Social Capital Markets Are Begging For Nuance
Mildly contextual introductions are just what the doctor ordered
Venture capital exists as an asset class because VCs are supposed to be able to underwrite a human’s potential before its possible to underwrite their business. And in order to evaluate a human’s potential, backchanneling is necessary. Taking someone’s word for their abilities, work ethic, and moral compass is a fool’s errand. In order to backchannel a founder, they ideally they have been able to earn trust from other “nodes” in a network. One of the best tools to communicate trust at scale is the warm intro. If Susan trusts Joe, and Joe introduces me to Susan, that is a “vouch” and I am now in Susan’s network, or in other words, I have broad access to her. This is how the Bay Area operates.
This is a system that doesn’t just work in venture capital, but works in every major city and industry on the planet. Hollywood, Nashville, and New York City all run on warm intros, just like The Bay Area. And they are obscenely effective.
The issue with venture capital isn’t that warm intros exist. It’s that society has decided the only alternative to warm intros are efforts that don’t bake in any context, like cold emails, which are obscenely ineffective. When I get a cold email, I have very little context on who this person is. Even if they have impressive numbers, it’s hard to know the full picture. Are they ethical? Can they code? Are they a leader? Do they often over-exaggerate? Is this their first at bat? All of this is lost in cold outreach. And even if I ask the founders questions, only so much can be trusted without backchanelling.
Now I will be the first to admit, there are issues with warm intros. They are inaccessible and exclusive. It rewards herd mentality and leads to lack of diversity. With that said, has society invented well accepted alternatives to warm intros? Is there anything that falls in the middle of the spectrum? Anything that carries more context than a cold email but less context than a warm intro? No. You’re either in the club or you’re out, or so it seems. And society appears to believe that this is the end state.
Maybe instead of complaining about a system that works for nearly every industry on the planet, we should invent additional ways to translate trust/context among strangers. There are efforts out there. “Who follows who” social graphs, web3, and even our efforts at Seedscout have tried to build a middle ground here. But unless one gets mass adoption, we will live in a world where 1% leverage warm intros and meet anyone they want, and 99% use cold emails and starve (ironically while the 1% promote cold emails as a means to connection as “good enough”). This is hypocrisy and its finest on multiple levels, and I know we can do better than this.
Startup founders should offer bounties for warm intros-- X% of the upside of my startup for a warm intro to person Y who ends up investing/joining/partnering with startup.
The current warm intro paradigm is a result of institutional VC gatekeeping capital to founders, as if the money were the valuable and scarce thing vs. Founder Energy (the ambition, perseverence, optimism, and charisma to build a startup that changes the world).
The future of warm intros is upside sharing, quid pro quo, coin-gated collaboration, and community venture capital under RegCF.
The 90%++ founder/startup/vc failure rate should bother us all a lot more. It's a very vicious cycle that has a chilling effect on future founder, startup, capital, and startup community formation.
We've come a long way from whaling ship venture capital and YC, AngelList, SeedScout, Pioneer, Beondeck, lots of improvements, but I personally believe there is another step function improvement.
How many startups fail every year because the current paradigm defines startup success as traction that persuades VC to write a check. Outgroup founders never have a chance. Ingroup members have gotten very good at faking heat signature of traction. VCs get bamboozled and make losing bets.
What if we could lower the founder failure rate by X% per year by prioritizing community-led traction and venture capital under RegCF. More founder, startup, and VC success-- and a clearer signal for institutional VC to follow.
There are so many startups that need to be built, especially in the age of AI and crypto that makes it easier than ever for founders to launch and communities to form around startups.
YC had 16,000 applications last year and accepted 1.5% of them. That's a lot of founders that need a better paradigm for success than the great orange validation (and it is great, don't get me wrong).
What do you think?
The markets are begging for efficiency, not nuance. Warm intros are all nuance and no efficiency. It's completely messed up that so many driven, smart, motivated, charismatic, optimistic founders (99% of them) self-identify as failures, their startups abandoned, and the VCs (if any) who bet on them go to zero. Do we think founders and startups are like music/books/modeling/tv/movies? Because it's a completely different game (founders build startups to solve problems that real people have, not purely to express themselves or compete for finite mindshare). And yet it continues to be this grotesque time-wasting treadmill to failure. Something needs to change or human civilization is screwed. We need 1000s of musks and bezos to resist the collectivist tendencies of centralized power structures. I'm dedicating the rest of my life to try to make this change occur, one founder, startup, and community crowdfunding at a time.