Networking Secrets: Power of Networking in the VC world
- surajit bhowmick
- 15 minutes ago
- 4 min read
Recently, an internet story went viral about how informal connections can lead to free publicity and growing popularity. If you’re new to this topic, let me share a quick example.
Mumbai founder Yash Gawde spotted Zerodha’s Nikhil Kamath at a Bandra cafe, passed him a handwritten note about his AI startup BeHooked; Kamath smiled and waved, inspiring a viral LinkedIn moment.
Now you may wonder what’s new and why you should read this article. Before diving into the details, here are two key facts about venture capital funding and the importance of formal and informal connections. These points set the foundation for understanding the rest of the discussion.
VC deal flow is mostly networked: ~30% from former colleagues/work contacts, ~20% from other investors, 8% via portfolio founders.
Alumni ties raise the chance of a deal: sharing an alma mater lifts investment likelihood by ~0.22 pp (~10% relative to a 2.03% base rate) and increases round size by ~18%.
Fundamentally, the VC world works on connections, networks, and relationships. The better the connection you have, the higher the chance of success. While formal investment criteria and due diligence processes remain crucial.
To structure our discussion, we've adopted a data-driven approach for this article. Let's move from core facts to a deeper exploration of how connections influence outcomes in venture capital.
All you need to know about: Power of Networking in the VC world:- What we cover
Content Cover
Network-Driven Success Stories
The Trust Foundation of VC Investment
One truth you should know: investors back people they trust. The VC world operates on relationships rather than purely transactional exchanges, with approximately 70% of deals originating from connections within established networks.
Trust is the pillar of successful investor-founder relationships, with 58% of investors indicating they're more likely to invest in startups with transparent founders.
To establish a trust, you need to build authentic relationships rather than superficial networking, creating a foundation that extends well beyond the initial investment decision.
The Power of Warm Introductions
In general, warm introductions are the gold standard to build a first impression. Research demonstrates that warm introductions lead to 13 times higher chances of funding success compared to cold emails. So, next time you meet a new investor or person, say hello with warm introductions.
Network Effects in Venture Capital
Everyone in the VC world or entrepreneur journey truly believes in the power of networking. The venture capital ecosystem operates on powerful network effects, where the value of connections increases exponentially with the size and quality of the network.
Deal Flow Concentration: According to Harvard Business Review, most venture capital deals come through personal connections. Around 30% of deals come from work friends or former colleagues, 20% from other investors, and 8% from companies already in the investor’s portfolio. Put together, that means almost 60% of deals happen through referrals and networks, not cold outreach.
Exclusive Access: Many high-potential startups complete funding rounds without formal announcements, relying instead on referral networks to identify suitable investors. This "who knows who" dynamic creates exclusive opportunities for well-connected participants while potentially excluding outsiders from premium deals.
Validation Amplification: Network referrals provide external validation that allows investors to ascribe greater value to startups. When reputable entrepreneurs, established incubators, or successful investors refer opportunities, it significantly reduces perceived risk and can lead to higher valuations.
The Architecture of Informal Networks
Successful fundraising leverages multiple layers of informal connections, each serving distinct functions in the funding ecosystem:
Professional Networks: Former colleagues, industry peers, and business associates represent the most reliable source of introductions. These relationships benefit from shared professional experiences and mutual understanding of industry dynamics.
Alumni Networks: University and professional program alumni connections provide natural affinity and shared experiences that facilitate introductions and trust-building.
Investor Networks: Established relationships between venture capital firms create syndication opportunities and cross-referrals, particularly for deals requiring larger funding rounds.
Portfolio Company Networks: Existing portfolio companies often serve as valuable referral sources, understanding their investors' criteria and preferences while seeking to add value to their investor relationships.
Ecosystem Participants
The venture capital ecosystem includes numerous participants who facilitate informal connections:
Service Providers: Lawyers, accountants, consultants, and investment bankers frequently serve as connectors between startups and investors. While these sources account for smaller percentages of total referrals, they often have high conversion rates due to their professional credibility.
Accelerators and Incubators: These programs create structured networking environments where startups gain access to investor networks while building relationships with program alumni and mentors.
Industry Events and Conferences: Strategic participation in industry events provides targeted opportunities for relationship building, particularly when founders research attendees and prepare for meaningful conversations rather than superficial networking.
Network-Driven Success Stories
Historical examples demonstrate the transformative power of informal connections in venture capital fundraising. Airbnb's early funding came through Y Combinator founder Paul Graham's personal referrals to his network, including introductions to prominent investors like Fred Wilson. This network-driven approach enabled the company to access capital and expertise that would have been difficult to obtain through cold outreach.
Similarly, Payhawk's successful funding relationship with Eleven Partners was built on a decade-long professional relationship between the CEO and investor, demonstrating how long-term personal connections can evolve into investment partnerships when opportunities align.
These examples illustrate a common pattern: successful fundraising often builds on existing relationships and trust, rather than purely transactional interactions. The informal connections provide context, credibility, and confidence that enable investors to move quickly when opportunities arise.
I hope you enjoyed the article and gained some insights into the value of both informal and formal connections, as well as the power of networking. If you found it useful, do like and share it with someone who might benefit. To support my work, you can also buy me a book here. Thank you!