Network effects in venture capital are no joke. Sure, people want to close rounds with brand name funds like Sequoia and Andreessen Horowitz because they validate startups. But perhaps more importantly, companies become more likely to succeed after closing high profile rounds because of their newfound access to the friends and connections of prominent investors.
Alex Mittal, CEO of FundersClub, has spent a lot of time thinking about how his growing online democratized community of 18,000 investors could leverage its size to offer even better access to industry movers and shakers than the traditional shops of Sand Hill Road. Today, FundersClub is announcing a new search tool the group is calling Network Search.
The tool is something like an exclusive LinkedIn, letting founders and investors connect through a dedicated platform that facilitates warm referrals. Close to 450 founders across 195 FundersClub portfolio companies can mingle with each other for advice and seek introductions to potential new investors vis-à-vis existing investors.
Other well known VC funds like First Round Capital have built proprietary software to enable portfolio companies to bounce ideas off each other, but Mittal, who has access to First Round’s infrastructure, believes there is room to improve on the model. Mittal saw himself, his co-founder Boris Silver, and his founding team as a bottleneck in facilitating interactions among FundersClub members. In typical Silicon Valley fashion, a few lines of code turned out to be all that was needed to get things rolling more efficiently.
Right off the bat there is an incentive for investors to support their companies, but Mittal took things even farther with something of a gamification framework for VC networking. FundersClub members can earn points and badges for contributing back to the community. This includes engaging with founders, answering questions, and facilitating introductions.
Right now the points aren’t actually redeemable for anything, but that didn’t stop a generation of millennials from obsessing over Snapchat Scores. Besides, the rewards themselves can serve a purpose somewhat similar to existing web resources to evaluate interactions with investors. Quantifying engagement can absolutely influence the dynamics of who is seen as a market mover, influencer, and key player in an entrepreneurial ecosystem.
More tangibly, FundersClub already offered financial incentives for members to refer promising startups. If the team accepts a startup you brought to the table, you stand to gain 10 percent of the investor carry on the deal.
As of now, these services are exclusively available to individuals that meet the definition of accredited investor from the U.S. Securities and Exchange Commission, but they do serve as yet another sign that the notion of software eating the world does not exclude investors themselves. While surprisingly late to the party, innovative investors like FundersClub, AngelList, and even SignalFire are fundamentally changing assumptions about how successful companies are sourced, financed, and grown.