Cash or Connections, Valley of Death II

On the heels of my post on the Valley of Death, Ben Horowitz of venture capital firm Andreessen Horowitz posted on Ron Conway and his network (Ron Conway Explained) and the value of social capital (connections) more than financial capital (cash) to help startups get off the ground.

Conway is one of the Silicon Valley's uber angels, and I have often spoken about the key role he has attributed to his own social networks when evaluating the potential of new startups. In essence, anyone can invest cash in a new venture, so if cash isn't scarce, the distinctive advantage will go to those new ventures with the best networks connecting them to other future employers, lawyers, investors, and customers. 

In investing, Conway asks: "can my network make this company successful?"

If we're truly interested in understanding and supporting the emergence of new ventures we must recognize the primacy of connections.  As the story Ben related shows, connections are key to finding cash.  In theory, cash can help you find connections, but not always with the right people or for the right reasons.

As public agencies step up their funding of small technology-based businesses, they would be wise to make sure cash isn't their only contribution.  The DOE, SBA and the variety of SBIR/STTR programs that are ramping up funding of university and laboratory research commercialization should match these cash investments with their clout in convening the broad ranging networks in which they sit.

The challenge is in replicating and scaling what Conway does.  Individually, he can manage how everyone behaves in his network (including rewarding good networking behaviors and punishing bad ones). As Ben Horowitz suggests (and I abridge here), Conway is good at this because he has:

• A ridonkulous work ethic—If Ron’s awake, he’s working...
• Pure motives—Ron does what he does, because he likes helping people succeed in business...
• Super human courage—Ron fears no man and he definitely fears no phone call...Ron’s network is always on.
• A way of doing business—This is the unspoken key to Ron’s success...he acts with extreme prejudice when it comes to the proper way to conduct oneself in a relationship.

Try to imagine putting this into a job description. As a formal job the ability to own and manage in this way goes out the window. Instead, there need to be more structural approaches to achieving the same objective. This is the challenge for all of us.

Comments

[Mike Provance]

Great thoughts and comments! Clearly, identifying and developing ties with people like Conway is crucial to success.

The observation you made is a much more powerful one fto explain (and to advise entrepreneurs on how to deal with) the 'valley of death' phenomenon. Even in times like these, cash may be hard to find, but it would be a stretch to call it scarce for the right opportunity/entrepreneur/idea combination. Having a network that works, on the other hand, may be easier to consider a scarce resource, particularly for those newer to being entrepreneurs. You said as much in your op-ed in the Chronicle of Higher Ed (2010).

A lot of research has come out recently looking at this very issue, including some simulation work I am involved with in these area. The findings from this work, taken collectively, are interesting. Size doesn't matter, and can even be a hindrance to survival and growth. Rather, the advantage comes from finding and developing the 'right' networks -- presumably that's where Conway's connections help entrepreneurs succeed. It also depends on the type of environment the entrepreneur is operating in. The same network (and type of network) in Silicon Valley may not work as well in Research Triangle Park, or one built from a US base should not look or work the same as one in Japan or China.