PR pros and VCs: uneasy bedmates: Venture capitalists ensure that their investments are covered on the PR front. That can mean new business - and meddling for PR agencies. Aimee Grove reports

After weeks of planning and preparation, launch day had arrived for the new media campaign Agency X had put together for one of its hot - but very green - start-up clients.

After weeks of planning and preparation, launch day had arrived for the new media campaign Agency X had put together for one of its hot - but very green - start-up clients.

After weeks of planning and preparation, launch day had arrived for

the new media campaign Agency X had put together for one of its hot -

but very green - start-up clients.



The well-orchestrated PR push was set to roll out in stages, starting

with regionals and trades to give the company some time to build its

infrastructure and customer base before facing tough questions from the

big guns.



So imagine the surprise on the account manager’s face when she picked up

the latest issue of The Industry Standard and read a poorly placed,

off-message and potentially damaging blurb on the company. Source of the

leak, as she later discovered: one of the client’s well meaning

investors, who had taken it upon himself to make a few calls to

reporters.



Welcome to hi-tech PR in the so-called ’New Economy,’ a world where

money guys more often than not have a seat at the marketing table - and

their fingers in the PR pie. Eager to protect their investments, venture

capitalists, or VCs, take an active role in PR for their portfolio

companies - from finding or firing agencies to vetoing strategy to

making media calls.



The get-rich-quick Internet space is all about getting to market first,

raising funds, going public and/or getting acquired. Much of this relies

on marketing, and venture capitalists have deemed PR to be king of the

marketing mix.



’Over the past 24 months, as the time from a company’s inception to

going public or being acquired has been compressed and the Internet

remains such a wide open territory for opportunity, PR has become one of

the top responsibilities for us, and we often end up rolling up our

sleeves and getting directly involved,’ says Bill Nolan, a partner with

San Francisco-based Crosslink Capital, the recent venture spin-off of

Robertson Stephens.



Most of the time, this new PR/VC relationship presents a synergistic

win-win situation for all involved. Here’s why: in most cases, after a

company scores its first round of seed funding from an individual

’angel’ investor or a VC firm, the investors typically advise the

entrepreneurs to spend at least 10% to 20% of that check on PR. The VC

or angel then often puts in a call to one or more of the agencies with

which he or she has worked before, or one that has status as a

’top-tier’ hi-tech agency.



Benefits to the PR firms are fairly obvious: what agency wouldn’t want

to skip tedious RFPs, filling the client roster with well-funded

companies via referrals only?



For VCs, hooking up their portfolio companies with firms that can help

secure them that all-important ’buzz’ simply makes sound business

sense.



In addition, the ability to broker those relationships, especially with

what are perceived to be the ’hot’ hi-tech agencies, is seen as an added

value proposition that VCs use as a means of attracting other

entrepreneurs and getting in on other lucrative deals.



Finally, for prospective client companies, the VCs are often the only

means of scoring a meeting with any of the overworked and understaffed

PR agencies that specialize in start-ups.



’In the majority of cases, unless you have a VC connection, you won’t

get your foot in the door at a good PR firm - you basically have to show

them the money,’ says Cynde Ahart, editor-at-large for Iconocast, an

online marketing newsletter with a large Silicon Valley readership.



’The first thing we ask potential new accounts is, ’Who is your VC?’’

says Katy Boos, a principal of Big Sky Communications, which handles a

variety of Internet and enterprise start-ups. ’If they’ve secured

funding from top-tier VCs, it’s like a seal of approval for us.’



Adds Caryn Marooney of Outcast Communications, a hot San Francisco

agency specializing in Internet start-ups: ’Having (the backing of) a

top VC firm is one very important ingredient that would influence our

decision to represent a company - we use that as part of our filtering

process. But we also look at whether or not it has a story we can tell

to journalists.’



Marooney points out that when Outcast began working with Quokka, an

extreme-sports online network, the start-up didn’t yet have its funding.

But Marooney admits Quokka was more the exception than the rule. ’One

company who called recently was so stealth that they couldn’t even tell

us what they did,’ she says. ’We would have never driven down to Redwood

City to meet with them if we hadn’t known their VC.’



So far, so good, right? Except that not everyone is in on this great

little game. Lots of excellent PR firms don’t get an invite to the

party, especially those with principals who prefer pitching to

networking or who don’t happen to have an office within a stone’s throw

of Sand Hill Road in Palo Alto or in San Francisco’s Multimedia

Gulch.



Most VCs admit that they are heavily influenced by word of mouth and by

past experience with specific agencies - typically the same 10 shops

that got in early and made a name on some of the earliest IPO success

stories (Niehaus Ryan Wong, Alexander Ogilvy, Blanc & Otus, Interactive

Public Relations). Perhaps not coincidentally, the principals of each of

these same agencies are also those most often associated with the

cocktail/launch party circuit that has made PR pros Pam Alexander,

Simone Otus, Marissa Verson Harrison and Bill Ryan as recognizable as

their clients.



Also, even if a firm already has a company on the roster and everything

seems to be fine, new investors can come in and shake all that up, often

for all the same reasons mentioned above.



’There’s a tendency for VCs to steer their companies toward agencies

that they have worked with in the past, even if the client is happy with

its current firm,’ says one Bay Area agency executive who spoke on

condition of anonymity. ’This doesn’t always translate into success for

the new company, of course, especially if the VC is going on the

agency’s name alone and that agency hasn’t done great work for anyone

else in years.’



Steve Blinn, of New York City-based BlinnPR, experienced this nightmare

scenario firsthand - twice. ’In at least two instances, a client’s

investors dictated that they should take the account to another agency,

even when these clients happened to be very happy with the results we

had gotten for them,’ Blinn says. ’Since then, both of these companies

have seen a reduction in the amount of media exposure.’



Some point to VC influence as part of the reason for the increasing

account churn in hi-tech. ’For the most part, VCs have been great for

the PR business. But if clients are jumping ship at six months, it’s not

good for anyone,’ says Joseph Riser, VP of corporate and technology at

GCI Group in Los Angeles.



Then there’s that whole nasty issue of control. A recent story in The

Wall Street Journal detailed the account of an ad agency that had to

defend its creative work on a start-up’s campaign against a chorus of

critical VCs. It seems obvious that, despite many protests to the

contrary, such conflicts and power struggles also occur in the PR world.

For one thing, VCs and/or ’angels’ now regularly participate in

messaging and positioning sessions and often voice strong opinions on

direction and volume of coverage.



GCI’s Riser says one situation that resulted in a clash of wills with a

client’s VC firm made the lives of the account team ’pure hell’ and

nearly destroyed the company’s reputation.



’The principals at this one client had a good idea, but they had no

top-level management experience, no partnerships, no customers and they

needed time to educate people about the whole market itself,’ Riser

says. ’We wanted to roll out region-by-region, but the VCs didn’t want

to wait that long. They were constantly goading us to get the story out

there, even if it was going to get shot down and written about

derisively. They didn’t care whether the company would fail or succeed -

they just wanted the name out there so that they could secure more

funding.’



Riser says the VCs even seemed to disregard solid media results that did

not mesh perfectly with their financial goals. ’We would score a big

hit, like a four-page spread in a national publication, and traffic

would go wild to the site, but if the press wasn’t in Industry Standard,

Red Herring or any of those tech business pubs, they didn’t care.’



And then there’s the problem of VCs calling in reporter favors and

nudging into the media relations process. From the VC point of view,

pitching is in the client company’s best interest, of course.



’We are very proactive in getting the right PR for our companies, and we

are active in helping guide them through positioning and marketing

issues. It’s part of the value that we bring to the table,’ insists Tim

Haley, managing director of Redpoint Ventures in Menlo Park, CA.



But Steve Blinn disagrees with the new VC reasoning. ’I don’t know a

single VC who has ever worked in a newsroom or who has picked up a pen

and written a press release,’ he says. ’So when a CEO starts listening

to them on public relations, that’s troubling.’



Interestingly, though, while in the courting phase, before taking on a

company as a client, it is the top-tier PR firms, not the VCs, who hold

the balance of power in these relationships.



’VCs are finding it critical to market themselves to the PR firms,

because there is a shortage of good agencies, and they need to have

multiple relationships because they have so many companies in their

portfolios,’ says Marissa Verson Harrison of Interactive PR. ’Also,

there is more money available than there are great companies to invest

in, so they are having to compete more and more against each other.’



’I would say that we’re as solicitous of PR firms as the entrepreneurs

are,’ concedes Alex Gove, a VP at Walden VC in San Francisco and a

former senior editor of Red Herring.



With that in mind, more and more VC firms are actually hiring people to

take up the slack in the interim - both helping portfolio companies as

an interim PR manager and helping them to find good agencies to take

them on. In a few cases, these in-house marketing managers or contracted

PR pros end up pitching for coverage of the VC firms themselves. Others,

such as Seattle’s Olympic Venture Partners and Redpoint Ventures in

Silicon Valley, have gone a step further, hiring a full-time PR

firm.



While in the past it might have been seen as tacky for VCs to promote

themselves, that’s not the case today. With more VC money than great

business opportunities up for grabs, competition between VC firms has

gotten fierce in all the hi-tech hotbeds, making PR a way for firms to

differentiate themselves to entrepreneurs as well as to potential new

partners. Also, most of the business media, from Fortune to The Wall

Street Journal, have added VC beats. ’The firms have plenty of reactive

press to manage, too,’ says Emily Cohen, an independent pro who handles

PR for Bessemer Venture Partners.



’The VC industry has moved from a quiet, insular community to one that

garners a lot of media attention, so we need to be very careful with our

own messaging now,’ agrees Redpoint Ventures’ Haley.



About a year ago, San Francisco PR shop Blanc & Otus created a separate

group to service VC clients and related organizations. Despite the

obvious new business opportunities such clients might present, agency

principal Simone Otus insists this was never the impetus for setting up

the practice.



’We will meet with any of their companies as a matter of courtesy, but

it’s just a referral and I don’t think it has ever even turned into a

client,’ she explains.



However, Otus will allow that having hot VCs like Redpoint Ventures and

Sutter Hill Ventures on the roster offers other benefits. ’They offered

us a way to interact with the business press in a positive way you don’t

always get with product PR,’ she points out. ’It’s also a kind of

marketing for the agency - we are positioned by association with these

high-profile organizations. It opens doors for us and adds some cache,

making us really a part of Silicon Valley.’



Other agencies do view this as a new-business pipeline. For example, The

Horn Group handles PR for two VC firms (San Francisco’s Norwest Venture

Partners and Boston’s Highland Venture Capital), as well as a few

portfolio companies for those VCs. And Bob Silver of The Silver Company

relishes the new-business channel created by having Seattle’s Olympic

Venture Partners on his client roster. ’It was well established from the

start that this would be a synergistic relationship, with OVP referring

business to us when the fit was right,’ he explains.



Finally, some hi-tech agencies have avoided VC clients altogether. For

example, Antenna Group CEO Melody Haller says she’s been approached by

many VC firms requesting her services ’for cheap, hinting they will send

companies my way. I’ve always said no to that. I don’t want a company

coming to us because they feel like they have to. I want there to be a

good fit, and know that they are coming because they know what we do and

they like it.’



It’s important to note that VCs - and the nature of the dot-com, pre-IPO

world - have created a new definition of successful PR, shifting the

emphasis from media clips to word-of-mouth buzz that, ideally, leads to

further funding. ’There are now two key PR goals for start-ups: to

increase awareness of a company’s products and services to its key

audiences and to establish credibility for a company’s business model,’

Silver says.



Some PR agencies and IR firms have even started hiring dot-com

consultants like Susan Farley to support start-up fund-raising with

media and analyst relations. For example, with Healthnet, Farley set up

meetings with Manhattan-based bankers and VC firms for the San Francisco

company, and then called local and national reporters to pitch stories

on the company to coincide with the appointments.



’One hand washes the other. It’s much easier to raise money for a

company that people are reading about in industry trades and consumer

press,’ she explains. ’Product sales are not my goal - funding is.’



In addition, the influence of VCs and the demand for branding,

positioning and other marketing-related services for start-ups also

birthed a new type of PR firm: agencies that work for equity in lieu of

cash and that only work with clients up to their launch. Interactive,

Outcast, SparkPR and Launchpod are just a few of the Bay Area agencies

that have sprung up in the past two years to fill this niche.



’The VCs like that we take equity in their companies, and our focus on

launching brand-new companies is a great value proposition for them,’

explains Jesse O’Dell, whose three-person agency, Launchpod, boasts

strong informal alliances with Draper Fisher Jurvetson, Trinity Ventures

and Bessemer Venture Partners.



And don’t think that the PR mega-agencies are missing out on the VC

gravy train. Burson-Marsteller’s Internet & Technology practice, for

example, has developed a full offering of management consulting services

for start-ups - activities far beyond the usual scope of PR.



’With early-stage start-ups, we write their business plan and retool

their revenue model to ’dress them up’ for VC meetings,’ explains Albert

Durig, managing director and chairman of Burson’s Internet and

Technology practice for Latin America. ’We understand what a VC is

looking for at different stages of funding and help them provide that.

Then, when the company officially launches three to five months down the

line, our focus turns to more traditional public relations.’



For all of the agencies in the heartland and the hinterlands that may

think this new VC/PR relationship has no relevance to their own

business, think again. Internet business and e-commerce ventures are

springing up everywhere these days - a recent article in The Industry

Standard chronicled the start-ups sprouting up in Kansas City - and

wherever dot-com riches emerge, VCs are sure to follow. New York City is

already seeing more than a handful of Silicon Valley VC firms setting up

satellite arms to grab a piece of the Silicon Alley’s action. Others are

opening up shop in Los Angeles, Boston, Austin and even Europe. It’s

certain that wherever VCs arrive flashing cash at hungry start-ups, the

agency landscape is bound to shift, with some firms getting a head start

on the hi-tech bounty.



Also, perhaps more troubling for PR pros, some VCs may be turning away

from agencies these days. Susan Gonzales, a director of communications

at Basement.com, an online shopping and pricing site, says a VC recently

advised her CEO to bring PR in-house rather than using an agency, since,

in his opinion, start-ups can’t get the services they need because PR

firms are so overloaded.



Lou Hoffman of the Hoffman Agency predicts that VCs may even start

establishing their own in-house PR capabilities: ’I am waiting for the

day we see a blue-ribbon VC firm starting its own PR arm.’



For the time being, though, VCs and PR firms will likely continue as

uneasy bedmates.





SHOW ME THE MONEY: SELECT VC FIRMS



Accel Partners



A relatively new player already making a big name for itself.

Specializing in communications and Internet/intranet companies, Accel’s

portfolio includes iCast, iBeam, Netopia, Real Networks, HearMe, Quokka,

Schoolpop, SmartAge.com and Yodlee.





Bedrock Capital Partners



VC firm with offices in Boston and San Francisco that invests in

early-stage companies involved with communications, information

technology and healthcare tech. Affiliated with investment bank Volpe

Brown Whelan & Co.





Benchmark Capital



Known as a fast mover with a quick exit strategy (i.e., being the first

firm to jump in and invest in a category and also being the first to

cash out and move on). Portfolio companies include Critical Path, Red

Hat Software, Scient, Webvan and Kana Communications.





Bessemer Venture Partners



Menlo Park, CA firm with companies such as Verio, Telocity, Flycast,

Keynote, Tumbleweed, Mothernature.com, eToys and Babycenter.com.





Crosslink Capital



San Francisco-based spin-off of investment bank Robertson Stephens,

formerly known as Omega Ventures. Recent investments include eMachines,

eve.com and Brightmail.





Draper Fisher Jurvetson



One of the blue chip VCs on the peninsula, DFJ has invested in such

companies as Brodia.com, Fogdog.com, Third Voice, Interwoven, NetZero,

iShip.com, idrive.com and Digital Impact.





Flatiron Partners



East Coast’s best-known VC firm for new media, based in New York City.

Works often with RLM Public Relations in Manhattan. Best-known recent

investment: Kozmo.com





Hummer Winblad Venture Partners



One of the top-tier firms and claims to be the first to focus on

software companies. Investments have included MyPrimetime.com, Pets.com,

Respond.com and Extensity.





Impact Venture Partners



A dollars 100-million fund started in New York City by Adam Dell,

Michael’s whiz-kid younger brother. Investments include

Opentable.com.





Kleiner Perkins Caufield & Byers



The granddaddy of VC firms in Silicon Valley and known as a firm that

waits and invests for the long haul rather than jumping in early just to

grab the first-mover advantage. Recent investments include Linuxcare,

Google, ePinions, eLance, Handspring, Vividence, myCFO, Greenlight.com,

Corvis and Disappearing Inc.





Mohr, Davidow Ventures



Menlo Park, CA firm with companies such as Critical Path, Rambus,

Alphablox and Onvia.com in its portfolio. Works often with Big Sky

Communications, Access Communications and Neale-May Partners.





Redpoint Ventures



Recently called ’Silicon Valley’s hottest new VC firm’ by the San Jose

Mercury News, this Menlo Park, CA-based company was formed by the merger

of Institutional Venture Partners and Brentwood Venture Capital and

focuses exclusively on Internet companies. Portfolio includes Ask

Jeeves, Flooz.com, esurance, Tivo, Onebox.com, Responsys, WebTV,

Bizbuyer.com and Stamps.com.





Sequoia Capital



A top-tier Silicon Valley firm whose portfolio of Internet companies

includes Webvan, VA Linux and AuctionWatch.





Sutter Hill Ventures



Palo Alto firm with Internet investments that include Broadvision,

I/PRO, Faxsav, HearMe (Mpath) and Virage. Enterprise software

investments include Avid, Clarus, Edify, Forte, Information Advantage,

Ingres, Legato, Vitria and Xcellenet.





Walden VC



San Francisco-based firm that specializes in Internet and new media

companies, such as Snowball.com and AllAdvantage.com





WHAT VCS ARE LOOKING FOR IN PR AGENCIES



Merely ’building buzz’ or scoring media placements doesn’t cut it

anymore. For a VC to send his or her investment your way, an agency

needs to establish a reputation for the following qualities:



Strength in branding and positioning. ’A good PR firm helps a company

craft a PR strategy by working through the positioning, defining their

messaging and determining the audiences who will receive these

messages,’ says David Cowan, managing general partner of Bessemer

Venture Partners in Menlo Park, CA.



Connections. Ideally, a PR firm should be able to effectively leverage

existing industry relationships to open doors for a VC’s portfolio

companies - for example by introducing them to key media, analysts and

potential connections for recruiting staff, Cowan says.



Flexibility. ’We look for an agency that is able to work with a tight

schedule that’s shifting all the time, and who won’t freak out when a

deadline gets moved out or in by a few weeks,’ says Donna Novitsky, a

venture partner at Mohr, Davidow Ventures.



Senior staff on the account. ’We want an agency who can devote a senior

person on the staff to the company’s business, because often at this

stage it’s more about strategy than tactics,’ says Tim Haley, managing

director of Redpoint Ventures.



Technology smarts. ’Because what we do in the venture world is so new

and early-stage, we look for PR firms who first and foremost are able to

understand complex technologies and can talk to all the different

constituencies - media, investors and even individuals in the same

industry,’ says Paul Brown, managing partner at Bedrock Capital.



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