Entrepreneurial ideas spring up in all sorts of unexpected places. Pavel Sima was walking on the pilgrim trail that runs from Northern France to the Spanish city of Santiago de Compostela when a thought occurred.
“I was thinking that every industry has a review portal, such as Glassdoor for recruitment of IMDB for movies,” he says. “But there was nothing like that for VCs.”
As he saw it, companies searching for VC finance were finding it hard to gather information on investors. It’s not simply a case of the sectors they were interested in or the stages at which they prefered to invest. From the outside looking in, it was very difficult to ascertain whether or not a particular VC would be good to work with on a personal or professional level. The seed of a business idea was sown.
There are ways to find out these things, of course. If you are lucky enough to be well-networked, you may be able to tap into expert knowledge. Or you could simply make a few calls to founders who have already taken investment and ask about their experience. But researching investors can be a time-consuming process.
So, back on the pilgrim trail, Sima mulled the idea of a review portal but it wasn’t something he acted upon immediately. At the time he was running an analytics company, a venture that required his attention.
Fast forward to the present day and Sima has launched Bound, a VC review site with around 6,000 reviews and a listing of 33,000 investors. He hasn’t – it has to be said – launched into a totally empty market. Sites such as VCguide and Landscape also offer founder-written reviews of venture capital firms and TechCrunch is also a vital source of information.
Arguably though, you can’t have too much information. When founders raise equity capital, they are not only exchanging shares for cash, they are also entering into partnerships that will – to a greater or lesser extent – define the way their companies develop on the route towards exit. Indeed, the relationship can also dictate the timeline for the exit. When the relationship is good, it’s a win/win. But if the partnership doesn’t work out so well, things can get fractious pretty quickly.
An Equal Footing
But can you really encapsulate a VC in reviews? As most practitioners will tell you, equity investment is a people business. Before signing on several dotted lines, both sides have time to take the measure of one another and decide “is this right for me.” So are reviews really necessary or useful?
As Sima sees it, there is absolutely a requirement for information that will level the playing field and put founders on a more equal footing with investors. “The relationship is rigged towards VCs,” he says. “When you are a founder, you don’t necessarily have a network, money or lawyers.” In contrast, VCs have all these things. “So they tend to have the upper hand.”
Added to that is the fact that not all VCs – again as Sima sees it – are great to work with. “There are some awesome VCs but there are also predatory VCs,” he says. Reviews provide a means for founders to discreetly learn from the experiences of others.
The Accuracy Conundrum
All well and good, but individual reviews aren’t always reliable. Anyone who has scrolled through Amazon product reviews will know that the same product can get ratings and reviews running from one to five stars. Put simply, reviews can be very subjective and if this is a problem when it comes to rating simple consumer products, can a review portal really represent the often complex relationship between founders and VCs with any objectivity.
Sima says the value ultimately lies in volume. The more reviews that come onto the platform the more useful they will become in a collective sense. One bad or good review might be a rogue. Ten reviews provide a much more useful consensus.
Bound has started with 6,000 reviews, with about 10 collected a day. The goal is to onboard many more times that number.
Only founders can write reviews and the platform checks out their credentials before they are published. But what motivates them to do so? Sima says there are a number of factors.”They (the founders)might have had a really bad experience that they want to share. Also, there is a camaraderie among founders. And you have to review to unlock the other reviews.”
The reviews themselves follow a structure, covering different aspects of the founder/VC relationship. By structuring in this way, the site seeks to provide a full and comprehensive picture.
A Better Pipeline
Sima argues that Bound has benefits for VCs in that will result in a better pipeline of startups knocking at doors. Meanwhile, it will cut down the research time for founders.
At the moment, the site isn’t monetised. Sima says a decision on the financial model will be taken after the site has been up and running for a while, with the options including membership fees, or charges for added value services. As things stand, membership fees are the least favored option.
Will it work? That will depend on uptake by founders and – from a commercial perspective – the traction gained by similar services. In the meantime, it provides a free means for founders to research investors from the comfort of their office chairs.