Social Networking: How Web 2.0 Broadens, Refines Networks

Writing blogs for your firm’s Web site and employing social networking tools in novel ways can both broaden and refine your network, according to a panel of experts who shared some tips during ‘PE/VC University: Boosting Returns With Web 2.0 Technologies,’ a Buyouts webinar hosted on July 23 by David Toll, Editor In Charge, Deals, for Thomson Reuters.

For instance, the four partners at Foundry Group, a Boulder, Colo.-based venture capital firm, keep up individual blogs balancing work and play as well as a central blog they take turns writing on the firm’s Web site. Co-founder Seth Levine will mention his running hobby while also discussing new trends in which the Internet technology-focused shop is interested. The exposure serves a dual purpose: Foundry Group partners get to connect with entrepreneurs and potential investors with a human touch while also de-mystifying how venture capital works. And readers get to find out what Foundry Group executives are interested in. “It makes us appear more real, and certainly more approachable,” Levine said

But don’t waste your time just posting press releases and calling it a blog, Levine cautioned. About 1,000 to 2,000 people check out Foundry Group’s blog every week. The key to creating a dialogue is to provide original, provocative content to separate your firm from the hundreds of other VC firms that have started blogs in recent years, Levine said. It’s best to have a conversation with everybody involved in the project to discuss what is appropriate, he added.

David Teten, the CEO of New York-based boutique Teten Advisors, highlighted a fantasy football league Thomson Street Capital Partners posted on their web site. For a moderate charge—about $1,000 to manage the contest for a year, plus some prizes— executives at the St. Louis, Mo.-based buyout firm increased their network with like-minded people in much the same way Foundry Group did with its blog.

Ever get locked into a conversation at a conference about something your firm has no interest in with someone with Caesar salad breath? Levine and the other panelists have found that blogging and social networking filters out much of the “noise,” or irrelevant and time-consuming networking, they might have partaken in before blogs.

Teten said social networking sites like LinkedIn and Facebook, along with expert networks such as Gerson Lehrman Group and social organization sites like, can help you refine your network in much the same way the Internet helped him find his wife after dating online for six months: “Any technology that can find me a wife is clearly a killer app,” he said.

Teten explained how sites such as LinkedIn and job boards can be used to track signs that a company might be in need of capital before it’s public knowledge—whether it be executives on the move, or that the company is growing rapidly or even struggling. For one client in the nanotech industry, Teten tracked job boards for people who were hiring nanotech engineers, which would indicate they were either growing or experiencing attrition—both indications that they might be interested in outside capital. For a hedge fund client, Teten monitored a trend of new postings on job boards from a particular company’s employees. Through that, Teten learned that this company had lost its contract with Wal-Mart, its biggest customer. “That was very useful information to the hedge fund,” he said.

Michael Pfeffer, co-founder of New York-based lower mid-market buyout shop Post Capital Partners, explained how LinkedIn got his firm the attention of a target it wanted to buy. Post Capital was looking at niche service businesses and found an executive on LinkedIn with whom it was interested in partnering. This person wasn’t available, but hooked Post Capital executives up with a colleague who knew the target company’s space better. Turns out that person was familiar with management at the target company, and the connection made Post Capital the preferred buyer for the company.

Teten also cited some academic research that suggests higher returns are possible for those who take advantage of alumni and other social clubs at their disposal. One study of 2,501 mutual fund portfolio managers of 1,648 equity funds found that managers who invested in companies run by classmates made 8.4 percent more on their returns.

One important thing each panelist noted is that whether or not you’re paying attention to social media, social media is paying attention to you, be it through Google or with web sites such as The Funded or LinkedIn. “Whether or not you want to be proactive about it, the conversation is happening now,” said Foundry’s Levine.

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