How Do You Calculate ROI on Branding in Private Equity?

The state of branding in private equity has changed considerably since the industry’s early days.

In 2004, I took my first job out of college at Platinum Equity, in Los Angeles, as an assistant to the CEO and Founder. As I started learning about the private equity space, I became aware of Platinum’s competitive set and other peers, and I was amused at the number of firms named after Greek and Roman deities and mythology.

I had studied Latin in high school, and I had some inherent understanding of the identities of these grand-sounding but otherwise non-descript names:

• Apollo: god of prophecy, the arts, and the sun
• Pomona: goddess of abundance and plenty
• Odyssey: the magnum opus of Homer, synonymous with ‘journey’
• Ares: the god of…war, who can, according to Wikipedia, ‘personify sheer brutality and bloodlust’
• And my favorite of all, Cerberus.

Cerberus, the ‘hound of Hades, was the three-headed dog guarding the gates of hell. What an odd and intimidating choice of a brand name for an investment firm!

By 2007, during Cerberus’s high-profile acquisition of Chrysler, Steve Feinberg ‘addressed’ the firm’s name, saying that ‘it seemed like an engaging name at the time’, but that ‘it was a big mistake that we are now stuck with.’

I tell you all this to illustrate that what constitutes good branding – or even reasonable branding – in private equity has come a long way – from the 1990s to 2007, and from 2007 to today.

I’m Charlie Ittner, the Founder and President of Darien Group, a branding agency created for clients in the investment management space, and I’ve been working in private equity marketing and communications roles for over 20 years. I founded Darien Group in 2015 to fill the middle of the Venn Diagram between great creative services and true fluency in the investment management industry.

We’re here today to talk about brand in private equity: how do we define it, and how do we measure its impact? Branding is a pretty soft science for the world of private equity, in which people tend to be more comfortable with the quantitative than the qualitative.

One more note from my days at Platinum. By 2008 I was managing the firm’s marketing function, which was largely a heavy outbound promotional program in service of sourcing transactions. This was SO long ago that physical direct mail was still a key channel. Platinum invested heavily in beautiful, well-written, professionally printed mailers that went out several times per quarter to a distribution list in the tens of thousands. I was responsible for this workstream; it was a large effort and it was not cheap.

Thinking myself quite clever (and probably trying to avoid some of the work involved in these projects), I suggested to Platinum’s founder, Tom Gores, that we get modern, move past the physical mailer, go digital – email only. After all, these pieces were so expensive!

I’ll never forget his response – “Charlie,” he said, “we’re in a high margin business. If we get one deal from these mailers it justifies 20 years of doing them.”

Tom was right – private equity is a high margin business. The right Limited Partner can anchor a key fundraise, transforming a firm’s development arc. The right acquisition can compose a huge percentage of a fund’s performance. The right hire can be a star dealmaker or capital raiser or operator. Single, individual decisions make huge impacts.

And yet the industry as a whole has been very, very late in leveraging the power of branding and digital marketing – critical capabilities for nearly every other business model on the planet – to influence these crucial individual outcomes.

When I started Darien Group almost ten years ago, it was difficult to convince most prospective clients of the value of a website beyond providing contact information. Today, investment managers – particularly large ones – are catching up with the times. Blackstone is Exhibit A – have a look at their website, LinkedIn, or YouTube channel, and consider the amount of time that CEO Jon Grey spends in front of a camera to evaluate how valuable they view branded communications as being. He’s not doing all this just for fun.

But for the industry in aggregate, there’s still a long way to go.

We’ve hit obliquely on brand via the examples of Cerberus, Platinum, and Blackstone. How do we define private equity “brand” more directly? A website, a pitchbook, a series of media appearances, gossip at SuperReturn – none of these things represents the totality of a firm’s brand.

In need of my own definition for the sake of this video, I wrote the following:

‍The brand of a private equity firm is the sum total of all interactions with and perceptions of that firm, its people, and its presence by all the different constituents within that firm’s ecosystem.

Of course, now we have to define the terms used within this definition, to make sure we’re all in the same zip code:

• Interactions. These can be in-person (such as an investment professional meeting with a prospective asset seller or management team member) or asynchronous (an LP reading about a firm in Axios Pro Rata). Defined as such, even a smaller firm with, say, ten full-time employees, generates thousands of interactions in a given year.
• Perceptions: I don’t need to define the word ‘perception’ for you, but I do want to state what is perhaps obvious: Interactions influence perceptions.
  In the prior examples, was the investment professional collegial or dispassionate in the meeting with the seller? Did he or she appear more warmly engaging or sharply analytical? The Pro Rata piece – was it favorable, unfavorable, or neutral? Every interaction has some emotional component – investment management is, after all, primarily a business made up of people.
• Constituents: Today’s private equity firm has a diverse set of constituents with whom it must interact, and whose perceptions of the firm will directly impact its ability to succeed. We have first-order audiences: limited partners, asset sellers, management teams, intermediaries, and prospective and current employees.
  There are also second-order audiences that may not be as front-of-mind. Imagine your firm is making an acquisition within a niche that is new for you within an industry you’re already familiar with. This target company’s competitors and customers and other stakeholders are all of a sudden relevant to your firm (and you to them.)
• Ecosystem: No two private equity firms have identical ecosystems. The set of LPs, intermediaries, sellers, markets, and geographies that matter to you is unique. Your team works very hard to give you the best possible position within that ecosystem to the benefit of your investors and your firm’s potential.

Just to restate our definition again

The brand of a private equity firm is the sum total of all interactions with and perceptions of that firm, its people, and its presence by all the different constituents within that firm’s ecosystem.

I hope that at this point, I’ve essentially demonstrated that your firm’s brand is composed of thousands of events and instances. I ask that you come with me a step further and agree that that brand is a large entity with a certain degree of inertia – with so many people and impressions involved, it takes a lot of time and effort to move.

Let me give you three common scenarios to make this assertion more tangible.

Many private equity firms from the ‘90s and ‘00s were full of hard-charging, aggressive executives, and thus developed reputations for being tough or sharky. Distancing a firm from such a reputation is very difficult – it takes years to revise one’s market perception, and even then, you need a new thing to be remembered FOR if there’s anything negative you’re trying to distance yourself FROM. Michael Milken needed to become the ‘Cancer Foundation Guy’ in order no longer to primarily be the ‘insider trading guy’. Not to keep picking on Cerberus, but this recent Steward Health episode will stick with them.

Here’s the second – the amount of middle-market private equity firms that have repositioned over the past decade-plus from ‘generalist’ or ‘industry-agnostic’ to ‘industry specialist’ is vast – and anyone involved in those repositionings knows how glacial the pace can be, typically one to three full fund cycles for the LP universe to recognize the redefinition.

Our third hypothetical – say you’re a New York-based firm with investment bank heritage having trouble appealing to middle-America founder-sellers. You can’t very well turn over your entire investment team or move your headquarters to Des Moines in order to better appeal to those people. And yet you do perhaps have highly relevant capital and strategic resources that can benefit the very founder-sellers whose built-in impression of you is negative because they’re uncomfortable with what they perceive as the slickness and sophistication of Park Avenue.

So, within this sea of interactions and impressions and perceptions, I offer to you that your digital presence and your marketing materials are one of the lowest-investment, and highest-impact means of ameliorating your brand or moving its position from where it is today to where you want it to be. Imagine your brand as a container of liquid, that liquid made up of the sea of interactions and impressions and perceptions we’ve been discussing. Just a few drops of something truly potent can dramatically change its color.

I’m hoping that at this point I’ve convinced you of the business impact that ‘branding’ activities can have. Now I want to show you the potential scale of this impact.

You’ve made it this far into my spiel. I’m guessing you work at (or are starting) an investment management firm, and perhaps within investment management you’re somewhere around the private equity asset class. I am also guessing you have no idea what your firm’s website traffic numbers look like, or those of your peers.

Here are the last twelve months’ visitor counts for the Top 10 private equity firms from the PEI 300 list – total visits, and then unique visitors – that second number takes out the repeat visitor numbers. More than you thought, huh? Thoma Bravo, an outlier to the low side, still saw 250,000 individuals visit its site over the past year.

Now you might say “well we’re middle market or lower middle market or real estate”, etc., those numbers aren’t really relevant. Okay. We looked at the bottom half of the PEI 300, removed venture firms who tend to have heavier site traffic, as well as APAC firms who tend to have lower traffic, and ran the numbers. Average total visitors: over 75,000 and average uniques over 50,000. Granted, you don’t know exactly who those people are, but I guarantee you your key constituents we discussed earlier are among them.

It takes 0.05 seconds for a user to form an impression of a website. What type of impression are you generating through this valuable interaction between constituent and website? How would you grade that impression? Whatever it is, whatever the value of that impression, it’s getting replicated tens of thousands of times annually.

Let’s look at another example – the trusty investor presentation. Think about the amount of eyeballs that document gets over the course of a fundraise. It’s not just the hundreds of meetings for which you are present in the room; for every representative you meet from an institutional LP, there are one or two or ten colleagues whose first impression is not you but your materials as they are circulated among committees later.

How many people, total, interact with your book during a fundraise? With fundraise cycles lengthening dramatically over the last couple years, probably more than they used to. What is the value of a more persuasive and engaging document across 1,000 impressions? 3,000? 5,000?

A senior executive at a well-known investment consultant told me recently regarding pitchbooks, “I just read the first few pages and see whether I want to know more.” Sounds kind of like the 0.05 seconds your website has to land with a vistor. Are you demonstrating differentiation with your book, or are you going into a pile of fungible alternatives?

Websites and investor presentations are just two relevant mediums to consider among many communications vehicles that can affect the way your firm’s brand is perceived in its ecosystem. But hopefully within this context, they are good illustrations of the sheer quantity of impressions you make with a single branding and communications production.

To bring this home, I want to take the quantification effort one step further. What percentage effect could you have on the sum total of perceptions of your firm within its ecosystem through investment in your ‘brand’?

As opposed to our industry-specific definition earlier, I want you to think ‘brand’ here as it fits within the context of a ‘branding agency’ – not your reputation, but the totality of the impressions you can control directly – your website, your social media presence, your investor materials, any seller-facing materials, content marketing such as video, the production of your AGM and the material you deliver there, your presence at relevant conferences and events, etc.

Let’s put ALL your constituents in a basket – every single one of them. There’s a 20-year employee and one who just started last week, there’s a banker you’ve done 5 deals with, there’s an LP who knows your firm’s name and industry focus but not much else, there’s a founder-seller who’s been given a list of private equity firms to consider selling to; she’s never heard of any of them and is somewhat dubious of the whole concept. Point being it’s a diverse group in terms of their foreknowledge of you and their initiation into your brand to date.

Now how much in aggregate could we impact their perception of who you are, what you do, and how you create value? Of what you’re like to work with? Of how trustworthy, stable, outperforming, or forward-thinking your team is?

It’s going to depend on their individual situation. For some people the answer is ‘zero’. The super experienced investment banker who knows every sponsor on the street maybe doesn’t care much about your new website. The mid-level transaction executive is a little higher – maybe he feels a sense of pride regarding the new digital presence that really nails the reasons he joined your firm in the first place.

But for some that’s not the case. The founder-seller mentioned above. She’s skeptical of private equity. She’s read bad things in the press. She doesn’t know one firm from another. She’s hired a bank to help with a process, and they’ve given her some guidance, but she needs to narrow down the list, or at least wants to do research before her first meetings. Could a website that strikes the right tone for her particular needs affect her ingoing attitude by 5%? 15%? 25%? Could the wrong website get you excluded from her list? Could the right website get you added?

Let’s go back to the line from my old boss – “we’re in a high margin business”. You’re influencing thousands of perceptions with your materials, and tens of thousands with your digital presence. You don’t need to impact hundreds of decisions to make investment in your brand profitable; you may only need to impact one.

One last anecdote, this one from my time leading Darien Group. One of our longest-tenured clients, a sector specialist sponsor with a strong ESG focus, has been publishing lengthy, best-in-class sustainability reports for about seven years now, ahead of the industry curve. Several years ago, that firm’s Head of Investor Relations told me that they’d secured a $50 million commitment to their fundraise that was, according to the committing LP, directly attributable to their sustainability report. It was humbling and gratifying for our firm to play a role in that document and to hear that our work had had some contribution toward this business outcome – it’s really a critical part of our mission.

Now the rarity of this direct a story underscores a critical point – 99% of the impressions made or reactions provoked by your brand and materials will never be explicitly mentioned or acknowledged, whether those impressions are positive or negative.

I’d wager that over half the time, the audience themselves are not even aware of being influenced by a firm’s branding efforts. You have perhaps seen enough of the show Mad Men to appreciate the degree of clever subconscious cues that inform the advertising campaigns that most influence consumers.

But the effect is real. And I want you to consider once more: if your website reaches 50,000 people per year, what value do you place on each of those impressions? Or what if a better messaged and crafted set of fund marketing materials could reduce your time in market by a month or two, allowing your firm to return focus from capital raising to core investment activities? What is the monetary value of that time?

As we conclude today’s discussion, I want to leave you with one further statement: branding in private equity is not simply about aesthetics or surface-level impressions. It’s about creating lasting value for your firm and your stakeholders by creating lasting impressions throughout your ecosystem. This is what is called ‘brand equity’, a fitting term for your sector. The stories you tell, how your firm presents itself when its people are not in the room but its materials are, and the perceptions you cultivate can amplify your reach and your success. They matter – quantifiably so.

In our next video, we’ll look at how to build a great brand in private equity, most critically how to achieve in your materials ‘differentiation’, the holy grail for most of our clients. The Darien Group team and I hope that this video series and all our new content is helpful to you, our audience, our ecosystem. Until next time.