Wednesday, June 18, 2008

How LinkedIn is used in venture capital

Regardless of LinkedIn's ability to monetize and eventually become a successful business, it has certainly become a social phenomenon. My first introduction to LinkedIn goes back to almost 4 years ago, but I really have not used it much besides accepting invitations from my friends at Sloan

I talked about why people use LinkedIn with a friend at MIT. He used to be a fervent user of LinkedIn with 500+ people in his network, most of whom he knows very little. And he stopped visiting the website. So what's the problem? His point was that he was getting very excited with how much he can brag about knowing some interesting people. When he ran out of gas sending numerous invitations and people he really didn't know stopped accepting his invitation, he got bored.

This is a serious problem. Let's just be honest here. Unless you are a very seasoned professional with years of experience to build out your first-degree network, it's just impossible to have 500+ first-degree network on LinkedIn. So, what's the problem with it? You are straight-out lying.

Let me scare those LinkedIn loving entrepreneurs a little bit. As part of diligence calls, VCs always do customer and management reference to feel comfortable about what and whom they invest in. Sometimes they use the list provided by founders, sometimes they use their own network, and sometimes they call random people that they feel are related to your company. LinkedIn is not used extensively since VCs pride themselves with the wide network to assess, but it gets used more often than you think.

Here are two examples of what could happen with your LinkedIn connection.

A: VC finds your profile on LinkedIn and finds that you two are connected through a credible, well-known investor. He picks up the phone immediately and asks questions about how you know each other. It may turn out good or bad. In the end, you demonstrated that you openly share your true offline network online, and it's useful.

B: VC finds your profile on LinkedIn and finds that you two are connected through a credible, well-known investor. He picks up the phone immediately and asks questions about how you know each other. You don't know each other other than exchanging some random online invitations. Everyone wasted time.

I'll leave it up to you to make the judgment here. I can't say all my network is as clean as I want it to be, but I cleanse my network once in a while.

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