Paul Allen, managing partner of business incubator Infobase Venturesin Provo, Utah, likes to help entrepreneurs with advice on business plans and raising capital. But as a frequent lecturer at business schools and conferences, he recently found himself inundated with requests. So he made a new rule: If you're not a member of the LinkedIn network with a minimum of 10 connections and two endorsements on the site, don't even bother calling him. "The most important thing for an entrepreneur is not necessarily what they know, but who they know," says Allen.
Allen's prerequisite underscores the growing popularity--and scope--of online business networking tools such as Palo Alto, California-based LinkedIn Corp. These sites allow members to build networks of friends and associates, as well as gain warm introductions to investors and potential clients. "It's really automating and streamlining the historic word-of-mouth introduction process, which tends to be the best source of investment opportunities," says LinkedIn member Chip Hazard, managing general partner at Boston-based VC firm IDG Ventures.
More Than Money
Beyond just bringing entrepreneurs and investors together in a trusted context, these virtual communities are helping small businesses find potential customers, board members and other strategic business partners. Spoke.com, run by Palo Alto, California-based Spoke Software, helps small companies with sales prospecting and lead generation. Tim Connors, a general partner at U.S. Venture Partners who helped found Spoke Software, realized that the speed with which a small venture could get to a decision-maker at a prospective company had a direct impact on the company's success. "We needed to get to companies quickly and understand quickly whether there was opportunity there," says Connors, 38. The software developed by Spoke analyzes members' e-mail traffic to assess the strength of relationships with contacts and bring people closer through those connections.
In addition to hastening introductions, virtual networks are leveling the field by replacing costly middlemen small businesses can ill afford. Alexander Muse, co-founder of Dallas-based Hive.media, a production company developing programming for the nascent high-definition TV market, realized this benefit when he was shopping his pilot to the networks. He found that reps wanted anywhere from $10,000 to $100,000 upfront, plus 50 percent of the profits from the sale. "And all they'd really be doing is making introductions," says the 33-year-old executive producer.
Instead, Muse and his partner, Scotch Ryan, 35, joined LinkedIn for free and found program directors at major cable networks and marketing folks at advertisers like BMW who have expressed interest in buying into the reality show, which follows three amateur car enthusiasts racing at 300-acre MotorSport Ranch. "It looks like those contacts will result in the sale of the program," Muse says.
Clearly, the value of online networks has grown along with their memberships. LinkedIn, for one, has been adding 60,000 new members a week, according to vice president of marketing and co-founder Konstantin Guericke.
Muse observes, however, that the growing pool could hurt entrepreneurs. "I think, over time, it's going to get less useful because there will be too many people connecting to too many people, so eventually, we're all connected," he says. Discriminating users, he adds, could help maintain the value.
Muse also points out, as do VCs, that virtual cocktail parties are not a replacement for face-to-face contact. "It's a neat tool you can use in conjunction with your networking," Muse says. "But if you never go to networking events and just sit in your house and play on LinkedIn, you're not going to get anywhere. You have to know people for it to have value."
C.J. Prince is executive editor of CEO Magazine.