Why Venture Capital Brands Need to Create Their Own Reputation
There’s no denying that every brand has its own reputation in its industry — good or bad. From powerful figures, such as Steve Jobs to Mark Zuckerberg, these faces have represented and made a name for their brands. Venture capital brands are notable for not only the size of their enterprise but also for their reputation and the influence that they have over others. For entrepreneurs seeking to start their own venture capital brand, it’s crucial to know the ins-and-outs of the industry, and most importantly, create their own reputation for long-term success.
What is a Venture Capital?
A venture capital is a type of private equity where investors and firms provide financing to companies and entrepreneurs with a strong potential for high growth. Typically, this comes from well-off investors, investment banks, and other financial institutions. The practice has risen in popularity over time, where many investors have played an important role in bringing innovative projects to life. A venture capital brand, on the other hand, is the company or entrepreneur receiving the investment and using these provided resources to meet the targets and milestones set out in agreement with the venture capitalist.[1]
Importance of Creating Your Own Reputation
While investors may play a vital role in a venture capital brand through their contributions, this doesn’t mean that entrepreneurs are forgotten. As stated in the Harvard Business Review, “The venture capital industry wouldn’t exist without entrepreneurs, yet entrepreneurs often feel as if they’re in the backseat when it comes to dealing with venture capitalists.”[2]
Although companies backed by a highly reputable venture are more likely to see a successful exit, building their own reputation is equally important. Take the PTPA award-winning brand, Chicco, for example, the largest baby brand in Europe part of the Artsana Group. The Italian brand became a household name for baby gear when the company actively built a reputation providing solutions that work for parents and babies. However, while consumers are well-aware of the Chicco brand name, they are unaware of its venture capitalist, Artsana Group.
Courtesy of Chicco
Despite venture capitalists often being believed to be risk-takers, this isn’t always the case. Venture capitalists wouldn’t take a chance on a brand they didn’t see the potential in long-term, which is why entrepreneurs must build a strong reputation that can win over their investors. In fact, a study revealed that offers from a venture capitalist with a strong reputation were three times more likely to be accepted.[3] With venture capital success being greatly influenced by reputation, it only makes sense for an investor to be more likely to win over companies the stronger the investor’s reputation is.
Future of the Venture Capital Industry
With entrepreneurs having more options now than ever, venture capitalists are not as high in demand as before. Many changes have been implemented over time, from increased funding, declining returns, etc. As fundraising startups, such as crowdfunding and platforms like AngelList and Kickstarter rise in popularity, this changes the venture capital industry and provides a shift in power between entrepreneurs and investors. Depending on the venture capitalist and how it is handled, it could be either a blessing or a curse for entrepreneurship innovation. Gone are the days that venture capitalists are the primary source of funding for entrepreneurs and their startups. Now, entrepreneurs are leaning more towards crowdfunding to raise capital while also building reputation and social proof. As a result, venture capitalists will continue to play a significant but most likely, smaller role in channeling assets to disruptive startups.[3]
At the end of the day, founders are the force driving the business. They build a higher reputation within the industry and develop their own identity as a brand to consumers to ensure company growth. In order to garner the interest of investors and other partners, a good, solid reputation must be created to attract more opportunities. Through the power of networking and a strong track record of portfolio growth, venture capitalists can offer valuable resources to both current and prospective portfolio companies despite the surrounding competition.[4]
[1] Chen, J. (2020, September 07). Venture capital definition. https://www.investopedia.com/terms/v/venturecapital.asp
[2] Mulcahy, D. (2018). Six myths about venture capitalists. Harvard Business Review, Ed. https://hbr.org/2013/05/six-myths-about-venture-capitalists
[3] Hsu, D. H. (2004). What do entrepreneurs pay for venture capital affiliation? The Journal of Finance. https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1540-6261.2004.00680.x
[4] Hinds, R. (n.d.). Why reputation matters in venture capital-and what to do about it. https://www.affinity.co/blog/reputation-venture-capital