Are Venture Capitalists using Social Media to locate, select and valuate start-ups to invest in??

I had an interesting conversation with a corporate venture capitalist located in the San Fransisco area yesterday. I asked him whether his department was actively out in social media, looking for new business opportunities? Whether companies investing time in social media activities had a greater chance of getting funding? And lastly, if social media have an impact on the valuation of a start-up?

Discovering new business ideas

His reply was that they always we're looking for technology that is a good fit with our company. The fit is more important than a start-ups potential. Most opportunities present themselves to me through LinkedIn. A company once tried contacting him personally through Facebook, this came across as unprofessional and they were encouraged to establish contact on LinkedIn, something they did.

The election process

The department gets between 300 and 400 business ideas every year. In other words, we don't see a need or find the time to crawl different social media for new business opportunities.

We cut this down to 40 by evaluating the strategic fit, is this technology useful to the company. Then we read the executive summary, visit the homepage, reducing the number further to about ten companies. Here, it's important that the company present themselves in an orderly fashion. Social media is not a area of focus in this part of the process.

Valuation

Going from ten possible investments to three we have a long list of investment criteria. One of these is due diligence of the company. When evaluating the management team during this process social media might have an impact. Being present in social media will create a image of the management as on the edge of new technology. But this is vague at best and has little impact. For IT companies, it might have a bigger impact, but unless it's a company that is working with social media, it has a low impact. This is true for how we value start-ups today, but it might change in the future.

All in all I had a most enjoyable conversation, but go one more indication that social media can be a tool to provide information about your company to venture capitalist. While the venture capitalist see little value in searching for business ideas here as they are overflowed with them already. Neither does it play a big role in electing or valuating companies. If you have experienced with venture capitalists and social media please comment on this post as I have very few data points to validate these statements.