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Start-ups want connections as well as finance

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Start-ups want connections as well as finance

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It’s fairly well established that connections are vital to the success of a start-up.  Entrepreneurs need to tap into their network for everything from expertise to finance.  This hyper-connectivity is one of the reasons many policy makers and city planners are attempting to cultivate clusters that will provide businesses with a place within their innovation ecosystem.

A report, published recently, by Wharton underlines the value connectivity plays in the success of a start-up, but also the changing requirements of entrepreneurs from their networks.  The report, called Building Bridges to Innovative Opportunities, suggests that tech start-ups are increasingly looking for more than just financial support from backers, with a desire for operational help and industry expertise.

The study saw 126 Wharton alumni, mostly from tech companies or managers within start-ups, surveyed to uncover what it was they were hoping for in terms of support in advancing their start-up venture.  This in turn has seen the venture capital community begin to up their own game and offer more in addition to any investment they provide.

“Investors are no longer just blindly supporting a company, and startups are no longer just doing well by virtue of being in a hot new market space,” says Saikat Chaudhuri, Wharton adjunct associate professor of management and executive director of the Mack Institute for Innovation Management, who helped craft the survey questions. “Companies really are expected to think about profitability.”

It’s an interesting contrast to the blossoming crowdfunding sector, where entrepreneurs typically get little in the way of operational support, albeit with a decent bit of marketing tacked onto the funding element.  In the Wharton survey, some 1/3 respondents were looking for backing to come along with industry expertise and connections.  This was almost as high as those who were primarily after funding.

I wrote last week about some of the challenges facing the crowdfunding sector, with Kickstarter revealing slightly lukewarm funding figures for the first few months of 2014.  Whether there will be an inevitable segmentation in the crowdfunding market, with a ‘premium’ offering providing greater operational support in return for a larger investment, in contrast to the current market dominated by backers providing smaller investments with few expectations attached.

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