Information Asymmetry In Fundraising

One of the challenges entrepreneurs face in raising money is that they typically do it once every couple of years.  The rub is that you’re usually raising money from some folks who have done several deals in the last quarter.  TheFunded has been slowly arbitraging this information asymmetry. 

DowngraphFirst they did it by creating a list of VC investors (before TheFunded you were forced to pay for expensive lists or limited to the handful of firms you knew personally).  The list by itself was quite useful.  Second, they started letting entrepreneurs comment on and rate funds/partners.  That bit was a little less useful, but still provided some useful feedback.  And most recently they launched a section on the site where entrepreneurs can share specific deal terms from term sheets they have received.  So far there are only 60 term sheets uploaded and you have to contribute one to see the others.  They claim to be getting about 3 per day.  This is a potentially catastrophic event for investors and a potential boon to entrepreneurs as it could lift the veil on the "deal spread." 

There is no doubt that the more deals get published, the more leverage will accrue to entrepreneurs.  That said, I wonder how long before some VC sues TheFunded (every term sheet has a clause that says you can’t share the contents).  I suppose if you don’t sign the term sheet there’s no violation, but if you raised money on the term sheet (i.e. you signed it) then that could be an issue.  It will be interesting to see if any fund goes to bat on this.  In the meantime, I can hear the deal spread tightening!