Adeo Ressi, the founder of the TheFunded.com has joined a long list of entrepreneurs and investors that say that the venture capital industry is broken. However, Ressi decided to put his (didn’t use outsider funds) money where his mouth was and built a site that allows entrepreneurs to critique and rate the actual audience that was evaluating them…the investors.
Ressi argues that airing the venture industry’s dirty laundry will ultimately improve the efficiency of the funding process as well as the rocky relationships that exist between investors and entrepreneurs. TheFunded also allows entrepreneurs to view and share term sheets, to assist one another finding good investors, and to discuss the many facets of operating a business. While many entrepreneurs applaud Ressi for clearing out the cloud of smoke that surrounds the VC world, many simply see TheFunded as only an arena for disgruntled entrepreneurs to vent.
“The problem with sites like TheFunded.com, or any site with user reviews is that the reviewed product will always be at a disadvantage. For every unhappy customer, they tell 9 of their friends, and for every happy one they tell 3. The odds are against the VCs here. Of course the majority of turned away entrepreneurs will put a negative review – it’s a form of vengeance. But those that did have a happy experience will have little reason to post anything. They have already researched for information from the site, got what they were looking for and will not likely return without proper incentive.” Ian Bell, Entrepreneur
Because of this lack of positive reviews, many entrepreneurs accuse the VCs of gaming the system where they’ve asked entrepreneurs they’ve backed to submit a favorable commentary about them and their fundraising experience. This boosts the firm’s rankings on TheFunded’s leaderboard, and has resulted in many in the industry to question the sites credibility.
For example, if a disproportionate number of members enter the site to provide a single comment on a given firm’s profile, this sends a red flag to TheFunded’s system. TheFunded looks for other behavior, too, for example, unusual semantic characteristics of the written fund reviews, such as excessive use of exclamation points and superlatives. It also looks at how many entrepreneurs voluntarily admit they were asked by their VC to submit a review (entrepreneurs are asked this when they provide a comment, and they check a box to say they’ve been asked).
Before this site can truly becomes a quality resource for the start-up community, they’ll need to become more respected (from both sides) by attracting additional traffic and even more helpful reviews to their site (Psst…a new Toyota Prius has over 160 consumer reviews on Edmunds.com compared to just 30 entrepreneur reviews of Kleiner Perkins on TheFunded.com). Unless these numbers pick up, it’s hard to look at this site without some real bias. At the end of the day tough, the TheFunded has definitely made Investors way more aware of their perceptions in the venture marketplace, and if that’s the nudge they needed to become more transparent and helpful to entrepreneurs; they deserve some applause, but not quite a standing “O” just yet.
“If their tool did such a good job, they’d raise a fund themselves and beat the tar out of us.” – Paul Kedrosky, investor & entrepreneur
“It’s a wantrepreneur focused product. Real VCs and real companies with a legit shot at VC money wont use it.” – Jeff Martens, strategic consultant
The above quotes are referring to the highly controversial YouNoodle.com, an online platform for start-ups and early stage ventures. The feature that has sparked a lot of debate in the investment community is their YouNoodle Start-Up Predictor that analyzes data on early stage ventures and generates a report on what that start-up will be worth in three years. For real? Yes, they’ve developed a software program that claims it can predict the valuation of early-stage start up companies (yes, companies that haven’t come within a whiff of a dollar in revenue…). The model relies on basically four areas: 1) the team; 2) financial factors; 3) the concept; and 4) advisors. How’s it work? The entrepreneur fills out the survey and provides a little detail, and like pulling a rabbit out of a hat, presto…YouNoodle spits out a valuation. Smells about as real as the future predicting information Miss Cleo (the famous TV psychic and shaman), provided after calling her “900” hotline.
It’s hard for us to look at this with a straight face. Seriously. Has the venture community been Punk’d? After all, a “noodle” is defined in the dictionary as a fool or simpleton. Can you really believe that two teenagers working on a few lines of code in the basement have developed a $2.75 million dollar idea? Ridiculous. Be very afraid of this tool, looking at some number on the screen followed by a huge string of zeroes right next to the name and your start-up feeds the entrepreneurs ego like nothing else can. Think about the Far Side cartoon where the kids are all eating ice cream in front of the windows of a gym filled with overweight people sweating on treadmills. It’s pretty sick. We think it’s nothing more than a way to grow their real ambition – – yet another social network for entrepreneurs. If it isn’t, then why haven’t their own founding members run themselves through their magical predictor?
The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.