The VC Money Connection

e pluribus
Two weeks ago I asked you how to get funding as a young entrepreneur. We also recently discussed why being a “social broker” is important. This week, I found a post by the Harvard Business School (specifically Julia Hanna) titled “The Money Connection—Understanding VC Networks“. (Hat tip Nick Wilson)

Hanna is actually recounting some of what Toby Stuart is working on.

“I was part of a committee examining why there wasn’t a more vibrant life sciences industry in the Chicago area when all of the requisite ingredients were in place. I became very interested in the role of geographic space in establishing networks.”

The role of geographical space in establishing networks.

It’s interesting that with all the leaps we’ve made in communication, the geographical space of a network seems to be paramount. Hence, the Silicon Valley and why people recommend you start your business there.

However, there’s more to it than just the geographical space – even if it is paramount. There’s trust.

However, spanning ties* are more likely to form between the lead venture capital firm and distant investors as the size of the syndicate grows, thus decreasing the risk associated with each organization’s investment. The lead VC also perceives less risk in forming a relationship with a distant syndicate partner when they are seeking investment at a later stage of a company’s financing, when they enjoy geographic proximity to the start-up in question, and when they are a specialist in the start-up’s industry.

* Spanning ties is the social network geek’s term for people you know that you’re not physically near

So, VCs need to trust you. And to them, trust equals later stage financing and/or your company being a specialist in your industry.

Even with all this talk of how to get a VC’s money in your bank account I’m more interested to know how to get funding that may not be VC. I have a feeling being a “social broker” might have something to do with it.

How To Raise Your First Million Dollars

Nate Ritter lives in the Pacific Northwest (U.S.), popularized the #hashtag and creates web applications for a living. He also does miles and point hacking to enable cheap travel for his family. More here →

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