For the most part, social media has historically been something that private equity and venture capital firms have been happy to invest in, but less eager to participate in. However, coinciding with a new era of openness and transparency, private equity as an industry is now being forced to face up to a new media reality.
Unsurprisingly the venture capital industry – with its sun-tinted, Silicon Valley informality – has been quicker to embrace new technologies, with blogging and tweeting more at home on Sand Hill Road than the boardrooms of New York buyout firms.
However, as it grows in scope and the industry continues its drive for transparency, understanding new media, whether Twitter, LinkedIn, Facebook or YouTube, may become a greater priority. Individual firms are beginning to recognise that conveying the right corporate image across the multitude of online platforms can help improve a firm’s reputation.
Elusive differentiation
As private equity matures as an industry, gaining greater sophistication and efficiency, being able to offer true differentiation in a hyper-competitive market is proving more challenging than ever. Firms are always on the lookout for ways to set themselves apart from the rest of their competitors and gain that elusive edge, according to Christopher Ullman, managing director at the Carlyle Group and director of the firm’s global communications. Transparency is just the latest theme, he says.
“Our money is just as green as Blackstone’s, TPG’s or KKR’s – the rates of return are pretty similar. We’re always looking to differentiate ourselves in the marketplace, though, and when a public pension fund is considering where to deploy capital, issues such as transparency are definitely things they now consider.”
These issues are something that LPs are increasingly taking into account, he says. “Pension funds have their own constituencies to deal with, and they in turn are looking to understand better who they are doing business with.
“They do consider factors other than performance and we are trying to bring about other differentiators that can help with fundraising and hiring.”
These could translate to tangible business benefits, as a private equity firm’s position or reputation as an investor or business owner could make the difference when it comes to a competitive bidding process for an attractive deal opportunity.
Ullman adds, “If your brand in the marketplace is not well regarded, then a business owner that has spent decades building a company is unlikely to view you as a potential partner. Increasingly we feel there is a business advantage to being transparent.
“We want to be perceived well and for people to want to form partnerships with us.”
How private equity firms position themselves in the market is changing, with a recognition that a public profile is not necessarily something to be feared, and can be actively managed to a firm’s benefit. Understanding the role of social media continues to figure, as firms wrestle with the notion of transparency.
Stepping into the light
Though still dimly regarded by many in the industry who hark back to a day of closed boardrooms and private equity that lived up to its name, social media is slowly being used as just another tool in shaping and conveying a brand.
Starting with company websites, then LP portals for investors, and now podcasts, videos and Tweets, over the years private equity firms have recognised the need to actively manage their operations – while remaining on the lookout for what’s new.
Sceptics may point to the faddish nature of some of these new media outlets, but managing them correctly can have a genuine benefit. Ullman says, “We want to make sure we can raise capital, hire good people and form partnerships. It’s what we do for a living and we feel that communications should keep pace with the technology that’s available and the different means for reaching these audiences.”
How individuals digest news and information has evolved immeasurably in a short space of time – so, too, corporate entities are finding they need to move with the times as to how they present and promote themselves.
Ullman adds, “When I joined Carlyle 12 years ago the goal then was the same as it is today, to effectively communicate who we are, who we work for and how we do what we do. However, over the years, the means we use to communicate have evolved.”
Most firms have slightly more positive opinions on social media than a few years ago, says Toby Mitchenall, director at UK and US-based communications group BackBay – though there is a range of viewpoints, with these outlets seen as being anything from a necessary evil to an irrelevance.
“As with ‘old’ media, it is probably easier for senior private equity execs to see the downside risk more clearly than the upside,” says Mitchenall. “The social media disaster is much easier to visualise than the social media success, in the same way that the ‘PR disaster’ is easier to imagine.”
Changing tune
However, as with old media, views are changing. “Those at the vanguard of social media engagement in private equity are the bigger institutions with well developed communications functions, who have a greater understanding of the potential benefits – both in terms of risk management and stakeholder engagement with the brand.
“Individuals in the venture capital community who have a more active personal interest in technology have embraced it of course. The days of firms burying their head in the sand are over,” adds Mitchenall.
With any number of journalists and media professionals often deriving news leads and stories from online sources, it stands to reason that an active online presence is an essential asset for those companies eager to maintain a hold on their public image.
Where LinkedIn has become a tool for recruitment and job-hunting, so Twitter could evolve to become a next-generation news source of choice. Ullman adds, “We want to make sure people who are active on Twitter are picking up on our output. This has increasingly become a means by which people get their news, and we want to make sure we are active there.”
At the vanguard
An interest in engaging with media – both new and old – reflects a broader trend for transparency in private equity. Like many issues at the forefront of the industry, a drive from investors has compelled general partners to address their own operations and openness in this area.
“I feel it is incumbent on us to explain ourselves to the public, as we manage a lot of public money,” says Ullman, pointing out that there are still some major private equity firms that don’t even have a website – and if they do, it’s little more than a basic holding page.
“Everyone has their own perspective, but ours is that with transparency comes understanding, and with that comes appreciation,” he adds. “We are very aware of the Carlyle brand in the marketplace. We feel that through good communications people can better understand what we are about.”
Those at the vanguard of this open approach recognise that private equity is no longer simply beholden to its limited partners – with an ever-widening audience ranging from the general public to policymakers and employees. While some would question the relevance of the audience on a platform such as Twitter – favoured by teenage girls and web entrepreneurs alike – its sheer growth rate means it cannot be ignored.
Ullman adds, “The audience is huge. As well as investors you have government officials that could legislate or regulate against you, unions that can choose to work with or against you, and various advocacy groups that can have an impact on the success of your businesses. Audiences are investors in private equity, as well as taking note of our impact on employees, the economy and the environment.”
Anything that could have an impact on a firm’s ability to raise capital, make investments and manage staff clearly has a place in a private equity firm’s strategy. And like it or not, the way companies present themselves is changing, with an online social media presence becoming as much a part of corporate communications as simply having a website.
More than returns
Carlyle co-founder David Rubenstein recently noted that while in the old days LPs only cared about returns, today they are likely to ask questions about every aspect of our business.
“It is incredible how many people care about what we do as an industry and how we operate as a firm, and our outreach has had to adapt to take this into account,” he says. “We feel if we do this right, across the various platforms, then it can only have a positive effect.”
Having a consistent online presence should simply become the norm for firms of a certain size, says BackBay’s Mitchenall, though they should prepare for communication that is a truly two-way dialogue.
“It is analogous to more conventional PR in that firms are starting to see the value in using it – and the risk of not engaging with it – but it is not identical.
“Social media is about more than just disseminating carefully crafted messages to stakeholders, it is about inviting conversations about your brand and listening to feedback.”
Relationship-based
“The quantity, quality and means of communications is a real differentiator to help us better explain who we are as a firm, which we think will help us raise more capital, hire better people and form more valuable partnerships,” says Ullman.
With this in mind, it is no surprise that there is a core of private equity firms looking at new ways in which to communicate, albeit tentatively, in a world where technology grows increasingly complicated.
While a few private equity firms continue to struggle to appreciate the benefits of good PR, for many, social media is an area that they are happy to leave well alone. But show a positive outcome in terms of deal-flow or fundraising, and opinions could change rapidly. At a time when the internet has made it harder than ever to maintain ownership over brand and corporate message, those that sit back while these outlets develop around them may find they are left behind.
At the moment Twitter and other outlets are most commonly used as a straightforward additional news channel to disseminate press releases and highlight favourable mentions of their firm in the media, it also has additional value as a listening tool to gauge opinion about a firm’s brand.
Mitchenall says, “This feeds into the risk-management angle. Every firm will face some sort of controversy in its lifetime – whether around portfolio companies or its own executives – and social media can serve as an early-warning system to signpost trouble ahead.
“Similarly, if and when there is some negative sentiment brewing, firms need to be equipped to deal with it, which just means having systems in place and protocols to follow.”
Social media could prove a catalyst to every aspect of operations, from offering a favourable view of the firm as a potential acquirer, to a strategic investor seeking a partnership, as well as networks that could potentially help fund origination.
While not yet suitably evolved, in time, and with private equity often touted as relationship-based business, the ‘social’ aspect of online networking should ensure that it has a role to play.
This article first appeared in Limited Partner, the quarterly magazine focused on providing the institutional investor perspective on private equity.
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