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Do Venture Capitalists and Angel Investors Who Use Twitter Invest More in Startups?




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Being the technology-savvy group that they are, it is not surprising to find that many venture capitalists and angel investors are on Twitter. In fact, many of them are quite active and have attracted fairly large followings putting them in the upper echelons of Twitter users.  So we wondered whether all activity on Twitter by venture capitalists and angel investors translates into or at the very least correlates with them making more investments in startups?

As our analysis below reveals, we applied many tests to see if there was any pattern/correlation, but the end result, perhaps not surprisingly, is that one doesn’t exist. Irrespective of the test, there was no correlation between any metric measuring Twitter activity and investment levels by VCs and angels.  But in our examination, we did uncover a select group of investors on Twitter who we’d classify as Rockstars (9 firms) or Unsung Heroes (14 firms) based on their 2009 startup funding and Twitter activity.  More on these investors later in this analysis.

To determine the answer to our first question about Twitter activity versus investment activity, we looked at 140 individual venture capitalist and angel investors on Twitter and compared it to the funding data available for each investor in the ChubbyBrain database. We aggregated “Twitter use” data when a firm had multiple Twitterers so were left with 74 “aggregate Twitterers” for purposes of our analysis.

We first started by looking at the number of Twitter followers each investor had as compared to the number of investments their firm’s have made in 2009.  Perhaps those who invest attract more followers because many people are keen to understand how they think or what areas they’re following?  The R-squared in this case was 0.00003 which means nothing. The conclusion – the number of followers an investor has does not tie to investment activity.  This graph does yield some interesting insights, however.

According to a recent study by Purewire, highlighted in a recent TechCrunch post, only 19.7% of Twitter users have 10 or more followers.  As can be seen in the graph, 72 out of the 74 VC and Angel Twitterers have more than 10 followers. Thus, while there is no correlation between Twitter followers and the number of investments, virtually all of the investors who tweet have followings that place them in the top 20% of Twitter. (Note: Throughout this analysis, we used number of deals in lieu of dollars of investment as a single large deal by an investor skewed results. We have also used a log scale on the x-axis of our analysis due to the large variance in the amount of Twitter use by the Twitterers we studied)

twitter-followerers

In our next examination of “Twitter use” against “investment activity”, we looked at the number of people the investors were following. Perhaps the more people you are following as an investor would give you access to greater quality information and even deal flow which might result in greater investment activity? Again, as the graph below illustrates, the R-squared was miniscule at 0.0134 and so once again, there was no correlation.  But there were interesting facts to be gained from the graph below. According to the aforementioned study by Purewire, 32.2% of people on Twitter follow 10 or more people. Examination of the graph reveals that all but six of the venture capitalist and angel investor Twitterers reviewed follow more than 10 people.

twitterers-following

This pattern continues when one examines the number of Twitter updates against the number of investments. Again, there is no correlation between investment activity and Twitter activity (R-squared of 0.0198), but VCs and angels are again among the most active Twitterers based on the aforementioned Purewire statistics. The Purewire study shows that only 21.9% of Twitter accounts have more than 10 tweets. Our examination shows that 72 out of 74 have more than 10 tweets. Once again, venture capitalists and angel investors comprise a highly active group of Twitterers but it doesn’t correlate with investment activity.

twitter-updates

With this in hand, we decided to look at the data from one final perspective and that is by looking at the venture capitalists’ and angel investors’ follower/following ratio or what we’ve deemed their Twitter Authority Ratio (TAR) (It’s also been deemed the TwitterRatio amongst many other things by others). So does having a high Twitter Authority Ratio as a VC or angel investor correlate with your firm’s investment activity? Again, the correlation between the Twitter Authority Ratio and investment activity was non-existent.

tar-ratio

But we did think that comparing the TAR vs. level of investment was worth a bit more examination. And so we segmented the above graph above into four quadrants. The horizontal gridline was placed at 4, which is the average of the number of investments rounded up to the nearest integer. The vertical gridline was placed at a Twitter Authority Ratio of 3, which is the median of the TAR rounded up to the nearest integer. We decided to use the median for the TAR instead of the average because of the impact outliers have on the average. Please not that a firm on the line was counted as being below the line (i.e. with a TAR ratio of 10 and 4 investments, a company would fall in the Insight Providers quadrant, not the Rockstar quadrant).

Based on the unique characteristics of each quadrant as determined by the combination of their TAR and investment activity, we named each quadrant as follows.

grid

What does each quadrant mean?

  • Rockstars (High TAR | High Investment Activity) – Pretty self-explanatory. Active investors who are highly followed relative to the number of people they follow.
  • Unsung Heroes (Low TAR | High Investment Activity) – This group has been amongst the most active when it comes to 2009 investment activity but have a relatively lower TAR. Some in this group are less active on Twitter but given their investment activity, it may be worth following this group of Unsung Heroes as they are active investors.
  • Insight Providers (High TAR | Low Investment Activity) – This group has a lower level of investment activity in the first 5+ months of 2009 but have attracted a fair number of followers. The desire by others to follow this group may be indicative of these venture capitalists and angel investors being actively engaged Twitter users who are interacting with followers as well as offering insights that make them “follow-worthy”
  • Wait and See (Low TAR | Low Investment Activity) – Many in this group would be in the either new to Twitter or tried it and haven’t stuck with it. Their investment activity through the first 5+ months of 2009 falls onto the lower side of the spectrum as well.

So who are the Rockstar and Unsung Hero firms? The complete list is below. Each firm has a link to its ChubbyBrain profile and each individual investor’s name links to their Twitter profile in case you want to follow them.

Rockstars

True Ventures (ChubbyBrain Profile)

Benchmark  Capital (ChubbyBrain Profile)

First Round Capital (ChubbyBrain Profile)

Polaris Ventures (ChubbyBrain Profile)

August Capital (ChubbyBrain Profile)

Highland Capital Partners (ChubbyBrain Profile)

Atlas Venture (ChubbyBrain Profile)

Founders Fund (ChubbyBrain Profile)

SoftTech VC (ChubbyBrain Profile)

Unsung Heroes

Venrock (ChubbyBrain Profile)

Sigma Partners (ChubbyBrain Profile)

Battery Ventures (ChubbyBrain Profile)

Bessemer Venture Partners (ChubbyBrain Profile)

Clearstone Venture Partners (ChubbyBrain Profile)

Ignition Partners (ChubbyBrain Profile)

Intel Capital (ChubbyBrain Profile)

InterWest Partners (ChubbyBrain Profile)

Matrix Partners (ChubbyBrain Profile)

Edison Venture Fund (ChubbyBrain Profile)

Charles River Ventures (ChubbyBrain Profile)

Qualcomm Ventures (ChubbyBrain Profile)

Evergreen Venture Partners (ChubbyBrain Profile)

Index Ventures (ChubbyBrain Profile)

Given recent research by Harvard University showing that over half of people on Twitter hardly use the service, it is quite clear that many of the venture capitalists and angel investors on Twitter are amongst the small percentage of people producing most of the content.  While it is not surprising that Twitter metrics and investment levels don’t correlate, we hope we’ve uncovered some interesting investors for you to follow or at a minimum take a look at.  It is worth noting that even if we found a correlation, there would obviously be no argument to be made for causality, e.g., because I invest, I Twitter more or because I Twitter, I invest more.

It would be interesting to hear from investors as to the benefits they see from using Twitter? Have you evaluated or done deals as a result of things you’ve found on Twitter? Or more generally, how is it helping in your work?  Or perhaps, that is not what Twitter is good for?

We’d also welcome stories from entrepreneurs and startups who’ve tried to reach or engage with investors via Twitter and to hear what kind of luck they’ve had?

Of course, any and all insights and ideas are welcome. If you’re an investor who tweets and should be in our Rockstar or Unsung Hero categories and we’ve missed you and your firm, do drop us a line in the comments or via email at team(at)chubbybrain.com and let us know so we can be sure to include you in updates to this analysis.

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11 Responses to “Do Venture Capitalists and Angel Investors Who Use Twitter Invest More in Startups?”


  1. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    [...] recent study by ChubbyBrain is also demonstrating how Twitter is fostering a dedicated technology and business ecosystem. [...]

  2. Jeff Clavier says:

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    Sounds like you might have missed my 8 investments in 2009. Can’t blame you since I keep a lot of these deals under the radar, but the deals are there.

    Thanks!

    @jeff


  3. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    Hey Jeff,

    Thanks for pointing that out. With your TAR Ratio(48 when we took our data) and 8 investments, you definitely qualify as a Rockstar. We think we may have missed some of your investments because some we listed some under your firm, SoftTech VC, while others were listed under your name as an angel investor. We’ll make sure to check both in future analysis since we know that you are an active investor. Otherwise, we hope you enjoyed the analysis and congratulations on being a Rockstar.

    Warm Regards,
    The Chubby Research Team

  4. Jeff Clavier says:

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    Thanks for the addition ;) . I have stopped angel investing since July 2007, so any deal you hear about is a fund investment – unless I specifically mention it. And feel free to get in touch if you need clarification.

  5. David Cowan says:

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    Good stuff.

    FYI you have the wrong David Cowan. I am @davidcowan not @david_cowan. Please correct.

    thanks,
    david


  6. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    Thanks David and sorry about that. Change has been made. Congratulations on being an Unsung Hero :)


  7. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    [...] of a tool such as Twitter, but the startup and venture capital research Web site Chubbybrain has given it their best shot by asking the question: Do VCs who use Twitter invest in more [...]


  8. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    [...] our recent analysis of VCs and Angels who Twitter and how it compared to their investment activity in 2009, we thought the logical extension of this would be to examine VCs and Angels that blog and compare [...]

  9. Michael says:

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    Though there may not be a linear correlation, a relationship may still exist–the data points are not uniformly distributed. For comparison, you need to show us the distribution of each variable independent of the other.


  10. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    Tremendously enjoyed this post, and can’t wait for the updated versions in 2010 and 2011. :)

    Ky Ekinci
    Co-Founder
    Office Divvy ™

  11. Gary Trump says:

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    I think that your correlations may be inline, due to the hard numbers that you pulled. However I don’t feel that this study would show any true results whether they invested more or less because they Twitter. Your overall numbers (case studies) are way to small. I would like to remind you that most investors are way to preoccupied with other important deals being made, like spring baseball, how much to squeeze out of his golf partner on the last hole and where they are going for dinner and drinks later. So if you would like to get a true study going, I suggest that you find them at one of these events and your overall numbers will be much greater.

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