It’s getting harder for venture capitalists (VC) to maintain their reputations as the savviest of investors. Case in point: high-profile troubles last year at former VC darlings like FTX and OpenAI created pressure and scrutiny on firms that have long been considered nearly untouchable.
These stumbles make it clear that venture firms need to think differently about their communications strategy, especially when portfolio companies falter. It is no longer effective for a VC to issue a quick tweet and then retreat or ignore a headline-grabbing collapse of a portfolio investment. That said, there are ways for VCs to safeguard their reputations and maintain trust with key stakeholders.
It may be your problem even if it’s not your problem.
Even if it’s not your investment that has gone bad, the crisis could still hurt you. That’s why it is wise to proactively share your perspective with key stakeholders when industry-wide mishaps occur – whether or not they directly impact your portfolio. Explain why you don’t expect to encounter the same issues if you are invested in a similar company or vertical. Emphasize your due diligence process. Describe how you are in close contact with your portfolio company’s management (assuming you are) and track developments. And don’t be defensive! It’s critically important that you demonstrate your awareness, expertise and understanding of common challenges in the venture ecosystem.
In addition, don’t wait for the regularly scheduled quarterly updates with your limited partners (LP) to address any burgeoning issue within your own portfolio. If there’s an issue, they should hear it from you first. Consider publishing a “bulletin-style” newsletter that addresses their likely concerns before your phone starts ringing off the hook. LPs are deploying less capital to VC firms these days; don’t give them another reason to turn off the spigot.
Know when to keep quiet.
The venture community is relatively small. Journalists, LPs and founders are always watching, listening and interacting with each other, so it's essential to control the narrative emanating from all corners of your organization. You may assume that your associates and principals aren’t talking about the firm’s portfolio to the press, but who are they talking to at the gym? The most innocent conversation can have significant implications for your firm. Make sure you have a firmwide communications policy in place to ensure that employees know the rules about sharing their perspective publicly. This is especially critical for relaxed corporate cultures that have employees who are geographically dispersed.
Reporters can be YOUR sources of information.
Some VCs think that engaging with the media isn’t a good use of their time. The best reporters, however, are also industry experts and have valuable insights to share on the larger trends unfolding in the market. They may even know more about what your LPs are thinking than you do. While you don't always have to agree with them, take them seriously.
Engaging with the media is not only beneficial for staying current but also serves as a smart strategy in case your own crisis arises at some point. By building relationships with journalists ahead of time, you'll already have an established connection when you need it most.
There was no shortage of tough news for the venture capital industry in 2023 and all indications are that the early part of 2024 will also be bumpy. It is critical to have a communications strategy in place now more than ever. A crisis can be paralyzing, but it can also be an opportunity to display resilience.
Sarah Mattina, Senior Account Supervisor (sarah.mattina@edelmansmithfield.com)