent VCs as the thinking is: "Prominent VCs don't need to blog...if I blog, then I'm not prominent". Or something like that.

August 2, 2007 10:47 PM  
Blogger davidhornik said...

For what it is worth, I don't think it is a question of prominence. I started the first venture capital blog and it had nothing to do with prominence or not. It had to do with transparency. There are a lot of folks in the venture business who take the view that transparency is a bad thing. That made no sense to me. I had been an attorney representing startups prior to joining the venture business seven years ago, and if there was one thing that startups wanted was more transparency. I thought about transparency and how I did my job as an early stage venture investor and decided that I didn't get some advantage from hiding information about my interests, the process, my firm, etc. So I started VentureBlog to share my views with entrepreneurs because I thought it would be helpful to them and, in return, helpful to me. And it has proven to be both. Entrepreneurs have a better understand of me and my process. And I get a better understanding of the entrepreneurs and the technology that is driving growth today. I viewed it as a win win, and I still do.

August 10, 2007 2:28 PM  

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