Whether it’s private venture capital or institutional finance, relationships and network matter. Researchers found that “In short, many VCs show a preference for networks rather than arm’s-length, spot-market transactions.” Researchers found that better-networked VC firms and portfolio companies of better-networked VCs perform better. This goes beyond the context of raising capital and looks at the financial performance and success of VC firms and ventures.

For entrepreneurs, sourcing capital for hard-to-finance early-stage businesses is possible when we have a network of potential investors, that know us and trust us, that we can turn to quickly and socialize the idea. Early-stage businesses and turnaround situations are risky and investors are unwilling to part with their capital, unless they know it’s going to be in good, safe hands, that have the know-how to reduce the risk of the situation and generate a return on investment.

For investors, we also need to be nurturing our networks in order to find the entrepreneurs and ventures that align best with our investment strategy. Before Pique Fund even launched, we were built our network of entrepreneurs and potential ventures to invest in. After more than three years of active investing, we have a well-established network of investors, funded entrepreneurs, partners, and advisor that refer opportunities to us.

Here is some advice I recently shared for entrepreneurs seeking to strengthen their capital network. A number of different factors matter when it comes to the impact of network on capital raising:

  1. Having potential investor(s) in your network gives you a place to start, but there is no guarantee that they’ll invest.
  2. Experience combined with business acumen, an idea, vision, and ability to convince people that you can navigate the risk facing your venture is a starting point for building your network (from scratch or building upon your existing network).
  3. Social capital amplifies financial capital. Someone who is willing to invest their money AND their own network, influence, and reputation is very valuable and amplifies the capital they put, attracts more capital and attention. Capital (social + financial) begets capital.
  4. You have to be willing to ask your network. You never know who is in your existing network. You only find out by sharing your vision, strategy, and ask.
  5. Think like an investor when approaching or building your network. You bring something to the table. Approach the potential investors in your network like you’re a peer. You’re the first and biggest investor in your own business and invite others to co-invest alongside you.

Who you know and what you know go hand-in-hand when it comes to starting a venture and ensuring it is properly capitalized. If you have a good network, do your homework, make sure you know what you’re talking about, gain experience, and give investors the confidence to invest in you and your venture. If you have experience, socialize your ideas, meet people before you need to meet them, and grow your network to be what you want it to be.

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A version of this post was originally published on Quora, Huffington Post and Inc. Ask me anything on Quora.

For more impact investing resources and tools, check out Integrated Investing: Impact Investing with Head, Heart, Body, and Soul, available at all major online book retailers.

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