A buzzy Web site brings scrutiny to the previously secretive world of VC investing
Adeo Ressi has long had a problem with authority figures. When he was in college, at the University of Pennsylvania, he ran an environmental newspaper called The Green Times. He tried to turn in copies of the paper as his senior thesis, but his professor wouldn't accept them. Ressi dug in his heels and refused to submit a traditional thesis. He never did get a degree. "He's always done his own thing," says younger brother Alex Ressi.
With his latest venture, Adeo Ressi is taking on the Establishment once again. A year ago, the 35-year-old New Yorker started up TheFunded.com, a Web site that lets entrepreneurs anonymously rank, review, and post comments about venture capital firms. As an entrepreneur who has started numerous companies, Ressi saw a need to shine a spotlight on the previously secretive industry. "Venture capital definitely needed a kick in the pants," he says.
It's certainly getting one. TheFunded has become the talk of Silicon Valley, as venture firms have come in for increasing scrutiny and in many cases harsh criticism. One recent winter day, in a cramped conference room in his Greenwich Village office, Ressi pecked his way through the site, waving his long arms and poking at the computer screen. "They stole as much information as they could about my business," reads one recent post. "It was a very unfriendly atmosphere," reads another. Ressi points to a third comment about a venture employee who was 40 minutes late for an appointment, didn't apologize, and then was obnoxious. "How much you wanna bet that guy gets fired in a few months?" he says.
Ressi isn't just an angry young man. He's also a successful entrepreneur, with a track record that provides him legitimacy in the tech industry. Over the past decade, he has sold three of the businesses he started for a total of more than $100 million, including the sale of his online gaming company Game Trust to RealNetworks (RNWK) a few months ago.
In person Ressi comes across more as idealist than insurrectionist. He argues that airing the venture industry's dirty laundry will ultimately improve the efficiency of the funding process as well as relations between financiers and entrepreneurs. Ressi has just moved to Palo Alto, Calif., with his family to get inside the Silicon Valley "echo chamber," which he believes will allow TheFunded to have a bigger impact. "The only surprise for me is that something like this took so long to show up," says Paul Kedrosky, a partner with Ventures West Management.
Still, many VCs are infuriated by TheFunded. Critics say the site lets disgruntled entrepreneurs unfairly vent their frustrations behind a cloak of anonymity. Recently, Silicon Valley's Hercules Technology Growth Capital went so far as to send a letter to Ressi about a post that it called "false and defamatory" on TheFunded. "[W]e urge you to remove the posting immediately so that we can avoid a lawsuit," an attorney for the firm said.
Ressi has never bent to such criticism. In fact, he's planning to go even further in exposing the inner workings of the venture world. Next week he plans to launch an addition to the site that will allow entrepreneurs to post the sensitive information contained in their venture financing offers. These contracts, most often signed with confidentiality agreements, include crucial details such as liquidation preferences and redemption rights. Ressi says the step is necessary to expose the increasingly onerous terms being written into deals. But he admits, "even my lawyers are a little nervous."
Ever since he was a child, Ressi has thought of himself as something of an outsider. While most New York City kids spent their summers in sleepaway camps in the Catskills and such, the gangly teenager begged his parents to send him to Arcosanti, an "experimental city" founded in the Arizona desert by the Italian architect Paolo Soleri. He ended up spending four summers there as its youngest inhabitant. It changed his life, though he ended up doing mostly menial labor. "I had the opportunity to experience a very utopian vision of the world," he recalls.
One side project that Ressi is working on was inspired by his experience at Arcosanti. Ressi is setting up a Web site that will allow people to contribute ideas and plans for building more sustainable urban developments. He hopes one day to use the contributions to build what he calls the City of the Future.
Growing up on New York's Upper West Side, Ressi was shaped by his parents' differing personalities. From his father, a quiet civil engineer, Ressi inherited a love of architecture and technology. From his mother, an outgoing social worker, Ressi developed a more gregarious side. "My mother has a hardwire from brain to mouth," says brother Alex. "Adeo has inherited some of that quality."
After college at Penn, Ressi was drawn to the nascent Internet scene. It was the perfect fit for a young soul who knew how to manipulate computers and didn't want to work for The Man. In 1994 he helped run one of the first local Web sites, Total New York, which America Online bought in 1997. In 1995 he launched methodfive, a Web development firm, and in 2000, he sold the 250-person startup to Xceed for $88 million.
The idea for TheFunded was born out of Ressi's experience at Game Trust, the developer of online games he founded in 2002. Ressi says he had lined up a $10 million investment from Softbank Capital for a second round of funding. But in February, 2005, on the day the deal was supposed to close, Softbank pulled its offer. The withdrawal set in motion a chain of events that ended 18 months later with one of Game Trust's new investors trying to boot Ressi out of the company.
The coup failed, but Ressi knew he had to do something. So over the winter in 2006, he built TheFunded.com. The idea was to create a place to help him evaluate venture capitalists in case he needed to raise money in the future. The site struck a chord with other entrepreneurs, and Ressi quickly signed up hundreds of members, who began posting juicy stories under titles such as "The Truth About Matrix Partners."
TheFunded.com isn't a big money maker. Ressi pulls in revenue by selling advertising, as well as $400-a-year subscriptions, typically to the institutional investors who put money into venture funds. To date, Ressi claims 450 subscribers. He says the site is profitable and revenue "will easily hit seven figures" this year.
Still, the site's popularity with entrepreneurs is surging. So far, some 4,600 have signed up as members (who must register, but don't pay fees like subscribers), up from 3,100 last fall. For them, the site functions like an after-hours club and support group. In the Advice section, entrepreneurs can post tips about the fund-raising process. In another area, members can rate a venture fund on a scale of 1 to 5. And while venture capitalists are not allowed to view comments in the members-only area, Ressi created a section where they can publish their own profiles and comment on posts made in that section.
Venture firms are pressuring Ressi for more involvement and influence. George Zachary, a partner at Charles River Ventures who counts himself as a friend of Ressi's, says TheFunded should forbid anonymous posts. "There should be more transparency," he says. "Anonymous comments allow people to make up stuff."
Ressi retorts: "Anonymity provides entrepreneurs with a comfortable environment to speak their minds freely."
TheFunded could create long-term challenges for Ressi. As a frenetic entrepreneur, he likely will try to raise venture money for one of his future startups. But it may be tough to persuade VCs to cut him a check after he has so publicly taken on the industry Establishment. "Yes," he says with a smile, "it will be difficult."
For most of last year, the man behind TheFunded.com kept his identity secret. Adeo Ressi had no intention of ever giving up this anonymity. But last summer, rumors started to spread about the person behind the site. Ressi decided to manage his unmasking rather than be surprised by it. The result was a feature in the December issue of Wired revealing what writer Carlye Adler called "one of the tech industry's most tantalizing secrets."