Being a PhD Candidate as well as an advisor at 2 companies I feel like building a bridge between the world of business and academia. Research is important, insightful, and is the beacon of truth. That’s why today I wanted to tell you about the study I liked on the financial impacts of having a good network for startup entrepreneurs.
The idea behind the study (Banerji & Reimer, 2019) is simple.
“For the past 40 years, entrepreneurs and researchers have assumed that entrepreneur networks are important for startup ventures. This study takes this notion further by testing whether these benefits translate into tangible financial outcomes for a startup.”
What did researchers do? They cross-referenced the data from two rarely connected sources: CrunchBase and LinkedIn. Findings? You might be surprised.
It matters more who you know than what you know
“Social connectedness of a founder is the best predictor of funds raised annually by a founder... We found that the predictive validity of the social connectedness cue is 69%. This means, when analyzing all pairs of companies in the current study, the company that had more followers also had higher funds in 69% of the cases in which two companies differed in the number of followers. A 69% predictive validity or accuracy based on one cue is substantial compared to other information-intensive decision-making models.”
In short, this means that if you were ever in doubt if networking matters, now you know that, at least, it works incredibly well for raising funding and investment.
Industry experience helps, too
“Founders who have worked in the industry for longer are also those who were more successful in raising funds for their companies… The study found that founder connectedness was a better predictor of company investment funds than founder experience variables.”
Perhaps this could be explained by the fact that having more industry experience means that you know more people who understand what you do and are more likely to invest.
But not skills :(
“Skills of a founder did not significantly increase the predictability of company funds.”
Surprisingly, skills apparently don’t impress investors much and maybe even don’t make a company more successful. On the other hand, we might not want to trust researchers on their word here since the input they used for evaluating founder skills is LinkedIn… and, eh, it says I’m great in marketing, so I really wouldn’t trust it as a good measurement.
Hi, my name is Dima?!
So, what does this mean for us, everyday founders? Should we rush into the networking events with business cards in our teeth? I would claim that networking is, indeed, important, but you have to be smart about how you approach the question.
To me, networking has always been about providing value to other people and building mini-friendships. I think what helped me greatly in this endeavor in the past months is GrowthClub.
GrowthClub is a community of founders with an average of $5K+ MRR where founders exchange growth hacks and build genuine connections in 1-on-1 video calls. What’s really surprising is that GrowthClub members say that it’s not only about getting feedback and ideas from others but also being helpful that’s been valuable to them! And I can attest to that. Check it out, perhaps it’s something you will find valuable too and we are going to meet there!
Word of caution
“Correlational studies like this study do not test causal relationships between variables, and, thus, it cannot be concluded from this study that the size of social networks affect funding. However, at the same time, the observed correlations are in accordance with and do not speak against the conventional wisdom that tells founders to invest time and energy into networking can potentially assist in fundraising efforts.”
Banerji, D., & Reimer, T. (2019). Startup founders and their LinkedIn connections: Are well-connected entrepreneurs more successful?. Computers in Human Behavior, 90, 46-52.
Thanks for sticking till the end! I am a hands-on advisor at GrowthClub. GrowthClub is a community of founders with $5K+ MRR where founders exchange growth hacks and build genuine connections in 1-on-1 video calls.
I started with GrowthClub as a user. I liked it so much that I ended up helping the founder. Currently, after experiencing a great inflow of founders from our launch on Product Hunt and Indie Hackers featured article, we are signing up 50 hand-picked founders to form the core of our platform to actively iterate the product with them.