This post is part of our Emerging Manager's Guide to Fundraising. Download the full guide for more best practices to launch and scale your fund.
Too often treated as just a logo and color palette, your firm’s brand is its entire reputation. It begins with the boldest gestures in terms of your investment thesis, and works down to the tiniest iterations of every communication touchpoint.
Brand theory 101: brains are pattern-seeking machines, and patterns make up mental models
Our brains actively make up what it assumes should be in blind spots—in vision, narratives, and perceptions—in order to create familiar patterns using mental models.
For instance, many of your perceptions of wine are based on mental models. Wine with a higher price tag tastes better. Wine served in a Riedel glass tastes better than wine served in a plastic cup.
And this isn’t cheap trickery either. When experiments on wine perceptions were run while looking into the test subjects’ brains via fMRI, researchers could see the taste literally hits a different part of the brain. In other words, if you believe you are drinking a $300 bottle of wine out of a Riedel glass, you will see much higher activation in the pleasure center of the brain vs if you were served the same bottle in a plastic cup with a $10 price tag.
Our malleable perception is based on mental models, and mental models can be influenced by beliefs, new experiences, or education. The perception of your firm by actual and potential investors, your peers, and portfolio companies can be similarly shaped by your brand building efforts.
There is a gap between objectivity and subjectivity
Neuroscientifically, your firm’s brand is a mental model. And the belief surrounding your firm’s brand affects your investors’ trust, attention, engagement and much more.
In a 2016 study, subjects were given the same set of golf clubs to try. One group got clubs to which the researchers had added the Nike logo, and the other got unbranded clubs. It’s comfortable for many of us to acknowledge that the Nike swoosh impacts our opinions on value. But absent any other difference besides the logo, the change also impacted performance. The Nike group performed better than the unbranded group.
This gap between subjectivity and objectivity is where your firm’s brand needs to come together to create a clear mental model of its value. When your investors find value in your brand, they develop loyalty towards it. Loyalty leads to repeat investment, more capital, word-of-mouth promotion, and a powerful competitive advantage.
Determining your firm’s brand positioning is a crucial first step
The biggest challenge you face as a new fund manager is finding a compelling way to spark a want for what you have to offer. When your firm’s brand positioning is undifferentiated or unclear, it’s difficult to make it stand out as uniquely different or desirable. Clear differentiation is the result of intentional, strategic positioning. Harvard Business School’s Michael Porter’s strategy work has made this clear over the decades: choose to perform activities differently or to perform distinctly different activities than your rivals.
Performing activities differently is how Starbucks launched its brand. There were plenty of coffee shops before Starbucks, but Howard Schwartz recreated the experience and the expectation of what you could get when you buy a coffee.
Apple has consistently performed distinctly different activities than its rivals. The iPod, which was released in 2001, was not the first MP3 player on the market, but alongside it Apple created iTunes. The combination of those two was unique and valuable.
Differentiating your firm’s brand is about sound, strategic positioning that allows you to intentionally determine where you are going in the future.
Determining your positioning includes four elements:
Cultural anthropology: Understand what is happening in the world to subsequently understand what to focus your firm’s strategy on.
Behavioral psychology: If you’re not able to understand why somebody wants to invest with you, then you won’t be able to effectively communicate and engage them.
Economics: Understand what is valuable. People seek out what they believe is valuable and will find a way to acquire it. Financial returns are important, but the experience they have with your fund is crucial.
Creativity: We can only comprehend about 40 of the 10 million images that we see on any given day, so you need a brand visual identity that will engage.
Brand trust is built through transparency and communication
While investors obviously care about returns, they must trust in your firm’s brand through its strategy and operations, its reputation, and you, the manager. Earning trust is a long-term investment in transparency and communication.
Demonstrate that you know your portfolio. You have the opportunity to communicate a full assessment of its health down to each company: cash runway, ownership details, recent financings, motive for doing the deal, sourcing, and how the company’s doing. If you’re capable of reciting those details, investors will assume correctly that you’re actively managing their capital well.
Sometimes you’ll have delicate news from a portfolio company or elsewhere. If your investors find out that information through another manager, the news, or too far after the fact, you’re playing defense. But if you’re proactive and upfront, you earn credibility. You also have a greater opportunity to control the narrative. Look no further than 2023’s Silicon Valley Bank banking crisis. Some managers who held capital at SVB diagnosed the situation for them and their portfolio companies, understood that there were things they could affect and things they couldn’t, and over communicated to their LPs. Other managers were silent. In both cases, the investors remembered.
One fund manager we spoke to shared a related experience: when their fund launched its second strategy, the team knew it was imperative that their investors heard about it directly from them. Their managing partner called each investor to personally explain the decision, giving them an opportunity for honest feedback instead of feeling ambushed. Some feedback was hard, but that’s the cost of transparency.
Not all investors are created equal, so that communication strategy required nuance. Their larger, sovereign wealth fund investors were excited because the firm introduced a diversified strategy, while their smaller investors were concerned about lack of focus. Too often fund managers think of “the investors” instead of recognizing their interests are unique, and sometimes divergent. It requires you to segment your communication appropriately.
Everyone responds to feeling valued, including investors. By doing deeper dives into investment strategies, shaking up the format of annual meetings to encourage more interaction, thinking creatively about events and engagement, improving the user experience they have when interacting with your fund’s digital interfaces, and of course having good returns, you earn brand trust. With trust in hand, your investors will market your firm for you.
Brand authority is built through sharing your expertise as thought leadership
Brand building is done person by person but can also be done at scale. One way to do that is through content. When you produce content, it needs to be valuable, not just promotional. You have expertise. Share it. Write thought leadership that focuses on sectors that your firm focuses on. Build a market map or a podcast. Speak at events. Host the conversation in whatever channel or venue is appropriate. Yes, there’s a lot of content out there. But much of it is undifferentiated. If you can deliver something valuable, then there’s room for more.
Effective thought leadership creates a conversation that informs and shapes people’s thinking. It’s a multi-stakeholder value proposition which provides market differentiation; enhances credibility, reputation and relationships; and showcases your firm’s specialty. It needs to line up with your business strategy, primary markets and target audiences, and your firm’s mission.
Doing that requires original thinking. It could be a new look at existing data, a counter-intuitive viewpoint built on experiences, a new framework that helps others see problems differently, or something else that shows you know something valuable and useful. The strongest thought leadership exists between what a company believes and what it has done.
A 2017 report from Edelman and LinkedIn shows it to be nearly a prerequisite for Request for Proposal (RFP) consideration, with 42% of CEOs saying that consuming a company’s thought leadership led them to issue an invitation to bid for business (and, conversely, that poorly executed attempts at projecting such leadership often made them cross contenders off their RFP lists).
You can also use the thought leadership content you’ve written as a reason to follow up with an LP who may have ghosted you after a first meeting. “I wanted to follow up with a recent article I wrote that’s a continuation of the conversation we had last month…”.
By educating your investors you establish authority, and by measuring engagement you can refine your strategy. However, measurement is both critically important and challenging. Measurement challenges aren’t unusual for the communications function of any company; thought leadership is no exception. There is no ‘silver bullet’ metric. What’s more important is to identify clear long and short-term objectives for your program and choose metrics that align to those objectives.
Take advantage of the flywheel
It’s a major investment to build a brand and engage investors creatively, but a strong brand paired with great returns is how to build a sustainable investment firm. But holding aside the long-term ambitions, this strategy applied well should lead to more investors that participate at greater levels than they would have otherwise and increased deal flow.
Make a good first impression for your firm’s brand with Passthrough. Talk to us today.