How Social Media Strategy Drives Venture Capital Investment in Startup Companies

Investors instinctively know that a company’s social media success represents a valuable intangible asset. How to value this asset is still an open question, though it hasn’t discouraged billion-dollar investments in companies like Tumblr, YouTube and shortly Twitter.

What’s new is that this sentiment is moving downstream to play a role in investor decisions in earlier stage and startup companies.

What does this mean for young companies and startups? As social media matures as a medium, the creative development of a social media personality, voice and engagement that reflect the company’s brand is what will compel followers, users, advocates — and perhaps, their next round of funding.

“Drilling down on a company’s digital footprint and assessing their online engagement is core due diligence work,” says Ted Leonsis writing in his blog post, The Elephant in the Room. A partner in the venture capital firm Revolution LLC and chairman of Chicago-based Groupon, Leonsis says: “If a company cannot meet the basic test of capturing an online community with its product then it will have a difficult time becoming a significant business worthy of time and capital.”

The Wall Street Journal moved this storyline forward in an article, “If you look good on Twitter, VCs may take notice.”  VCs in this story make the case that social media visibility indicates how well a new company knows its target audience and connects with its customers.

Leonsis told the Journal that ‘… social media is meaningful and helpful …’ in evaluating a young company. To illustrate this point, the Journal follows his digital footprint audit of Chicago startup BenchPrep Inc. and how it influenced the decision to fund the company.

“Ten years from now, social media will be the starting point of any investment,” Leonsis told the Journal.

 

This post first appeared on October 2, 2013 at Built in Chicago.

Bess Gallanis builds reputations and social capital through communication consulting, strategy and execution.  Idea peddler, social journalist, blogger, Huffington Post contributor. Yogi.

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