Leaders of private equity and venture capital firms increasingly see a need for marketing. A large majority say, when surveyed, that having a strong brand is important for their firm. This is particularly true in today’s investment environment, when competition is great and capital can come from sources outside the industry.
But despite the growing appreciation that a strong brand helps firms selling a commodity – cash – in a crowded marketplace, the industry is a laggard when it comes to marketing. Few private equity and venture capital executives truly understand branding or can describe what drives their own brand from the point of view of entrepreneurs and limited partners.
Branding is particularly important for firms that intend to transition from original founders to a subsequent generation of partners. In these cases, the branding of venture capital and private equity firms has to move beyond the personalities of the founders if they are to build institutions that will outlast those founders.
For many in private equity and venture capital, where people often advance on the basis of strong financial and not marketing skills, branding feels ambiguous or even soft. The partnership structure of most firms also makes many reluctant to invest in their brands long-term because it means taking home less pay in the short-term. An investment in branding doesn’t pay immediate dividends, and the results of individual initiatives can be hard to quantify.
Strong brands mean higher awareness, greater cache, and stronger deal flow. They can even mean proprietary deal flow, and so fewer auctions. If you have associates dialing for dollars, a strong brand gets their calls returned, and having a strong brand makes negotiating term sheets easier. Firms that ignore branding put themselves at risk of competing solely on price (valuation and terms).
In addition, firms that don’t understand branding are at a disadvantage when competing to invest in companies for which strong branding is a key component of success. And, they won’t be able to add much value on that front at the board level should they get there.
Another dimension to consider is that brands are particularly valuable in times of crisis, during periods of underperformance, or when working with lawmakers and regulators.
Your brand is the thing that sets you apart and makes you matter to your marketplace. A brand allows you to tell a bigger, more compelling story to LPs and entrepreneurs alike. Strong, differentiated brands attract the best entrepreneurs, keep the best LPs coming back, and draw the right talent.
For a discussion of branding of private equity and venture capital firms, we turned to Tony Tiernan, founder of the delightfully named branding firm Authentic Identity and an expert in the branding of professional services firms.
Q. Tony, what is your definition of brand?
A. Let’s start with what it’s not. Brand is not the logo, color palette, tagline or advertising slogan. These are just visual expressions of your brand – representative of your brand, but not the brand itself.
Brand is the value-creating meaning in the business. It’s what causes your target market – whether business or talent – to choose you and continue choosing you.
Q. And, what is your view of the state of branding in the private equity/venture capital industry generally?
A. Undifferentiated and unsophisticated for the most part.
Q. Isn’t branding really for B2C firms, those that sell things like cereal and detergent, and not for firms that manage institutional capital, where business people make decisions without emotion, strictly based on numbers?
A. If that were true, there would be no need and no meaningful way to choose between competing consulting firms, law firms, accounting firms, or VC/PE firms. In their respective fields, they all operate similar business models, offer similar services, employ professionals from similar backgrounds, etc.
Yet clients see differences and make choices. Why? Because data, numbers, and rationality represent only one level of value, and one dimension of differentiation. If several competitors are essentially equal on that dimension, then other levels of value and differentiation become much more important in making the choice. Business decisions are not at all as purely rational as business people like to pretend they are.
Q. Does performance equal brand for private equity and venture capital firms – really for any asset manager? Isn’t the best way to establish a brand to do successful deals?
A. Without question, good performance is important. However, not everyone can be a top-quartile investor all the time. Therefore, developing a strong marketing program is critical.
Successful deals are table stakes. The question is, when competing with an array of VC/PE firms all of which claim to add value and do successful deals, what else can you signal that will make your firm the compelling choice? And don’t forget that performance can wax and wane. You want to be able to raise new funds consistently, even when there are bumps in the road.
Q. Do private equity and venture capital brands have unique needs?
A. Yes. First, the brand is delivered by the professionals in the business. These folks usually value their autonomy and don’t much like to be managed. So if you want them to deliver a consistent brand experience, you have to give them a shared understanding of the value-creating meaning at the core of the business. Second, in a business where all your competitors look and sound the same and where most do a pretty good job at delivering financial results, standing out requires much more than achieving good returns. Another dimension to consider is the halo a strong brand provides to your investment portfolio.
It’s also worth noting that as a VC/PE firm grows, the deal flow needed to fuel the firm will eventually exceed the reach of the partners’ individual networks. Something bigger, more powerful and with a wider reach is needed: a compelling brand that acts as a beacon to attract business.
Q. With money a commodity that is currently in relatively high supply, can venture and private equity firms truly differentiate themselves?
A. That’s the classic commoditization conundrum. If your proposition focuses purely on the functional value you offer, you are in a race to the bottom. We help clients understand their value proposition on four levels. Functional value (providing funds) doesn’t offer sustainable differentiation. Think instead about the other dimensions of value and how to use them as differentiators.
Q. Compare and contrast the branding needs and challenges of professional services firms and private equity/venture capital firms.
A. There are many similarities: professionals deliver the brand and need to be aligned around a shared understanding of its meaning; there is ultimately a need to grow the organizational brand beyond the personal brands of the firm’s partners; both tend to depend on relationships, but often fail to understand and leverage the value in those relationships; and both tend to have difficulty building differentiation because they think of their value proposition only at the functional level.
The chief difference is that VC/PE firms have a dual audience: the limited partners who provide them with capital and the “clients” they invest in and will ultimately make their money by selling. Professional services firms make their money by cultivating a long-term relationship with their clients. It’s a simpler model.
Q. We’ve seen that firms can’t be successful in their branding initiatives, and in marketing in general, without senior-level support.
A. That’s been our experience, too. If you think of the brand as the value-creating meaning at the core of the business, then it is clearly much more than a communications issue. It has to be embedded in the core processes of the business, it shapes values and vision, it guides behaviors and choices, it informs the firm’s culture, and it has a big impact on the value of the firm. It’s a key strategic issue, and it requires the perspective and sponsorship of the CEO, managing partner, or a very senior executive.
Branding can be a powerful force driving business success, but another reason you need buy-in for the top-of-the-house is that it requires a long-term commitment and can’t be abandoned next quarter.
Q. Tell me about your methodology.
A. Think of a Venn diagram with four circles: differentiation, credibility, relevance and culture. The point at which those circles intersect is your authentic identity, the core value-creating meaning that drives your organization. So the inputs we gather and synthesize include interviews with key internal influencers, interviews with strategically important clients and prospective clients, and an analysis of the competitive landscape. The key thing that sets our approach apart is our use of storytelling in all of these encounters. Stories are the building blocks with which we construct meaning. We use them to construct a narrative for the brand that addresses not only the functional and rational reasons to prefer your firm, but also the powerful fundamental human needs that your brand addresses (and yes, it does).
Q. How do you suggest that firms go about evaluating the current state of their brands?
A. Take a look at your key competitors’ websites. Block out their names and ask yourself honestly whether a marketing prospect could tell the difference between any of you. It’s really hard to differentiate based on verbal descriptions of what you do or what functional problem you solve.
It’s really hard to understand how you look and sound to someone else who may not share your assumptions or find your process as fascinating as you do. So it’s genuinely helpful to have someone outside your firm assess this.
Q. What role does research play in a branding/rebranding project and what types of research are we talking about?
A. The easiest things to get at are those that are quantifiable numerically. We get at those. But as Einstein said, not everything that matters can be measured, and not everything that can be measured matters. All else being equal, you need to understand what moves people. Data alone rarely drives behavior. Data require nothing from you but understanding. Stories require you to identify and engage, they leave room for you to find yourself in the narrative. That’s what helps you construct meaning and so drives you to take action. Traditional research doesn’t get the job done.
Q. We’ve found that research is a crucial piece of the puzzle, but often hard to sell to executives who believe they already know how their firms are perceived by LPs, intermediaries, and entrepreneurs. Or are certain they know what’s important to these audiences. But research sometimes shows surprising gaps.
A. Research can reveal confusion in the marketplace that a firm’s general partners are not aware of. And firms change over time – sometimes perception doesn’t keep up. This can mean missing deals if entrepreneurs and intermediaries or even other private equity firms have lost track of the type of deals you want to do.
Q. How important is a brand to internal cohesion of a firm?
A. I think of a brand as a mandate, not a mask. It goes much deeper than image, logo or color palette. It’s really about the meaning at the core of the organization. When you think of it that way, brand becomes a tool for aligning the business, for guiding behavior and for making choices.
Q. In the private equity and venture capital business, like the professional services business, people, not physical products, convey the brand. Can’t you just assume that all your people know who you are and will act accordingly?
A. Well, in our client work we often find that assumption to be false. Unless the leadership of the firm has made the effort to define explicitly what sets the business apart from its competitors and how that difference creates value, and then systematically embedded that in the firm’s values, behaviors and communications, it gets interpreted in wildly different ways. The bigger the firm grows, the more important it becomes to codify and communicate the brand.
There is a circle that all professional services firms need to square. The brand is delivered by the professionals who work for the firm, and those professionals are typically well-educated, independent-minded, and not willing to parrot a script or march in lock-step. Yet, to build an organizational brand that is greater than the sum of the individual partners, you have to deliver a consistent experience, one that clearly signals what you stand for, while honoring the autonomy of each partner and associate. The only way to do that is to create a shared understanding of the value-creating meaning at the core of the firm. That’s why brand is so much more than communications.
Q. What steps can venture capital and private equity firms take to differentiate themselves from their competition?
A. You have an objective understanding of what your target market really values and the language they use to describe it. So take a stand on issues that really matter to your constituents. Use your influence to affect change. This will eventually lead you to differentiation that matters. Too many firms are afraid to ruffle feathers.
Q. How important is a website in expressing a private equity or venture capital firm’s brand?
A. Your website is crucial, it’s your storefront. But it’s much more than a delivery system for information. The content, the navigation and architecture, the choice of language, the tone of voice, the perspective from which it addresses the visitor, the imagery – all of these elements need to be integrated to deliver an experience that represents the brand.
Q. The taxation of carried interest is an evergreen topic and will certainly bubble up again as we approach the 2016 election. As a result, we’ve seen some private equity firms band together under the Growth Equity banner in an attempt to align themselves with VCs and distance themselves from LBO shops. Have they been successful?
A. They have distinguished Growth Equity as a type of private equity that stimulates job growth as distinct from leveraged buyouts with its reliance on financial engineering. The National Venture Capital Association in 2013 launched the NVCA Growth Equity Group to better meet the needs of its Growth Equity members. Since then, Cambridge Associates has also recognized Growth Equity as an investment category that deserves to be considered an asset class. So it seems they’ve been successful. It remains to be seen if that saves their tax advantage.
Q. Can the Kleiner Perkins brand recover from the Ellen Pao trial?
A. They won the case, which helps. However, the suit shone a bright and unflattering light on the sector as a whole. VC/PE firms need to reflect the world they operate in, if they want to attract the right clients and the right talent. It’s stupid and value-destroying to drive away talent whether we are talking about entrepreneurs or potential employees.
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