On the heels of my post on the Valley of Death, Ben Horowitz of venture capital firm Andreessen Horowitz posted on Ron Conway and his network (Ron Conway Explained), asserting that the value of social capital (connections) often exceeds the financial capital (cash) that is needed to help startups get off the ground.

Conway is one of the Silicon Valley's uber angels, and I have often spoken about the key role he has attributed to his own social networks when evaluating the potential of new startups. In essence, anyone can invest cash in a new venture, so if cash isn't scarce, the distinctive advantage will go to those new ventures with the best networks connecting them to other future employers, lawyers, investors, and customers. 

In investing, Conway asks: "Can my network make this company successful?"

If we're truly interested in understanding and supporting the emergence of new ventures, we must recognize the primacy of connections.  As the story Ben related shows, connections are key to finding cash. In theory, cash can help you find connections, but not always with the right people or for the right reasons.

As public agencies step up their funding of small technology-based businesses, they would be wise to make sure cash isn't their only contribution.  The DOE, SBA and the variety of SBIR/STTR programs that are ramping up funding of university and laboratory research commercialization should match these cash investments with their clout in convening the broad-ranging networks in which they sit.

The challenge is in replicating and scaling what Conway does.  Individually, he can manage how everyone behaves in his network (including rewarding good networking behaviors and punishing bad ones). As Ben Horowitz suggests (and I abridge here), Conway is good at this because he has:

• A ridonkulous work ethic -- if Ron’s awake, he’s working
• Pure motives -- Ron does what he does because he likes helping people succeed in business
• Superhuman courage -- Ron fears no man and he definitely fears no phone call; Ron’s network is always on
• A clearly defined way of doing business -- this is the unspoken key to Ron’s success. He acts with extreme prejudice when it comes to the proper way to conduct oneself in a relationship.

Try to imagine putting all of this into a job description. As a formal job, the ability to own and manage in this way goes out the window. Instead, there need to be more structural approaches to achieving the same objective. This is the challenge for all of us.

 

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Andrew Hargadon is the Charles J. Soderquist Chair in Entrepreneurship and a Professor of Technology Management at the Graduate School of Management at University of California, Davis. He is the author of How Breakthroughs Happen: The Surprising Truth About How Companies Innovate (Harvard Business School Press, 2003).