Pick me, pick me, pick me!!!
Are you still reading? Then you probably want to know what is different about the 20,000-30,000 startups that are funded by Angels and venture capitalists. Why do they receive funding while hundreds of thousands of other do not?
The reality is that it often comes down to networking. Connections have more influence than the quality of the investment opportunity or terms of the deal.
For the venture capital investments, many of the startups are founded by second- or third-time entrepreneurs. These are people who have previously raised money from venture capitalists. In nearly all cases, the venture capitalists are investing in teams that are recommended by people the venture capitalists know and trust. These people are again often entrepreneurs who are running venture-backed startups or who come from professional Angels or the multitude of business accelerator programs.
For companies raising money from individual Angels, the connection between the entrepreneur and Angel most often comes from someone known to both people. For Angel Groups, the easiest way to get past the screening committee is to know either someone on that committee or someone elsewhere in the management of the Angel Group.
Ultimately, investors are trusting the entrepreneur with their money, and thus, underneath the whole process, a relationship needs to be created. Hence, existing relationships often take precedent over all other factors in a potential investment. Which then boils down to the old adage, who you know is more important than what you know.
