Thoughts in Time

With friends like these… how can Seesmic fail? by ZDNet’s Steve O’Hear — “Having secured $5.5 million of funding from investment group Atomico (Skype’s Niklas Zennstrom, Janus Friis and co.), Loic Le Meur admits he didn’t need the money. And yet he’s enlisted a further twelve individual backers for his new startup Seesmic — which has been described as “Twitter for video” — the list of which is peppered with the names of some of Silicon Valley’s most successful and well connected entrepreneurs.”

I found this article fascinating for a number of reasons, and thought I’d write about three of them

1. It illustrates why taking smart money from connected people makes sense, even if you take a little extra dillution. I have heard young entrepreneurs who are hesitant to expand a round because of a small amount of extra dillution. Taking the small extra dillution while having the buy in of people with great networks who will be willing to reach out through those networks to the benefit of the business is well worth the dillution. Seeing someone as succesful as Loic do this is a clear demonstration that it is a winning strategy.

2. It’s really interesting to see the interconnectedness of the valley / venture community. As I’ve been meeting with people in London over the last month, I’ve come to realize that even in a city like London, the core entrepreneur / VC / Service provider eco system is relatively small. There are networks within the network. Let’s call places like Silicon Valley, Seattle, Raleigh Durham, London, New York, Boston, Beijing - etc… Venture Hubs. I think that within each hub, there are what I would call dominant strong networks. These are the networks of the most active, currently succcesful people. Think of them as the top tier VC’s, entrepreneurs they’ve funded, and the vendors that serve those companies (Lawyers, accountants, bankers, etc). I think that once you become part of this network (well represented by the network graph in the article) you come to realize that most people within that network know one another - that’s why I would term it a strong network. From those networks, you also have much larger, let’s call them passive loose networks. These are composed of the more casual acquainenances, employees etc. who often have connections to the strong dominant network in the venture hub, but aren’t a part of it (by being directly involved). Within each venture hub, I think entrepreneurs who can become part of the strong venture hub (by engaging members as investors, advisors, etc) have a better chance of success. I also think that when someone is moving to a new venture hub - as Loic has with his move to the valley, and I have with my coming to London - there is an opportunity to provide value with the perspective and connections one has with the venture hub one has left. For instance, one of the people I met here is starting a company in the healthcare / IT field that might be a really good fit with what Connecticut Innovations funds… and he was looking at how it might be brought to the US. I was able to be helpful with an introduction.

I’ve always been really fascinated by networks and have a strong belief that the ability to build strong relationships and help others in one’s network is a strong indicator of one’s chance to succeed as an entrepreneur or venture investor. When I start with the Master’s in Applied Positive Psychology program at UPenn, it’s an area I hope to explore / research.

3. There is a disconnect between the idea that having a strong network in order to be able to start a business, and the fact that many succesful companies were founded by young entrepreneurs who started with a very limited network. I wonder if there is a correlation between how fast the company network grows and the chances for success, thus it’s not the network size at the start of the business, but rather the rate of change of network size / number of strong connections that is an indicated. Of course, this might not work with entrepreneurs who start with a large network - so maybe the answer is to look at rate of growth of number of strong connections with the company. This could come from new connections that become strong (strong meaning having a 1 degree separation from direct involvement - board, investment, partnership, advisor, etc), or from existing connections that move into this category. I’d be interested in what others think about these ideas, so please comment / send me your thoughts.