In a Down Market, Venture Capital Can’t Afford to Stop Communicating

Economic instability is hitting companies hard right now, and venture capital firms are no exception. Look no further than this recent Crunchbase article which highlights the headwinds facing institutional investors today:

Overall, Q2 was not the happiest time for venture-backed startups and their investors. With crashing public market comps for unprofitable tech companies, startups are facing rising pressure to reduce burn and enable existing cash reserves to last longer.

With valuations, funding rounds and exits all declining, VCs, portfolio companies and early-stage startups alike are wondering how to stay afloat in choppy waters. An organization’s first instinct is typically to cut non-essential functions as much as possible, trimming down sales and marketing organizations to focus instead on product development. However, lessons from past recessions have taught us that fortune favors those who ignore this fear-based approach. Even as markets tremor, companies that maintain their investments in communications will come out ahead in the long run.

Finding the winning investment

Whether it’s in a frothy, record-breaking market or in a recession, the goal of VC is to find a winning investment. A VC’s communications strategy should remain consistent with that goal, maintaining connections with existing portfolio companies and establishing credibility with the next big startups and founders. Eventually, the market will turn and conditions will be ripe for new investments; every VC should want to be at the head of the pack when that moment arrives.

VC executives have the opportunity to offer a unique perspective on the current market situation. Potential thought leadership could cover several areas:

  • Offering advice and best practices to founders: No one knows what potential investors are looking for in a startup more than VCs. Content that provides actionable advice to startup founders will prove highly valuable to the market, and it will ensure the VC firm stays top of mind when founders restart their own fundraising processes. If you’ve demonstrated that you have something worthwhile to say even to those that aren’t in your portfolio, odds are you’ll be able to deliver even more value once you’ve become an investor.
  • Developing vertical content for long-term opportunities: Even during the Great Recession, up-and-coming markets defied market conditions to result in runaway startup successes. Look no further than collaborative technologies like Slack and Asana, both of which emerged out of the Great Recession to be worth hundreds of millions of dollars. VCs that can look around corners to see which markets have long-term potential can then develop content specific to those industries and companies. Specialized expertise is extraordinarily valuable and should lead to high-ROI investments in the future.
  • Staying connected to portfolio companies: Of course, VCs must also continue supporting their existing portfolio companies, helping them to weather the storm and come out stronger on the other side. Don’t underestimate the power of word of mouth and a good reputation: if your firm becomes known for adding value in strategy and crisis management, you’ll have startups pounding at your door even during down economies. 

Focus and discipline

In the current environment, the single most important thing a VC can do is stay relevant. Whether that’s through media appearances, roundtables, or content creation, the only certainty is that focusing on communications will pay dividends in the short- and long-term. A consistent cadence, genuine voice, and messaging that adds value to the conversation will demonstrate what a specific VC and executive can bring to the table — that’s why they call it thought leadership.

VCs have compelling expertise to add to the conversation during a market downturn. Will they choose to use it?