Being an entrepreneur or leading a small business is one of the toughest challenges I can imagine. You've got to fight against companies 1,000 times your size, figure out how to make money, and overcome hundreds of challenges if you're lucky enough to keep growing. Another challenge for entrepreneurs is bringing on outside investors, often Venture Capitalists (VCs).
Historically, there has been a frequent love/hate relationship with VCs. They bring money and experience to the table, of course. But these resources come with a demand for rapid payout, heavy decision-making influence, and even a few mega-egos to suffer under. For decades, VCs had most of the power, but now the tide is turning.
First, there are more VC dollars in circulation and roughly the same number of strong start-up businesses. Second, today's start-ups don't need as much cash; cheaper hardware and software along with international outsourced labor is making it easier to prove a business model can work. Third, VCs now compete with richer friends and family members, as well as big companies like Google and Microsoft who help start-ups skip a stage of funding or two. These challenges are weakening VCs' grip on power and forcing them to improve.
Last month Wired shared the story of yet another challenge that is driving improvement in the VC world. It covers a website called TheFunded.com, a social network of entrepreneurs who share ratings and stories of life under their VC investors. Veteran entrepreneur Adeo Ressi started the site as a place for brothers and sisters in the trenches to vent their frustrations and warn each other of what VCs can do to their companies.
The site lists VC firms along with descriptions, ratings, funding levels, and areas of focus. Individual investors are even listed with personality descriptions such as, "arrogant but mostly harmless. "The major downside is that ratings are anonymous, which means some of the stories and ratings may be slanted to the negative. But the site is rapidly growing in popularity and many VCs are now actively addressing feedback on the site.
For an entrepreneur betting his life's work and house on an idea, TheFunded.com is gold. It gives her access to inside scoop based on decades of experience. It helps them ensure that they are spending their time with the right partner, and improves the quality of interaction. And while VCs are generally negative to TheFunded, I think the best of them see the opportunity of turning it to their advantage. They receive feedback on their style and performance, which will help those who listen improve. And it "makes a market" such that the best ideas will tend to flow to the best-rated VCs.