Kopelman: Social networks have changed venture capital
Start-up owners have more power as they build their own peer networks, says the Half.com and Infonautics founder turned investor
At Kevin Werbach's Supernova conference this morning: Wharton professor David Chu led Half.com founder Josh Kopelman, now of Conshohocken's First Round Capital; Marc Berejka of the U.S. Department of Commerce; and Andy Weissman of Betaworks in a discussion of how startup funding has changed.
They didn't say much about some obvious changes - the way there's less money in venture-capital funds than there was ten years ago, and fund returns are lousy, making it tough to raise more. Instead they focused on the online social networks and local groups by which "angel investors" and others with capital find good ideas and people they trust:
Kopelman: "The Internet has changed... the power system… When I cofounded my first company, Infonautics, in 1991 the ecosystem was v different… You would go to venture capital, and the (specialty VC trade) press would write about you." From places like Philly, as a result, "my ability to connect with VCs anywhere in the country was limited."
By contrast, investors and company founders trade information at Ycombinator, Hacker News and other sites. "There's Philadelphia Startup Leaders and other local networks. Power is much more in hands of entrepreneurs" versus investors. "There are different gatekeepers in the system."
The role of venture capitalists has also changed. "Conventional wisdom had always been, you choose a firm and specifically a partner that you want to work with. Now there's a third leg to the stool: Firms are beginning to offer networked or structured value within the firm... For example: We have a CEO mailing list. CEOs are constantly exchanging questions: 'Can you recommend a good PR firm?' 'How many shares should I give to a VP of marketing post-A round?'"
Kopelman told the story of how Mint Software, backed by First Round, launched in 2007 "with a goal of 25,000 users" - but got swamped by 17,000 in its first day. "The site crashed." They found the problem, in installed software, and quick sent a note on the CEO list asking who knew how to fix it. While Kopelman and other investors were making frantic direct calls to customer service, two of the network CEOs reached the software firm's own CEO - asleep in bed in Germany - and fixed the problem in ten minutes. "That's the power concentrated networks of peers and cohorts bring. As more and more firms build these networks, partners will be chosen on the basis, not just of individual or firm reputation, but also (social) network reputation."
Angel List is an unbelievable tool... Yelp... Dreamit Ventures... Techstars... all these closed and open networks (which) entrepreneurs have at their disposal to reach venture caplitalists. The connectivity (used to be) all thru personal relationships and conferences Today youre seeing that blogs and social media are really disrupting that. That's a really positive thing…
Weissman: "When I worked at AOL in the mid '90s our thesis was that readers wanted to go one place for best of everything… We were wrong..." Given the "fragmentation" of media, the way "old and new media" are jumbled on the Internet, "people like Josh and us are trying to create organizations that reflect the way business we interact with work… 'Network' implies that the way the pieces fit together can be loosely coupled.... We're trying to build a structure that reflects the way users experience this."
Berejka said that, despite all the apparent fragmentation, "We have to recognize there is a stark trend toward agglomeration or consolidation" by big companies. While in the 1990s policymakers worked on the principle of "do no harm, light touch," today's problems "are more complicated." The FCC "is trhing to keep the internet open." The Commerce Department is trying to balance the rights of "intellectual property" and privacy against the demands of multiple users.
Meanwhile, are "parts of the country being left behind?"
