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If you’re an entrepreneur, you might not have ever thought about how social media can help you raise venture capital. But a new academic study from Wharton at the University of Pennsylvania makes the very compelling case that simply having an active presence on Twitter can go a long way in impacting your chances of raising venture capital money. Not only are you more likely to raise VC dollars, but also the size of each funding round will be larger as well.
The Wharton study on social media
Taking a big macro view of the situation, social media enables startups and entrepreneurs to reach a much wider audience than if they were solely relying on word-of-mouth from friends and family. In turn, the more attention that a social media account can attract in the digital world, the more likely that the company will eventually come to the attention of people – such as angel investors – who can actually fund the company.
At the very least, a robust social media profile will make it more likely that journalists, bloggers and influencers discover you. And as positive sentiment rises about you, the name of your company will be become visible to an ever-expanding set of potential investors. If you have enough “buzz” behind you, then you’re more likely to get invites to business plan competitions, acceptances to startup incubators, and offers from the best talent to push your company forward.
Yes, but which social platform is best?
In many ways, this should make intuitive sense. The Wharton study proposes a fairly straightforward mechanism by which startups come to the attention of investors. What might be less clear is which variables really matter. According to the authors of the academic study, a handful of variables are most important: the number of tweets you send out, the number of mentions your company gets on social media, the number of views for each tweet, the number of tweets about your company with a positive sentiment, and the number of followers you have for your social media account. In layman’s terms, the more active you are, the more followers you have, and the more people are engaging with your content, the more likely you are to raise VC money.
In terms of platforms, the Wharton study focused on Twitter, which appears to be the social media platform of choice for startup entrepreneurs. Startups are best off leveraging Twitter and not Facebook or Instagram when it comes to ensuring future funding success. (And, somewhat non-intuitively, LinkedIn really isn’t that effective either.) What matters most is Twitter. But, say the study’s authors, you shouldn’t over-do it. At some point, sending out a barrage of tweets about your new business is actually counter-productive. For the purposes of the study, after you send out more than 580 tweets in a year, there are actually diminishing returns. That works out to about 1.5 tweets per day, which seems like a reasonable enough number.
A final caveat
However, while the study found a clear correlation between social media activity (and especially Twitter activity) and future VC funding, simply being on Twitter is not enough. Sending out a few empty tweets a week won’t guarantee any VC funding. Again – focus on the five variables outlined by the researchers. Follower count matters, as does tweet volume. But just as important is “sentiment” and “engagement.” This is harder to manufacture, as anyone who has ever managed a social media account can tell you.
The big takeaway, though, is that bigger VC funding rounds are more likely if you properly capitalize on social media. So before you even think about reaching out to angel investors and institutional investors, think about building up your social media presence. If you are authentic and passionate about what you do and what your startup offers, others will be, too. And that’s the key to lining up potential investors in the future who will be eager and enthusiastic to fund your business.