February 19, 2008
Some VCs learn to appreciate site that rates them
SAN FRANCISCO (Reuters) - Silicon Valley's purveyors of start-up capital are often quick to back new ideas, but a Web site that lets entrepreneurs rate and review venture capital firms anonymously has been a harder sell.More than a year after www.thefunded.com stirred a hornet's nest among venture capitalists with anonymous complaints about their high-handed behavior, leaking of plans to competitors and arbitrary changes to deal terms, many say the site is a good idea, even if comments need to be taken with a grain of salt.After all, nobody wants to be described as "a spoiled daddy's boy who has never worked a hard day in his life," as one entry on The Funded described a famed venture capitalist."I've never met a more arrogant individual in my life," the posting went on. "It's the sorry side of venture capital."Such anonymous postings on the site, which itself is funded with advertising and membership fees, are submitted along with ratings of VC firms on a 5-point scale."It's American Idol for venture capitalists," said Steve Baloff, general partner at VC firm Advanced Technology Ventures. "The point is, are we interested in being popular or being effective and maximizing returns to shareholders?"Hercules Technology Growth Capital went so far as to slap a cease-and-desist letter on site founder Adeo Ressi after he revealed his identity in Wired magazine last November.A Hercules spokeswoman did not return repeated messages seeking comment.Ressi said he has since hired a lawyer, moved to a new home and changed his phone number and e-mail. Ressi, who stands 6 feet 5 inches tall, said he's not afraid of harassment, but has become more selective about his accessibility."The Funded is not designed to be a vehicle for mud-slinging," said Ressi, who has built a number of companies including venture-backed online game platform Game Trust, which was sold to RealNetworks Inc in 2007. His experience seeking VC funding for Game Trust led to thefunded.com.Although the site has become famous as a destination for entrepreneurs to vent about venture firms, Ressi said he wants it to become a marketplace to match inventors with investors.Some VCs say they have actually sought to improve communications with entrepreneurs in response to comments on the site, and in turn saw their rating rise.NOT USED CARS"If venture capital wants to keep its romantic notion about being the forefront of equity creation, then it better shine a light on itself, otherwise it's going to end up in the world of used car dealers," said Jim Armstrong, managing director at VC firm Clearstone Venture Partners, which has a 3.8 rating.Others give guarded praise. Mike Hodges, an ex-entrepreneur who two years ago joined ATA Ventures, the top-rated firm on thefunded.com, said, "Some of the comments (from entrepreneurs) are relevant and right on, and some are a bit wacko."One venture capitalist, who declined to be named, said his firm was so horrified by the initial poor rating on thefunded.com that it asked chief executives of their portfolio companies to post "honest appraisals" on the site."In no time, our rating shot up," he said.Last week, Ressi introduced an algorithm to flag funds with "unusual review activity" to prevent VCs from having entrepreneurs post flattering comments and boost their rating.About 5,800 site members assess thousands of venture firms around the world, rating them on criteria such as "track record" and "favorable deal terms".Alain Raynauld, an entrepreneur who runs FairSoftware, said he has a "much better feel for a particular VC's character" after researching it on thefunded.com. He added that the Web site has "forced VCs to have better etiquette."Another entrepreneur, Brett Wilson of online video company TubeMogul, said it has not helped him get financing so far, but added: "The Funded, for me, is therapy."Ressi said he has urged venture firms to post profiles and "set the record straight" for free. The site already carries more than 300 profiles of firms, he said.Entrepreneurs and CEOs can sign up for free, but Ressi charges institutional members, including pension funds, bankers and lawyers, $400 for annual membership. The site now gets enough advertising revenue to sustain itself, Ressi said.Perhaps someone in Silicon Valley will offer him financing for this venture? Ressi only laughed, offering no comment.