Venture capitalists may have money to throw at entrepreneurs, but their messaging needs a facelift. A new report suggests VCs could use a "rebrand."
Last week, Dan Primack over at Fortune commented on the growing number of journalists heading to VC firms. In the last few months alone, Sequoia Capital, Andreessen Horowitz, and Battery Ventures have all recruited journalists to head up newly-created content roles.
So why are VCs staffing up on writers? Well, Primack argues that hiring journalists is an attempt to "win deals by appealing to entrepreneurial ego." He imagined the VCs pitching entrepreneurs like this:
We don't only believe in your business, but we believe in you. And we've even got someone here who knows how to get your ideas out there, and make sure that when people talk about [mobile/content/SaaS/analytics/tacocopters] they'll be talking about you. We'll make you a star, and the best people and customers will flock to your business.
Perhaps he's right, but I happen to think it goes much deeper. Hiring journalists to create editorial content reveals a broader truth about the state of the venture capital industry: VCs are desperate to reinvent themselves.
In Need of Rebrand
It's no secret that the venture capital industry, as an asset class, has seen spectacularly mediocre returns over the last 10 years or so. As the Kauffman Foundation noted last year:
Over the past decade, public stock markets have outperformed the average venture capital fund and for 15 years, VC funds have failed to return to investors the significant amounts of cash invested, despite high-profile successes, including Google, Groupon and LinkedIn.
So like any contracting industry, VCs are looking for new strategies to position themselves for success--both to entrepreneurs, and to their LPs. And how will they do that?
Well, enter today's report, which argues that VCs need to do a better job at communicating. Prepared by a coalition of the National Venture Capital Association, Dow Jones VentureSource Database, Rooney & Associates (a New York public relations firm), and DeSantis Breindel (a New York marketing agency), the report seeks to answer a number of questions about the role of "branding" when it comes to the venture capital business. Namely:
What are the challenges in building an authentic and differentiated reputation in the VC industry?
What do VCs believe are the effective brand behaviors to attract entrepreneurs and LPs?
What key attributes and behaviors are entrepreneurs and LPs looking for when considering a partnership with a VC firm?
How can VC firms close respective gaps between where they are today and where they want to be in the future, from a brand perspective?
Of course, considering the report was partially funded by a marketing firm that specializes in corporate rebranding, it behooves the study's authors to imply that VCs aren't doing a very good job at marketing.
And that's pretty much exactly what the report does.
The study, titled "The Brand Influence Guide for the Venture Capital Industry" polled 158 CEOs and 229 investors online, and came to a couple of major conclusions. First, that a VC's "brand" has a correlational relationship with the VC's deal flow. And second, VCs are bad at branding.
A New Cottage Industry?
I'm not doubting their data here is incorrect, nor am I implying anything sinister about Breindel's motives. In fact, I happen to think it's a pretty smart move for Breindel to position itself as the de-facto branding specialists for the VC industry, because that's a niche market that is sure to expand in the near future.
As Breindel, the partner and co-founder of DeSantis Breindel, wrote back in January:
As power is consolidating in the VC industry, with fewer firms getting a greater share of LP funding, VC firms are beginning to realize the power that branding and marketing can have on dealflow and their ability to raise capital. The goal of this research project is to help VC marketers make more informed decisions about those activities.
Of course, it's hard to resist giving in to a more cynical suspicion that reports like these are a vague attempt to drum up a bit of fear within the VC industry, which, in turn, will provide lucrative contracts for the branding agencies that will swoop in to "refresh" a VC's look. However, the reality is that VCs are struggling, and so a rebrand or refresh (or even hiring journalists to create a new content business, for that matter) may offer a bit of help to the bottom line.
In the first quarter of 2013, for example, U.S. venture capital firms raised $2.9 billion from 44 funds--a decrease of 33 percent compared to the same quarter last year, according to the NVCA and Thomson Reuters. In fact, it was the lowest amount raised since the third quarter of 2011. The VC business is also becoming an increasingly stratified market, according to another NVCA report [pdf download]: "The top five venture capital funds accounted for 55 percent of total fundraising during the second quarter of 2013."
My prediction: Breindel won't be the only firm to capitalize the weaknesses the VC industry is facing right now. In fact, expect a full-fledged cottage industry to emerge around the rebranding of VC firms. Journalists--and the new content strategies they will bring--are likely just the first signs of it.