Recent articles in the Wall Street Journal and Mashable indicate that Venture Capital firms are starting to use social media to source business deals.
According to Venture Hacks founder Babak Nivi, " investors are all over Twitter and blogs… They use social media to source deals and to create a latent relationship with entrepreneurs so they can close the deals they want to.”
Another financier from Lowercase Capital tells a story of how he discovered a portfolio company through tweeting late one Friday night.
What makes this method of sourcing deals so unusual is that the finance community is infamous for being "close to the vest". Information about potential deals is considered a trade secret, not to be shared with anyone!
However, venture capitalists are not using twitter and the likes to discuss live deals with the entire world. Instead, they are using social media for "research, promotion and other purposes."
Finally, investors are using social media as a means to conduct customer calls. In the old world, investors would sit analysts and associates in cubicles and tell them to call the customers of a potential investment opportunity in order to uncover any potential useful information. In the new world, it appears that the same analysts can put down the phone and instead search the Facebook pages and tweets of a company to get the same info.
While this social media phenomena hasn't seemed to gain steam in the more stodgy private equity or hedge fund arenas, it is quickly becoming very popular for the tech-savvy Venture Capital community. Who thought investment bankers might one day be replaced by tweets!
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