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Last night, the founder of the TheFunded, the controversial VC-rating site, held a coming-out-of-the-closet event at Stanford University.
We pointed to a Wired story last night, which first revealed the founder is Adeo Ressi. That article recounts how and why Ressi launched the site. But only in seeing and listening to Ressi talk before a crowd of between 60 and 70 people did I appreciate the richness of contradictions and controversy of this man and his site.
In working the room last night talking with attendees — many of them well-known Silicon Valley entrepreneurs and investors — I heard two polar views. Some people derided the site, saying the anonymous comment system opens it up to abuse and hate-mongering, while others admire it, saying it is profoundly good for entrepreneurs who often know very little about the people they take cash from — despite the fact they may work with VC for years after taking the investment.
There were also those like me, who were conflicted, seeing both.
The man has estranged himself from many VCs, who are disgusted by what he has done, and yet he was surrounded by friends in the room last night: Phil Kaplan, of Adbrite, who also started FuckedCompany.com, and who admitted to me that he’d provided some advice to Ressi in the early days of TheFunded; Elon Musk, a co-founder of PayPal, who was a housemate at the Univ. of Pennsylvania, and who threw Ressi’s bachelor party; and George Zachary, a partner at Charles River Ventures. Serial entrepreneur Jason Calacanis, who wasn’t there last night, is also a friend.
Here are some notes, summarizing the contradictions:
1.) Ressi is clearly upset about how he was treated by VCs at his venture (read how some pulled out of his last company, while others engineered his ouster). On stage, blurted out how he’ll never take money from VCs, and singled out Matrix Partners as a firm he’ll avoid. Yet a few moments earlier, with all seriousness, he’d explained that he started the company with “no ax to grind” and designed it solely to help entrepreneurs. He speaks convincingly about the need to remove the asymmetry of power between VCs and entrepreneurship, and about the surprising void of data about VCs, forcing entrepreneurs to rely on hearsay. At one moment you think he’s a cynic, but the next, you can see he is dead serious and passionate: He implores VCs to learn two basic lessons, and if they do, he assures them they’ll get good ratings by members: 1) Say “no” to entrepreneurs quickly, to avoid stringing them along, and 2) keep their confidence; don’t spread confidential information. These are obvious things, but too frequently abused, he said.
2) Ressi said that he follows a policy of not editing member submissions, so that he can stay within bounds of the Communication Decency Act — i.e., so that the members making the submissions are responsible for their comments, and not his site. However, moments later he says he has chosen to delete some submissions because they are clearly wrong or malicious, and admitting that this goes against his own policy, he says. One the one hand, we’d like to cut him some slack here. However, from other remarks about VCs during the evening, Ressi displays a hint of flippancy that makes you question his role as a neutral arbiter. If he really dislikes Matrix, for example, and there’s no oversight of his behavior (he admits he’s the only one running the show), how do we know Matrix’s rating isn’t meddled with? Matrix is rated by his site at a 3 out of 5, which is quite low.
3) Here’s the promising side: Ressi has gone to a tremendous amount of work on this site to keep his promise to ensure anonymity and to avoid lies and errors. During a demo of his site’s back end, he showed how member names within his system are represented by numbers. If he is subpoenaed, anonymity can be upheld. His dashboard of member activities lets him track comments, and alerts him if they are engaged in repeated suspicious activity. His system send the offenders warnings, and he’ll delete members who don’t stop. He’ll triangulate several sources, to makes sure members submitting comments are who they say they are: He requires an email address, checks their work web site, google’s them, checks their LinkedIn profile — all part of an effort to stop VCs trying to sneak in under a different name. He’ll reject submissions by members that rate VCs with “5″ (the top mark) in every one of the five categories, assuming that such a rating is dishonest. Similarly, he’ll reject submissions with all “1″s for ratings. He has other features in the pipeline. He’s far more more competent and ambious than we realized when we first started writing about this company. Here’s the worrying side: Despite all these efforts, there’s really nothing to stop a VC from getting his entrepreneur friends to submit positive reviews to game the system. And the rating system is misleading. For example, the top-rated VC overall on the site is Kepha Partners, with a rating of 4.4. However, Kepha is run by a single person with a year-old firm that hasn’t shown any exits, according to Dan Primack, a reporter who asked Ressi about this last night. The second highest ranking VC, Draper Richards, is run by Howard Hartenbaum, who freely admits he contacted entrepreneurs he’d funded to submit ratings. Sequoia Capital’s rating, meanwhile, is down at a 3.9, despite its very impressive track record (Roelof Botha, the young partner at Sequoia, early backer of YouTube, attended the event). Ressi says the rating reflects an entrepreneur’s experience with the firm, and that performance is only one part of that. However, Primack made the point that its easy for a VC to get good marks by being friendly, but the VC may do a better job by being a hardass, a guy who prods with entrepreneur, sometimes with unpleasant persistence, to get the job done.
Another note: Ressi says he’s not making money. He has about 150 subscribers, paying about $250 a year. The rest of his members — totaling 3,480 — aren’t paying anything. All but 200 members are CEOs.
[Disclosure: VentureBeat has a relationship with TheFunded, which includes cross-linking to each other's sites]
Tags: co:TheFunded, people:adeo-ressi8 Comments
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jennifer jones said:
Matt thanks for taking the time to write such a comprehensive piece on last night. I was there too as you know and I do like the idea of having a site like this but i also believe he has to make it much more transparent. The value to the entrepreneurs could be great, yet having listened to how it is being implemented I am very skeptical about how objective it is. Time will tell.
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Atul Z said:
A fan of TheFunded from the beginning, I don’t pay too much attention to the ratings. On the other hand, suggestions and advice from fellow members has been awesome and saved me from making a couple of blunders.
Still self-funded (and struggling), we have eliminated some angel groups - Some experienced CEO’s on TheFunded have shared how it is much much better to go broke than to accept from misaligned VC.
Thanks for covering the event and your crisp reports;
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Barrie Harrop said:
The Funded is very useful,its a sounding board from others in startup mode,one has limited time to deal with time wasting VC’s,so feedback on this site does save a lot time.
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Steve Jobs said:
You said: “Ressi says he’s not making money. He has about 150 subscribers, paying about $250 a year. The rest of his members — totaling 3,480 — aren’t paying anything. All but 200 members are CEOs.”
So how do you get in free? I get their nice approval email: “You have been invited to become a Premium Member of TheFunded.com…”
Click their link and it’s for-pay: http://www.fuckedsuit.com/thefunded.gif
Bollocks.
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Gary Lambert said:
Is there a similar web site to this one that addresses every body elses needs that are not in the I T field Thanks for your help GL
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Anthony Kuhn said:
Matt:
Well, never scorn an energetic serial startup entrepreneur! Ressi appears to be making in after all, despite his dislike of VCs and their money.
I linked to your piece at http://blog.innovators-network.org IN is a non-profit dedicated to bring technology to small businesses, intellectial property experts, venture capitalists, and entrepreneurs. Please visit up to help grown our community.
Best wishes,
Anthony Kuhn
Innovators Network -
VC Watcher said:
Matt, the Matrix comments are very relevant. Evaluation of an investment firm based on their ROI and exit can be out-of-date by 5 years or more, long after the partners responsible for that success may have moved on to retirement or other opportunities. Basing current experiences on old performance data is simply not sensible. As they say, “past performance is no indicator of future earnings”, and that matters as much for a Sequoia (Botha) and every other Class A firm as for an entrepreneur with hat in hand.
We all deal with people, not portfolios or abstract balance sheets, and the decision to go with one startup over another often is more due to chemistry and kismet, and often whim. History and fame don’t count for much when you see them only once a year at a party and every three years when you start a new venture.
The partners (with one exception) that I dealt with at Matrix when I considered it a good VC firm a half-decade ago were no longer there when I touched base on a new venture not long ago. This is not surprising, because serial entrepreneurs often do Series A fundraising only every 2-5 years, depending on how long they stay with their venture (IPO, M&A, closure), and lose touch with what’s happening on Sand Hill Road while they’re immersed in running the business. TheFunded brings timely news on the behavior and expectations of these firms.
And if an entrepreneur can’t separate the shill and troll posts from genuine thoughtful experiences, maybe he doesn’t have what it takes to make a successful entrepreneur - a good intuition and good sense.
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Aaron Houghton said:
Matt,
Thanks for the coverage and the presentation of some pros and cons of TheFunded. I want to add a few comments about your statement that the “rating system is misleading.”
I would put forward the idea that the rating system is maybe misunderstood, but not misleading.
Since TheFunded is meant to be a resource for entrepreneurs, and is clearly constructed and focused to this point, the rating system should be considered to more closely match to the needs of an entrepreneur, and not necessarily a VC. In some cases the needs of both align, in many others they do not. Just last week at a holiday dinner I dined a few seats over from a major partner at a local North Carolina VC firm. I nearly chuckled out loud when I heard him refer to web 2.0 as “a bunch of entrepreneurs trying to make 5 million dollars and sell their idea to Google.” Now, I certainly understand that VCs are looking for big exits, especially the struggling funds in this region of the country, but to many entrepreneurs, 5 million dollars is still considered money. Count me among them. Entrepreneurs and VCs run companies together, evaluate markets and ideas together, and sometimes succeed together. But each brings his own definition of success to the table.
To extend this point, a VC fund without any exits may appear risky and unproven to other venture capitalists, but to an entrepreneur this type of risk and opportunity feels right at home. A ranking of VC firms by fund returns, fund volume, market segments, etc is a different kind of scale entirely. These are the numbers VCs use to compare themselves against eachother, not the numbers entrepreneurs use when selecting a Venture Capital partner.
TheFunded puts the responsibility of giving honest feedback in the hands of the people who will benefit from it most. This and a variety of other controls and alignment should result in generally high quality feedback, and more importantly, the de-valuation of low quality feedback so that it is identified to be such by readers. Thus, I hardly find it negative to hear that a VC would request that a portfolio company rate them on TheFunded. As a founder of VC funded startup, I received a similar request from one of our funders. I have yet to make a post but when I do I will be sure that my review is honest and will assist other entrepreneurs when they evaluate the fund. Since angry entrepreneurs are more likely to make a post, it’s only fair for VCs to ask the entrepreneurs they do fund to make a review as well. The site is called THE Funded. The ability to speak anonymously and make my post on my schedule will protect my ability to give honest feedback.
Finally, entrepreneurs are smart enough to understand what’s good for them and what’s not. The point that a VC who “is a hardass… prods with entrepreneurs… with unpleaseant persistence” may create negative feedback is shortsighted. For instance, earlier in this article the entrepreneurs’ request for quick and honest feedback, a theme found throughout the comments on TheFunded, shows little interest in hand-holding and flowery receptions, but instead a need for honest and clearly “unpleasant” communication. No entrepreneur finds being told NO to be pleasant, but all will come to appreciate it when it comes without undue delay.
Additionally, seeing that Sequoia is rated at 3.9 doesn’t surprise me a bit. Personally, my startup would never have been funded by Sequoia, but further, it’s highly likely we would have turned down a term sheet from them if we’d received one. To be honest, we didn’t even pitch Sequoia, but we did receive a term sheet from another firm anyone would consider a top-tier VC. To many entrepreneurs, firms of this size, generally known to be a bit controlling and extremely tight in their deal terms, are simply not a good fit. It feels just right to me to see a firm like Sequoia sit in the middle of the VC pack. For all the connections and reputation they bring to the table, there’s a heap of baggage that comes along with it. For many entrepreneurs Sequoia and its peers are just right, for others they’re too hot or cold.
Now, with the TheFunded, entrepreneurs have the tools they need to make educated decisions based on both personal and peer experiences… the same type of information VCs have had for years when making decisions about entrepreneurs. And with the right information, ranked on a scale of issues that matter most to entrepreneurs, the best decisions can be made more quickly and both parties can enter into a partnership based more on facts and less on emotion and hearsay. Everyone benefits from that.
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7:20 pm
VentureBeat » Hercules slaps The Funded with “Cease and Desist” said:
[...] The letter is the first received by The Funded since the site started ruffling the feathers of the venture capital community several months ago — when it opened up its site for CEOs to comment anonymously, often very negatively. See our coverage of the controversial site here. [...]
10:12 am
VentureBeat » TheFunded exposes deal terms, including dreaded liquidation preference said:
[...] by entrepreneurs miffed at not getting funding; the site remains highly controversial). We’ve covered some of this. But by making deal terms available, Ressi says he hopes to help entrepreneurs on the economic [...]
10:12 am
VentureBeat » TheFunded exposes deal terms, including dreaded liquidation preference said:
[...] by entrepreneurs miffed at not getting funding; the site remains highly controversial). We’ve covered some of this. But by making deal terms available, Ressi says he hopes to help entrepreneurs on the economic [...]