One of the more popular questions I hear as a technology reporter covering the D.C. area’s startup scene is: “can press coverage translate into investment for my startup?” And this question is definitely not a new or revolutionary one. It is also a run-of-the-mill inquiry that both public relations firms and venture capitalists receive. Finding a complete answer to it, however, is more difficult.
Does press coverage translate into investment?
In essence, this question could also be rewritten as: what is a startup’s return-on-investment for spending resources on a PR firm that can connect them with members of the press? Yes, PR firms do a lot more than just press relations, but we’ll focus on it for the moment.
How valuable is that TechCrunch or BostInno story about your company’s launch when entering a boardroom full of investors? Well, that’s the very question we put to some of the area’s most prominent venture capitalists and PR pros.
But first, let’s run through the basics.
The dilemma
Startups in this sense are a unique breed; sometimes publicity can lead to mass user acquisition and therefore an eventual investment round. But in other circumstances, from my experience, it holds little influence. In addition, public relations are handled differently according to a business’ customer base, product and corporate structure, among other things. Whether a company is, for example, a B2B play or employs a B2C approach, will influence the strategy surrounding their public identity.
The categorization of a “startup” is of course an imprecise definition on its own as well, and that truth plays a role in the larger PR-investment question we’ve brought forward. Within this investigation, the startup label will encompass early stage, technology companies who create a product while operating with funding accustom to a seed stage through a Series B investment. That translates into a war chest that holds somewhere between a few hundred thousand and less than $8 million.
The old adage “all press is good press,” is certainly not true in all cases. But that shouldn’t discount the very real and potentially positive influence that media recognition can have for an early stage tech company. Startups, perhaps more so than other industries, can sometimes live on hype and excitement—if only briefly.
To begin, there are three separate, self-interested parties involved in almost all of these transactions and it's important to realize this reality and the inherent dynamics at play.
First, there is the press, who are interested in capturing a great and unique story for their audience. Second is the PR firm, which is working on multiple fronts to shape the public perception of their clients and also promote each company’s “story.” Lastly, and obviously, there is the startup, itself, which wants a great ROI on every resource spent given the usually limited bankroll.
Ben Wallerstein, co-founder of D.C.-based Whiteboard Advisors, explained, however, that many entrepreneurs, particularly in startups, often over invest or have irrational expectations for what PR agencies can accomplish. And in some cases, agencies themselves can contribute to that idea as well.
“PR is [just] one tool that companies can use to explain their value proposition to investors or other stakeholders,” Wallerstein said, but it’s especially valuable when “the media makes a case for the viability of an emerging market. That absolutely sparks the interest of investors.”
Michelle Schafer, the vice president at Merritt Group—a prominent local PR firm whose clients include the nationally recognized Mach37 cybersecurity incubator—countered Wallerstein’s first point, saying that entrepreneurs are pragmatic when quickly involving a PR firm. “Some entrepreneurs get so caught up in building their business that they forget about the importance of messaging and the positive impact PR can have on obtaining seed and venture funding.”
“Building the brand,” is a common line I hear between my interviews.
Schafer believes that while startups must boast a sound business and create innovative technology to get funded, the tangible value of PR is also critical because it commonly provides the first point of contact for investors. This practice, however, encompasses more than just news articles, as client assets used during investor meetings like websites, data sheets, pitch decks and professional blogs, are also placed under the PR umbrella by Schafer.
In Merritt Group's experience, well-known investors will approach them for “recommendations on hot target markets and companies to consider investing in down the line.” Based on our interviews, it’s unclear what type of advantage this holds for clients, or how common it is throughout the local industry.
Money & Market talk
Outside of the media circus, the institutional investment community acts semi-independently, according to Militello Capital co-founder/COO Matt Brady.
Brady told DC Inno that in most cases while “a potential investor may become aware of a company through media coverage” a “discerning investor will [also] conduct diligence far beyond press clippings [and] prior to writing a check.”
Thanasis Delistathis, a co-founder and managing partner for New Atlantic Ventures (NAV), also believes that it is possible for good PR to translate into positive initial exposure, but that it’s far more important from an investor point of view that publicity leads to market traction.
“It adds a layer of credibility to the company. And, if they were able to get the ear of a good journalist, who already sets a high bar, that’s a threshold not all can cross,” Delistathis told DC Inno.
Brady and Delistathis’ opinion is one that was similarly voiced by many investors I spoke with, but almost everyone had an interesting take on placing a specific “valuation” on positive media coverage.
For example, Lisa Throckmorton, the COO of popular D.C. tech PR firm SpeakerBox Communications—whose clients include 1776, Eastern Foundry and Optoro—said that though there may not be a “one-to-one relationship between a single article and a check,” visibility can enhance the pitch process. It’s about producing “substance over hype PR,” in which the former can be extremely effective, especially when approaching an expansion round, she said.
To some degree, media matters for both Brady and Delistathis, but it’s mostly in positioning a company before the eyes of an investor. Therefore, the source or publication that produces the story is paramount.
But not every venture capitalist is the same.
Bobby Acampo is a director at Chevy Chase-based Revolution, a venture capitalist firm founded by prominent investors and internet entrepreneurs Steve Case and Ted Leonsis—which has invested in a number of DMV startups. He believes that significant/positive PR can also help but it “certainly does not determine whether a company gets funding or not.”
It’s more important to establish a tangible and personal connection with a potential funding source rather than collecting a series of media clips, Acampo described. He also added—differing from his fellow VCs—that in some cases, too much press can even be negative. “Too much PR can be a bad thing, especially if a company isn’t at scale yet. [For example] it’s one thing if you’re a consumer company but if you’re a B2B/enterprise company and you’re buying up billboards (and you’re still pre-Series A), I question if it’s a good use of capital.”
Leah Nurik, the CEO and founder of quickly growing Reston, Va.-based Gabriel Marketing Group, appeared unsurprised by the responses from these three prominent, local venture capitalists. Why? Because over the course of a more than 15 year career as a PR executive, she’s seen a diverse client list along with a wide sway of investor preferences.
“Investment strategies and processes differ … maybe some care about PR, maybe some don't, but when analysts and respected journalists start writing trend stories about your businesses' approach and the birth of a new market because of your ability to tell the story as well as execute, that is hard to ignore,” Nurik said, “press and analyst coverage goes a long way to position a company for funding, and eventually for exit, but, the numbers and plan have to be legitimate and not a pipe dream.”
Legitimizing a market, providing an understanding of the momentum that a new market creates and fueling both investor and public interests based on a popular trend; those appear to be the more important influences that a journalist can provide an individual startup, according to Nurik.
“It is very important to have public recognition of the fact that your market space exists, your model is disruptive, your product or service is legitimate. It is forever true that as an emerging technology company, you want to be where the puck is going, not where it is, yes, but high-profile business press that validates your market, your go to market strategy, pricing structure, product, and everything else in between helps you build a great argument for growth momentum, and hence, funding,” Nurk explained.
