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Branding for M&A vs. IPO

I interviewed the VP of Marketing at VantagePoint Capital Partners on the state of B2B tech branding.  VantagePoint is a leading multi-stage investor in the energy, tech and healthcare markets. It turns out that VCs have some interesting things to say about branding for startups.

Engineers, the folks who typically run early tech companies, often have the wrong idea about brand. First, they think that it’s something that’s wholly created by the company itself (i.e. not by the market/customers in response to the company’s offering).  Second, they think that a good brand is defined simply as the vendor with the best “buzz”.  Here’s some solid advice to startup CEOs -”you can’t buy it, you need to deliver it.”

We had a lengthy discussion about the decision to brand on the company or the product.  VantagePoint contends that in early stage companies there is no such decision to be made, that essentially the vendor and its offering are one in the same.  As a VC firm, VantagePoint’s advice differs depending on whether the company is headed for ultimate liquidity via acquisition vs. IPO.  In today’s market – where the consolidation is the rule of the day and only 16 tech IPOs occurred in all of 2012 (2 fewer than 2011) – the choice is clear.  Startups on an M&A track should brand on the uniques of the product/technology and the strength of the engineering team.  On the IPO track, branding the company, which is essentially the “product” sold to Wall Street, becomes paramount.  For better or worse in today’s climate, where most companies can only hope for acquisition, VantagePoint thinks some CEOs conclude, “why bother with branding?”

Given these distinctions, a discussion of the concept of Brand Equity is enlightening.  According to Wikipedia, Brand Equity is a measure of the total value of the brand to the brand owner, and reflects the success of its branding with target audiences in the marketplace. Measurement can be both quantitative (i.e. comparative pricing) and qualitative (i.e. brand loyalty). Successfully branded products or services typically command higher prices, and strongly branded companies can command higher market valuations – whatever the liquid event.  So re: the issues discussed with VantagePoint, it’s a wash.  Strong brands demand and command a premium with target audiences.

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