I was at an event tonight where an interesting topic came up. Someone in the audience asked a panel of New York City based, early stage-ish venture capital partners â€œwhy they didn’t invest in web 2.0 companies?â€� The gentleman asking the question specifically cited Union Square Ventures, who was not represented on the panel. USV came up several more time in other questions, making it clearÂ that was the firm the audience knew.
The unanimous response among the VCs (clearly annoyed) was that they â€œdid invest in such companies, but we that we didn’t know about it because they prefer â€œstealthâ€� funding,â€� especially when a company is pre-revenue. To me, this answer sounded like BS.
Fred Wilson blogs about his pre-revenue investments; it’s clearly part of his strategy. Twitter, Outside.in, Tumblr and Bug Labs are all pre-revenue. As Fred pointed out recently, any investment comes public quickly due to the SEC filings. Plus, how does a web 2.0 firm get users if no one knows about them?Â
I was thinking to myself how embarrassing it was for the firms represented tonight that essentially no one in the audience considered them players in the early-stage tech scene, despite their funds probably being larger than those at USV.
How much does it cost to start a blog? Zero. What’s the return? As evidenced tonight, PR, credibility and likely deal flow.
Another issue the panel stressed was the importance for entrepreneurs to do due-diligence on the VC firm they are considering during the â€œcourting period.â€� If I had a company (and maybe I do) Fred’s firm is the only one I would want funding me because I feel like I know his style and personality already. Reading his blog and commenting is my diligence.
USV has a monopoly on good deals here in New York and there is a clear reason why. Other VCs should follow USV’s model, be proactive and participate, rather than simply wait and judge from the sidelines.