An Evening with TheFunded

It’s been more than a week since I attended the unmasking of founder Adeo Ressi. That also means that what follows is more than a week overdue:

Rewind to early October. I’m meeting with two partners of a VC firm out in Waltham. Just a “getting-to-know-you” sort of thing, which usually involves me asking routine questions and sharing some small talk about local sports teams and how all of us became what we are today (for better or for worse). All of that happened, but things took an unexpected left turn at about the 30-minute mark.

“What do you think of,” one of the partners asked me. “Doesn’t it offend you as a journalist?”

This question dominated the next forty minutes, and I didn’t really have an answer. The site – which allows entrepreneurs to anonymously rate and comment on venture capitalists – had generated a bunch of mainstream biz press, but I hadn’t paid enough attention to take either offense or defense (although I had requested, and received, membership to the site). Like others, I was more interested in the identity of site founder “Ted” than in the site itself. A handful of perfunctory emails between the two of us had offered no clues.

Fast-forward to November 15. I’m driving a rented Dodge Charger from San Francisco to Stanford, with VentureBeat’s Matt Marshall riding shotgun. There was some apprehensive giddiness to the excursion, like just before watching the first post-cliffhanger episode of a television serial. Most of it was about the unmasking, which would help us learn if the site was being manipulated to support/oppose VCs that had helped/hurt Ted. But we expected the event itself to be a… well, an event. Most VCs we knew had been invited, as had all of the site’s member entrepreneurs. Who would show?

It didn’t take long to realize that the event was… well, anticlimactic. We walked through a sandy courtyard and looked into a room that was anything but full. Only about 100 people had RSVP’d, and only about 70% of them showed. If you removed me, Matt and our ilk, it was probably just 50 or so people. Of those, there were just a few recognizable VCs – George Zachary of CRV, Roelof Botha of Sequoia — and most of them were friends of Ted (and they didn’t even stay through the entire presentation).

We soon took our seats (there were plenty) and “Ted” was announced to the crowd. Onto the stage walked a balding man with glasses who I had never seen before. I chalked it up to my Boston background, but most of the Valley venturati also looked vacant. He introduced himself as Adeo Ressi, and spent some time going over his background (longtime entrepreneur, member of the X Prize board, etc.).

The presentation that followed took more than an hour, and was alternatively informative and dull. It was always passionate. Ressi said that he had designed the site to help entrepreneurs raise capital faster and smarter, and that only twice had he ever erased a user comment (for what sounded like legit reasons). He also showed that users are truly anonymous, as Ressi strips out IP addresses, and does not maintain a database linking username/passwords to email addresses (which unfortunately means that I could post anonymous reviews).

Ressi clearly had some bad past experiences with VCs, and wanted to help others avoid that fate. He is clearly sincere about his efforts, even if his “no axes to grind” claim seems a bit tough to swallow given his obvious distain for VCs as a class. He believes that will become a must-use resource from entrepreneurs in search of funding, and that those with low ratings/negative comments should probably be avoided. It is incumbent on the VCs themselves to improve their ratings, he said, by providing constructive feedback and not wasting an entrepreneur’s time (i.e., if you’re not interested, say so quickly).

A lot of folks left before Ressi was done speaking, including me (I had to be up at 3am the next morning). It had gotten tedious, with Ressi expounding on a revolution that few in the audience seemed to feel. But I was there for two hours – including most of a subsequent Q&A – and have come to the following takeaway: is an idea whose time has come, but it is also fundamentally flawed.

Ressi has accurately diagnosed a lack of qualitative VC analysis, and TheFunded is an able antidote. But he has inexplicably barred any and all quantitative analysis from the equation, bwhich makes it lacking in its own right. The site pays no attention to returns, the ability to raise new funds or partner stability – even though each of those should be of major import to an entrepreneur. It’s great to know that the Firm A is attentive during meetings while Firm B is often dismissive, but shouldn’t an entrepreneur also want to know if Firm A is batting .100 while Firm B is batting .300? Might the gruffness possibly be acceptable if the trade-off is for a more successful company?

The only quantitative piece to TheFunded is his “rankings,” which is on the homepage. It’s a horribly-deceptive gimmick. Take a look at the site right now, and you’ll notice that the top-ranked firm is Kepha Partners – a one-man shop launched last year by Jo Tango (formerly of Highland Capital Partners). Jo’s a nice guy, but Kepha has made just a small handful of investments, and doesn’t yet have any exits. Maybe it will prove to be a winner, but how can it currently be ranked above firms that have helped grow multi-billion dollar companies that produce life-changing technologies or life-saving drugs? Again, it’s the issue of track records being completely ignored.
Ressi responds that the current rankings leaders will be the future’s top-performing funds. An interesting theory, but nothing more. It also flies in the face of a time-worn tradition of past performance being a strong indicator of future performance.

Moreover, the rankings provide no weighting related to entrepreneur experience. For example, imagine I met with two VC firms and got term sheets from both. And even assume that I had positive reactions to both firms. I end up choosing Firm A over Firm B because its geographic location is more amenable. That was two years ago, and I’ve since raised another round of funding, staffed up and rolled out my product. Through all of that, a partner from Firm A has been on my board. A partner from Firm B has been on my Christmas card list. Shouldn’t my review of Firm A be weighted more heavily than my review of Firm B? Of course, but it isn’t.

Oh, and I also think the site can be gamed, despite some innovative security measures.

It seems that I’ve now rambled on longer than Ressi, so let me wrap up. TheFunded is a lot like the event out at Stanford. Intriguing but uncomfortable. A good idea in need of serious tweaking – and perhaps some additional executives. Worth watching, but not yet worth relying on.