Playing the global equity game
The branding game in private equity and ventue capital isn’t an easy one to win. Can the design function win over the hearts and minds of those responsible for yielding a profit? Stefan and Adriana Liute investigate
The trend towards design becoming an in-house capability at prominent private equity and venture capital (PE/VC) firms is no longer a novelty. Design partners have been brought on board in businesses from stalwart Silicon Valley VC firm Kleiner Perkins Caufield & Byers (KPCB) to tech mavens Google Ventures and Andreessen Horowitz. The design they now guide or inspire from the inside is of the product or industrial kind. Experiences, software application interfaces, physical objects and services get designed, prototyped, tested and rehashed, often with a human-centric approach also known as ‘design thinking.’ Companies large and small strive to be ‘design-centric.’ They do it so enthusiastically, that there has even been recent talk of ‘d-washing’ – that is, over-doing it with no real benefits, but simply because it is fashionable.
But there are few PE/VC firms who have taken up branding – and often rebranding of their subsidiary businesses – in a similar fashion. Although most institutional investors see branding as highly relevant, few consider it a must-have capability.
Charlie Cannell, digital director at Inflexion Private Equity Partners, one of the UK’s leading independent mid-market private equity houses, has overseen the rebranding of several of Inflexion’s investees. Although all of them were completed with help from specialised branding agencies, in-house knowledge of the field proved handy.
He says, “Our investee companies welcome our guidance. Often their teams have not been through a rebranding process before. Rebranding is a significant change for a business and management teams can become distracted from running their core business. Our in-house digital expertise allow our management teams to focus on their business, as we add real value to the rebranding exercise.”
To Cannell, branding is a tool that helps companies grow by creating customer and employee engagement. He recognises the complex nature of brands and branding, stressing that Inflexion closely looks after all its investees’ brand attributes, from visual and offering-based ones to those that are softer or opinion-led.
“All businesses need a brand to face their market, creating an identity and differentiating themselves from competition. Inflexion focuses the impact of digital advances within our businesses, we start thinking about how digital transformation can positively impact the brand and subsequently raise customer and employee engagement,” he says.
Branding is also instrumental in projecting a business- like image, as good-looking, carefully-designed brand communications are now expected from all B2B companies, he adds. Branding and rebranding is also now part of the new products and services that grow a company’s customer base. Cannell says, “Digital advances in branding directly improve new products and services. As technology embeds itself into our everyday lives, we actively seek to promote the brand using the most up to date and advanced technology possible.”
However, Inflexion’s digital director sees no need to acquire in-house branding capabilities for two reasons. First, he says there is no ground-breaking change in the role and importance of branding to B2B companies and to PE/VC firms. It is needed, but not permanently and critically, and not as much as in the case of B2C businesses. The same goes for graphic design, the creative discipline most closely associated with branding. Unlike its contribution to digital user interfaces and experiences, its role in B2B branding has not changed much and is unlikely to do so. Second, he adds, Branding is a necessity-driven service, much like medical care. It is best to source it from specialist suppliers, and not dabble in it too much.
“All the companies we invest in, we brand them. Branding is a value multiplier”
A source with an intimate knowledge of the investment industry in both America and Europe who chose to remain anonymous provided a blunt, yet forbidding, crystal-clear perspective. PE/VC professionals, she says, focus exclusively on growing the value of their investments and on generating profits in the process. They see branding as a service they can procure from specialized providers whenever their investees need it – nothing more, nothing less. Bringing it in-house would only diminish the focus on money-making. Branding is (or should be) a concern for investee founders or managers, who are involved in the day-to-day life of their individual companies, but not to institutional investors, from whose perspective it is a non-topic. She added that branding would never become a key concern to PE/VC professionals, much less an in-house capability at any major institutional investor.
There couldn’t be a starker contrast between this discouraging view and that of Aapo and Miia Bovellan, founding partners, and Gernot Preslmayer, senior partner, at Proxy Ventures, a small, London-based VC firm. To them, branding is a key differentiator and a critical asset to venture capitalists who live in a world where fundraising is so commoditised that just bringing money to the table is far from enough. “All the companies we invest in, we brand them. Branding is a value multiplier, that is why,” says Aapo Bovellan.
Proxy Ventures includes a branding studio, and the three take pride in being disruptively different from both typical branding agencies and typical investment institutions. Unlike the Interbrands and Futurebrands of this world, they, “Have skin in the game,” and genuinely care about the success of their branding clients. And unlike the CVCs and Blackstones, they are more deeply (and differently) involved in their investees. They know that branding is a bit of a black box to some of the classic PE/VC firms. “Branding is a hard thing to understand. To some, it is a dark art, which is better left to the specialists,” says Miia Bovellan.
Proxy Ventures says its second role as a brand consultant is what effectively builds trust with its investees’ founders. A brand gives the firm something to believe in, establishes strong bonds as it is being built and gives Proxy Ventures significant amounts of soft power. Beneficial business decisions are not made by smashing votes during board meetings. Instead, investees make them via brand-led convictions and thinking, often being intrinsically motivated to fight against great odds and save countless match points. “When we work, we build the brand with the company founders. That is part of the VC deal. Many of our founders have great design ethos. We work with them to increase company value,” says Preslmayer.
Because it is built into both the investor and the investee, the Bovellans and Preslmayer believe that this attention to branding is a big value multiplier. So big, that Proxy Ventures only invests in companies in which the brand hasn’t been set up yet, so that they can come in, build it from scratch, and thus reap larger profits on exit.
They share Cannell’s opinion that branding brings value through product-related innovation such as creating new market categories, particularly when it comes to B2C brands. Like Cannell but more enthusiastically so, they also believe branding generates value through its image-building role. A branding-conscious VC firm and its well-branded investees attract co-investors and further investment rounds.
But that way forward may still be a few years from proving itself and hitting the mainstream. Geoff Cook leads the New York office of Base Design, an international network of studios led by creatives.
“When we work, we build the brand with the company founders. That is part of the VC deal. Many of our founders have great design ethos. We work with them to increase company value”
To Cook, branding is a triple source of economic value and its usefulness is obvious. Brands are major assets when businesses are bought and sold. They generate value as part of the products and services they represent and even shape. And they are powerful networking devices, bringing together the people and the resources needed to accomplish things. He also concurs with Proxy Ventures and Inflexion, saying that branding is more important to B2C businesses who often operate in very competitive environments. But he also sees the traditionally smaller interest in B2B branding as an opportunity, “On the B2B side branding is less developed. As such, there is a very real opportunity for everyone from accounting firms to construction companies to really distance themselves from the pack.”
Cook recognises that PE/VC firms today don’t commonly regard branding as a key skill they should internalise, but as something that is supplier-furnished whenever a problem occurs. On one hand, institutional investors have conservative internal structures and they are disinclined to change them. On the other, branding is not yet fully understood. Unlike a good team, proper financing or a desirable product, Cook thinks branding has yet to make a compelling business case for itself, because its benefits are less tangible and harder to quantify to PE/VC professionals.
He says these professionals should have a more proactive approach to branding, one that would mean bringing it in- house, and all for a good reason, “PE/VC firms often wait until their portfolio companies have brand issues and then call in the branding agencies to fix them. It would prove more efficient and cost effective to have a dedicated specialist on staff working with the companies to anticipate the challenges and enlist appropriate partners to address the problem areas before
they occur.” Moreover, Cook is confident branding has a bright future in the world of institutional investment. As a reason for his optimism, he cites a favourable business trend that is discernible from a historical perspective, “If we look at history, the Industrial Revolution began with invention, and cycled through improved engineering, better design and finally branding and advertising. The PE/VC worlds are certainly all about invention and engineering at their core. The VC world in particular is now enraptured with design. It is only a matter of time before they realize that brand can present yet another competitive advantage to their portfolio companies and even in sourcing better deals.”
The branding industry still has a lot of work to do to convince financiers and entrepreneurs that it can bring serious value to businesses on a sustained basis. Brand consultants have to stress that branding started with graphic design, but that it is no longer limited to it. Branding now brings together many disciplines, from storytelling and industrial design to human resource management and consumer psychology.
The more complex business life gets, the more necessary branding becomes, because it acts as a unifier, a coordinator, a mediator and a simplifier that brings consistency, coherence and, ultimately, business success. This persuasion is not going to happen by just saying something must be done, but by actually doing something. And it is going to take many good serves. A keen interest in branding is not yet the norm among PE/VC firms, but professionals there realize its utility, and they will pick it up sooner or later.