In a well-functioning startup ecosystem, founders should know who their potential investors are and how to connect with them. In a supportive startup ecosystem, founders should know how to develop ventures that attract attention, supported by journalists and ecosystem leaders who promote fundable startups, so that investors engage them. Yet, we often see founders struggling to get even a foot in the door with venture capitalists or angel investors, leaning heavily on referrals or “warm introductions” just to pitch their business. For economic development professionals, community builders, startup development organizations, and startup ecosystem leaders, this dependency on referrals is a red flag. It signals that something is amiss—not just with how founders are preparing, but also in how the ecosystem is cultivating relationships and support structures between investors and entrepreneurs.
Article Highlights
A Transparent Ecosystem: The Ideal Starting Point
In an effective ecosystem, investors aren’t hidden behind opaque networks, unreachable unless you know someone who knows someone. Instead, they’re visible, active, and engaged with the community, speaking at events, mentoring, and serving as advisors to startup support programs. Angel investors and venture capitalists should be known figures who openly communicate their thesis — their area of interest, the kind of founders they look to invest in, and the qualities they consider most important in a business.
But if founders are left scrambling for introductions, there’s a disconnect in the ecosystem. Either investors aren’t making themselves available and known, the channels promoting founders are underdeveloped, or founders are poorly mentored so as to create ventures that attract attention. The result is a dysfunctional ecosystem where founders are left without essential guidance, and investors risk missing out on viable ventures simply because they lack direct, meaningful connections with the people they’re supposed to support.
Founders Need Education on Building Fundable Ventures
While investors need to make themselves accessible, founders must also be educated on what it means to be “investment-ready.” Many ecosystems fail to adequately mentor founders on the basics of building a venture that’s fundable. Teaching a founder to be “investment-ready” isn’t just about a validated MVP, financial projections, or an idea. It includes comprehensive guidance on how to communicate their vision effectively, market the business (including to investors), and create a story compelling enough to attract attention.
If a startup can’t captivate its customers, it’s unlikely to capture the interest of investors. A founder needs to understand that, in a way, “marketing” for capital is as essential as marketing for customers. Building a venture that attracts capital requires intentional development, clear communication, and a story that conveys not only the founder’s vision but also the tangible growth potential of the business. Unfortunately, many founders stumble here, and ecosystems often miss the opportunity to equip them with these critical skills.
The Referral Trap: A Symptom of Poor Ecosystem Dynamics
When investors rely on warm introductions, it can indicate a deeper issue: that they are either unsure of their investment criteria, unwilling to take an active role in discovering talent, or simply disconnected from the community. Investors who depend on referrals to vet startups are essentially outsourcing their due diligence to others, which is a dangerous approach to finding viable investments.
Reliance on referrals can also suggest that investors may lack a clear network or are ineffective at communicating with the local community. If investors aren’t seen or known, it could mean they aren’t actively networking or establishing a visible presence in the local startup scene. For the ecosystem, this is a sign that community-building efforts must strengthen the bridge between investors and startups. Investors should feel confident and well-prepared to qualify a startup based on transparent and specific criteria, not hearsay.
The Real Cost of Poor Networking and Communication
For founders, failing to prioritize marketing and effective communication is costly. A founder who does not know how to market their startup — especially to potential investors — is unlikely to get very far. Marketing for capital should be as routine as marketing for sales, yet many founders don’t consider networking, relationship-building, and creating engaging content as essential parts of their journey.
We should question why certain “helpful” events and support efforts are so prevalent in the first place.
When we see constant demo days or networking events where founders are asked to pitch to investors, we should ask why those events are even necessary. If the ecosystem were functioning as it should, such events wouldn’t be a primary strategy for connecting founders with capital. The frequency of these pitch events suggests that something’s missing: either the community isn’t adequately supporting its founders, investors aren’t actively engaging, or founders are being misled into thinking these events are the only path to funding. Instead of being genuine opportunities to nurture relationships, these events often serve as Band-Aids over a broken pipeline. When founders are regularly funneled through pitch events, it reveals an ecosystem where investors are on the sidelines, founders lack the education to navigate connections, or both.
In a truly collaborative ecosystem, pitch events should be rare, reserved for showcasing matured relationships and ventures rather than as routine crutches to force connections. A healthy startup environment isn’t defined by how many pitch events or demo days it holds but by how naturally and frequently investors and founders connect outside of these structured arenas.
By addressing this disconnect, ecosystems can shift away from surface-level solutions and work toward a deeper integration, where founders are empowered to reach investors directly and investors are engaged and actively contributing to the ecosystem. This fundamental change benefits everyone and fosters a stronger, more transparent community.
Moving Towards an Open and Functional Ecosystem
For economic developers and community builders, the call to action is clear: Create a culture of openness, mentorship, and accessibility within your startup ecosystem. Here’s what that means in practice:
- Investors as Mentors: Encourage local investors to step into mentorship roles where they can actively guide founders, making themselves known and accessible. Investors who have a hand in shaping the community will naturally gain more confidence in the founders they meet, reducing the need for referrals.
- Startup Education Programs: Develop programs that teach founders not only about pitching and financials but also the fundamentals of marketing themselves and their ventures. These skills are essential for creating an investment-ready business and forming lasting relationships with investors. So much so, I’ll challenge, that of incubators and accelerators that don’t put marketing first – both in what they teach and what they do for founders – you should be working to remove those programs from the ecosystem; it is definitively researched and proven that failed marketing is leading cause of startup failure.
- Clear Communication and Engagement from Investors: Investors should take an active role in communicating their investment theses, providing resources, and attending events. Transparency and active engagement signal to founders that the ecosystem is inclusive and that investors are accessible to those willing to make an effort.
In a thriving startup ecosystem, there’s no need for referral-only introductions to investors, which is not to say they’re bad but rather they’re a leading indicator that your community should be doing something more effectively. Founders and investors should meet at the intersection of transparency, networking, and skill-building. For investors, involvement and clarity of purpose create a more reliable pipeline of opportunities. For founders, prioritizing communication, marketing, and network-building leads to meaningful connections and increases their chances of securing the right investment.
By addressing these gaps, startup ecosystems can create a culture where introductions aren’t necessary, and relationships flourish organically — laying a solid foundation for a supportive, accessible, and thriving community.
Good conversation and piece for discussion.
I think there are nuances within this.
I don’t think an ecosystem is necessarily “bad” if those connections aren’t working. It can sometimes be investors that don’t want to make themselves obvious as they’ll be severely outnumbered by founders in provincial cities. Also they’re not ex founders necessarily so they don’t feel comfortable at tech events, don’t make good mentors either in a lot of cases.
I agree that warm intro’s are a pain and they just facilitate the same demographic of people getting funded all the time.
Investor education and cross pollination is key. We’re in a more virtual world, there are also more Gen Z investing these days that are happier in a virtual environment. So many founders and investors exist in online tribes. It’s more about signposting better so founder groups and investor groups can find each other.
It’s part of the reason why we built Magic Sauce Online. It’s that alternative that allows a bunch of people to coalesce under one banner and find the people they want to invest in.
If it’s a big startup hub…are they going to change if the same old ways work for them? No. Not unless some of that ecosystem go looking for the outliers specifically.
Kris, no, certainly not “bad” – I took some extra time to make sure I got the right point across; it’s not that it’s a bad ecosystem nor that people have bad intentions, it’s that something is amiss.
I didn’t go in depth on this perspective (I thought I might do a follow up post) but warm intro’s aren’t just a pain, they’re wasteful and risky. Let’s put me in the middle of an intro, for example:
* I have to figure out who might be interested
* I have to qualify the founder
* I should do some due diligence on the startup
* Then I run the risk that it is a good investment
* I set an expectation with founders that I’ll keep doing that
* OR… I have to be what seems unsupportive to the founder, “no.”
That said, I love what you’re doing because a major premise in my article is that founders aren’t being taught HOW to do this themselves, and that’s a red flag. They think learning to pitch is to seek funding when in fact learning to pitch is because they must incessantly connect, communication, and influence – most can’t.
Hence the *something* is amiss
1. Investors aren’t known and present (they should be)
2. Founders don’t know what they’re doing (fix that)
3. The ecosystem at large isn’t connecting and promoting things
…. one more thought to add though …
What’s broken can be fixed. And should be.
Because founders that aren’t connecting and communicating well, aren’t likely to be successful anyway – they are a much higher risk, so much so that they might not even be fundable.
While on the other hand, if the investors aren’t known to everyone, that means they’re hiding and disregarding the ecosystem in which they want to invest. That’s bad. They should be mentoring, sponsoring, and speaking. Investors who sit in their ivory towers are merely pretending to be VCs – venture capitalists wouldn’t put money to work without being involved to ensure risks are mitigated.
Paul O’Brien that relationship building is massively important and having to hustle, you’re spot on there. Even within the platform we have a module telling them that the platform isn’t the be all and end all…go find some for yourself…sure, bring them here if you like but here’s some lists, go build some relationships, understand how investors think.
You’re right on warm intro’s being bad on both sides unless that relationship itself between those two people is super warm.
@seobrien interesting take! Networking struggles are real – what resonates most?
What resonates most? That referrals shouldn’t be needed. If both parties in the exchange are doing their job well, they wouldn’t be.
* Investors should be known, involved, and supportive
* Startups should attract demand and communicate well
Paul O’Brien sometimes those kinds of investors are best out of the way ?
Broad peer interaction is important for both founders and investors. If the investors haven’t had good examples to follow they can’t be good for the ecosystem either.
Does become a death spiral..
I’ve seen lots of regions try and bring people (outside VCs) in to come meet ecosystems. There’s a temporary shot in the arm for everyone and old habits come back.
By linking networks of investors and founders they’re exposed to outside thinking more frequently and work out good/bad habits, particularly when they’re then all thrown together.
Big funds rarely move to “quiet” cities with a fractured ecosystem so those habits won’t change until people see a glut of raises in that city because it’s improved.
People need to use their nous to seek other communities, to build consistent engagement, to continually improve. Otherwise they’ll get what they always got.
See it so often.
Kris Jones (He/Him) quiet city is also evidence of something wrong
https://seobrien.com/rethinking-startup-ecosystems-to-build-what-investors-really-want
Paul O’Brien, I am re-sharing for you.
I think you’re very much on point, some of the ecosystems I’ve been involved with this year need to see it.…!
That’s why now I’m taking things into my own hands with the help of Paul Shanahan MIH IS and Sam Ruggles-Brise finding that tribe takes time (too much time).
Whilst, looking for the right tribe, you waste too much time hunting in the wrong places.
Yes! “Whilst, looking for the right tribe, you waste too much time hunting in the wrong places.” And you know who Venture Capitalists should want to ensure isn’t wasting time in the wrong places? Founders
If that’s happening, is it even an ecosystem?
I agree on one level but founders who really need outside money to to seed their business are going to take a chance with investors even if they know they are not quite the right fit. This is a waste of investors time which is why they like screening processes such as warm intros. We need a better system for the match making process.
Yes…. OR
Investors who aren’t public about their thesis and capable of quickly screening based on nothing but an email, probably shouldn’t be investing in startups at all.
Or, they should be LPs in a fund rather than pretending to be Angels or trying to manage a small, irrelevant fund, without the experienced resources who know how to do this.
Paul O’Brien Absolutely
You’re so funny – putting out content and winning via engagement whether we agree or disagree
Today I – generally disagree
A key element of entrepreneurship is achieving outcomes within the world as it is (status quo) in order to create the world as it should be
In the world as it is (status quo) venture capital is not generally rational as much as it is relational
Ask a VC about their “process” and they’ll ramble on for 90min.
Ask the same VC why they invested in X founder and they’ll say: “I liked ‘em!”
(true story)
This is why I encourage founders to ask Qs about real decisions vs. hypothetical ones – you tend to get more real answers
In hiring as much as 80%+ of jobs are filled through relationships (internal + networking), and we do not take that as a reflection of the strength of the ecosystem
(It does not serve equity well)
Similarly, VCs and Angels are trying to de-risk a high-risk investment and social proof is key before more traditional GAAP figures arise (Series A+)
From experience I can attest even VCs who try and create “open application” processes still track trusted referrals separately and weight them more heavily
However, an ecosystem can certainly make this a lot easier and create access to increase equity
If you have 1 champion among the VC / Angel class they can usually feed you 2-8 warm intros – thoughtfully over time –
And each of those 2-8 warm intros – if you perform well – can typically feed you 2-8 warm intros over time –
So filling a funnel with warm intros, while seemingly laborious, is not that challenging for an entrepreneur who claims to be capable of willing an entire industry into existence
That’s another part of this; does the founder have the ability to “learn the VC market” and “sell” not based on an ideal, or an early misconception, but to dance the dance and entice the “bees” ? to get the “honey”
(If they are unwilling or unable to do so here; will they be able to do so in their customer target market?)
Now, an ecosystem can help nurture initial relationships between potential champions and early stage founders
Not just through loud, crowded happy hours and produced stage events – I personally find the best relationships are NOT forged by shouting a pitch at someone trying to get sloshed
When founders ask how to maximize success at these events I say, often to their disappointment, “expect nothing, and you may be pleasantly surprised”
By contrast: Curated lunches, dinners, more thoughtful engagements that create the context for 1:1 dialogue, coffees — these are better
A pickleball tournament = genius
But founders also have to resist the urge to pitch vs. let the relationship develop
In other areas of life people would never meet a stranger and say in the first breath “will you be in a committed relationship with me?”
Another key here is that the VC / Angel often has an emotional connection to their investments; a founder would do well to honor and respect that
An ecosystem can provide education for founders on etiquette — how to research, and leverage requests for intros respectfully
However, paradoxically the more “cringy” the average founder in an ecosystem the more the savvy founder stands out
Conclusion: Whether we are talking about hiring, sales, or fundraising, I always tell people to make a funnel and start with their champions —
Have a 20-45min chat and have the champion add 2-8 people to the funnel …
Create FWDables for double-opt in intros … track and follow up
With each new champion earned, repeat again
Now there is also a function of still applying for things, or having an automated CRM / newsletter nurture a “stochastic” set of people who are not worth the cost of engaging until they raise a hand
But for me the power of relationships makes (not breaks) most ecosystems
While I entirely agree that relationships are key to entrepreneurship, leaning so heavily on warm introductions as the primary mechanism for connecting founders and investors reveals systemic weaknesses in the startup ecosystem rather than founder deficiencies. A well-functioning ecosystem should naturally connect founders and investors without founders having to navigate opaque networks, break into (or pay for) the silos (Austin is famous for), or rely on connectors to gain access. The reliance on referrals signals a lack of transparency and accessibility, where investors are either disconnected from the community or hesitant to openly engage.
In a thriving ecosystem, investors would be visible, active, and transparent about their interests, reducing the need for intermediaries. Founders, in turn, should be empowered to attract attention through the strength of their ventures, supported by education, mentorship, and promotional channels that elevate their stories. Pitch events and networking aren’t inherently bad but often act as stopgaps in ecosystems that lack genuine integration. If investors were deeply engaged and founders better prepared, relationships would form organically, making the system more inclusive and equitable. Reliance on referrals is not proof of a founder’s resilience; it’s a sign that the ecosystem is not functioning as it should.
utopia…
Paradoxically I am 200% committed to creating the world we deserve, and breaking the status quo…
But in guiding founders it is imperative they know and learn to navigate the cultural norms and biases of the world as it is today…
And I do think Austin (at least for me, privilege included) is an accessible place —
Others have shared less encouraging anecdotes
This is why I support DivInc, invest in and advise founders, and before I had any $$ help create/support founder communities since the day I arrived on the scene in 2013
Bijoy Goswami had a great ecosystem map I enjoyed in 2013 – we can restore this with an emphasis on founder needs …
In San Diego I know a brilliant, award-winning founder who creates state of the art robotic drones *accessible to kids as educational toys/devices
He never “got” VCs and they never seemed to get him …
Now he has $5M ARR and more awards than can fit on a shelf ¯\_(?)_/¯
The status quo culture results in missed opportunities for sure — and this also creates a niche for rational, accessible investors to lead the way!
The core of the issue IMO isn’t Austin specific. After all I understand that financing is tough all over now, rather:
“Investments” in startups have 2 major strikes against them: 1) They’re speculative. 2) They’re illiquid. Even if you are in a winner, it might take what – 8 years to get paid?
The illiquidity really throws cold water on the fire of investment, because it makes it hard to recycle capital. Secondly, it makes other speculative ventures without illiquidity more appealing – for example, even hugely risky sports betting does not suffer from this issue – there’s a predefined payout date.
To truly and greatly improve access to capital of early stage companies, #2 should be finally addressed. #1 probably can’t be addressed, at-least with the early-stage ventures you speak of.
The “moonshot” project would be to build an alternative venue in Texas – a SEC regulated trading platform or Bulletin Board system – something approximating OTC markets meets the Nasdaq meets the Toronto Venture exchange. It’s a Herculean amount of work and risk, but perhaps 1000X+ more people would invest in startups if they could actually change their mind – and sell their holdings early. Crowdfunding sites are a start, but there’s still quite a bit more innovation that can and ought to occur. I feel like there’s a decent amount of people who might be able to benefit from such developments, to get real collaboration. cc. William Hurley
Mark Biw Interestingly, I didn’t say it was Austin specific, you’re implying I did
Financing isn’t tough all over; in specific sectors, and many regions, it continues moving just fine. Is it down overall? Yes, concerns about a U.S. recession, the Presidency, etc… that, you need to look at the relative changes by sector and location. If it is down *more* than average, why? For example.
Mark Biw also makes a good point about the market – in 2023 VC fundraising from their LPs fell by as much as 35% Y/Y and in 2024 may find a new bottom with 13% less funding through 3 quarters.
Many investors may have far less money – and when I was in peak fundraising mode last year some would just admit “I don’t have capital”
(It was like a reverse founder pitch where I would check in each quarter and their goals moved backwards by another quarter)
So in that context founders may be more “desperate” and fiending for warm intros than usual
A hypothesis Paul O’Brien – have you seen a change in the volume, pace, tone of warm intro requests in the past 24 months?
Michael Barnes all good points. The volume of asks for intros has fallen in the last 24 months, the tone is the same, it really hasn’t changed at, people just seem to expect them, asking “do you know anyone…?”
My hypothesis – we’re at the tail of a 7 year-ish cycle, funds were largely allocated pre-covid into the blockchain hype… then we hit quarantine, which slowed everything, and now though we’re out of quarantine, we’re pushing into AI so both founders and investors are trying to figure out what that all means – all of which has requests down.
I think when we get through the change in the Administration, in early 2025, we’ll either crash (I don’t think so), or we’ll see it pick up.