Venture Capitalism Has an Attitude Problem, Not a Technology Problem.
Historically, startups have survived financially by one of three ways — by bootstrapping, taking on debt, or offering equity. Because the last two options typically involve working with VCs, angels, or other investors, founders forfeit a significant amount of control in these scenarios. While precedent demands investors to conduct due diligence over founders and their business proposals, the flip side has not been true. When a founder considers pitching to a particular investor, they are often limited to the investor’s website, Twitter, or LinkedIn profile to gain insight. And if they’re lucky, possibly access to some through-the-grapevine type of feedback.
This dynamic has created an imbalance of power, weighted heavily in investors’ favor. This imbalance of power allows investors the opportunity to take full advantage of founders’ time, energy, resources, and finances, leaving founders with little to no tools in taking their power back.
Given the right circumstances, the founder-to-investor relationship is incredibly beneficial for both parties, so why has venture capitalism remained stagnant and one-sided, even as other aspects of the industry evolved?
Quick History Lesson
In 2006, entrepreneur Michael Sullivan applied the concept of crowdsourcing to launch his company fundavlog, an incubator for video blog projects. Although he failed in his attempts, the idea gained traction, gifting entrepreneurs without access to institutional capital, another means of financing their startups — their communities. With online platforms Indiegogo and Kickstarter on the scene, crowdfunding hit some huge benchmarks, with reported revenue of $530 million in 2009, jumping to $24.4 billion by 2015.
Another evolution in the world of startup financing emerged when Y Combinator introduced SAFE (simple agreement for future equity) agreements to the industry in 2013. Even beyond Y Combinator’s program, many other startups began widely adopting SAFE agreements for early-stage funding. This was one of the first times a big organization implemented such a revolutionary change to the process of fundraising. SAFE agreements were a more founder-friendly alternative to convertible notes, which were ultimately used as debt instruments to the advantage of investors in many cases.
Despite progress made, and besides the increased volume of money poured into startups, venture capitalism has remained unchanged not because of a lack of means, but rather due to social attitudes and mindset. In order to move venture capitalism forward, the power between investor and founder must be balanced. One way to balance the power is equipping founders with crucial insights about the investors they’re pitching. This information is typically limited to the founders directly meeting with different investors and potentially founders’ networks. However, these siloed experiences don’t do much to move the entire ecosystem forward. By reviewing and sharing these private experiences on a public, online platform that everyone has access to (investors included), real change can begin. But if an online review platform is all that’s needed, then why didn’t this happen years ago?
Well, the simple answer is: it did. You just might not have heard about it…
A Previous Attempt
It’s called The Funded and upon first glance, it becomes clear why the platform has not gained widespread use and traction. Beyond flaws in design and UX, the platform failed to take two of the most critical steps in disrupting any industry:
- Without buy-in from the change makers and decision makers in the space (i.e. the institutions that built and drive the world of venture capital), not much changed.
- As more of a message board style platform without any validation or authentication, the ability for the entrepreneurial community to fully trust the reviews was diminished.
The technology to create the next evolution of this platform and rectify some of the errors by previous platforms certainly has existed for years. Again, social attitudes and mindset. Don’t bite the hand that feeds you, right? Entrepreneurs fear bad-mouthing the same individuals they’re asking for money, from. Additionally, if an investor review platform becomes widespread, the fear of potentially fake or fabricated experiences can breed distrust and skepticism.
Our Approach
Context considered, we created a way to move venture capitalism forward through RateMyInvestor. RateMyInvestor is as an online platform where founders can do just what was mentioned above — write and share reviews on investors, VCs, or angels they’ve personally met.
The difference with RateMyInvestor is our vetted approach which rejects an average of 15–20% of submitted reviews due to a lack of sufficient evidence. Paired with this tactic, by working more closely with institutions in the space, we provide value to both investors and founders, aiming to create a community of transparency and growth.
We take our vision seriously because we understand how challenging finding an investor can be, let alone an investor who aligns with your company’s vision. Balancing the power between the two parties is beneficial on both sides because the sooner a founder can save themselves the trouble of pitching to all the misaligned investors, the more time they can dedicate to growing their company with the right investor.
