Multi-million dollar venture-capital financing decisions are affected by bloggers and social media.

That’s the conclusion from an academic study, “Putting Money Where The Mouths Are: The Relation Between Venture Financing and Electronic Word-of-Mouth.” See the 2012 report here.

But blog coverage can be tricky. The research shows VC applicants should be strategic in soliciting publicity. The right strategy yields a higher funding amount and valuation.

Published in Information Systems Research, the study was led by Rohit Aggarwal, an Operations and Information Systems professor at the University of Utah.

“I talked to VCs from many top VC groups, and VCs in general rely on few popular blogs such as TechCrunch, GigaOm, and Venturebeat,” said Professor Aggarwal. “Given their reading behavior, these findings totally make sense.”

But there’s a downside. Beware of the possibility of negative blogger reviews.

“After all it is more of a rejection process than a selection process,” explained the professor. “VCs want to sift through the pile of startup plans on their desks quickly, and are essentially looking for a reason to reject a plan and move on.”

But there’s a downside. Beware of the possibility of negative blogger reviews.

Early funding rounds 

He indicates blog coverage has a strong effect in the early funding rounds. But the impact of the publicity diminishes in later rounds.

“This makes sense, because in the early stages, all they may have is a dream of what they could be,” explained Professor Aggarwal. “As time passes, users, usage, and other accounting measures start to give a better signal about their actual potential.”

To be sure, private equity funding has been a successful approach for the world’s biggest technology companies, such as Amazon, Apple, Google and Microsoft.

Startups need the funding to develop products, recruit employees, pay vendors, and for marketing. In the heyday, an aggregate $135 billion was raised from VCs in one year.

Since 2000, the total annual VC funding has been more than $25 billion annually. The beneficiaries typically have been IT entrepreneurs.

The study’s co-authors are Harpreet Singh of the University of Texas-Dallas, Ram Gopal of the University of Connecticut and Alok Gupta of the University of Minnesota.

It’s also interesting to note the University of Utah’s David Eccles School of Business has programs in entrepreneurship, technology innovation and venture capital management. It launched the country’s largest student-run venture capital fund with $18.3 million.

From the Coach’s Corner, here’s additional recommended reading:

Eight Strategies to Consider Before Starting A Tech Business — Before you launch a tech business, here are eight salient strategies to remember.

What No One Tells You about Raising Investment Capital — Downturn or not, investment capital is indeed available. That’s true during all economic cycles, according to leading consultant Joey Tamer.

What Should You Divulge When Asking for Investment Capital? — If your startup is the next big thing, but you want venture capital, you can start smiling. Yes, financing has been difficult to obtain in recent years. But entrepreneurs wanting venture capital have reasons for at least a small celebration – the money is starting to flow again after the Great Recession took its toll.

How to Attract an Angel Investor — Now that a UNH study indicates early stage financing by angel investors is more advantageous than venture capital money, what now? An angel investor offers seven tips.

Why Women Receive Less Angel Funding Than Men — It’s well-known that women receive less angel funding than men, but it isn’t because of a male-oriented bias.

“Persistence, persistence, persistence. I’m surprised how few entrepreneurs follow up.”

-Mark Suster


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.