Venture Capitalists Face the Reputation Economy

Last week the New York Timesexplored the recent public relations and marketing boom among venture capital firms. In the past top firms have “operated under levels of secrecy typically reserved for Swiss banks,” Nicole Perlroth writes, but with fewer active firms, meager investor returns and increased accessibility the tables have turned in the world of venture capitalism. “Ten years ago, entrepreneurs needed some kind of insider advantage to get a meeting with a firm,” Perlroth explains. “Now the most promising entrepreneurs do careful due diligence — on Twitter, in blogs and in the media — before agreeing to take coffee with a V.C. The best entrepreneurs are courted by the venture capitalists, not the other way around.”

Successful Self-Promotion

The changes have caused an about face in venture capitalists’s attitude regarding PR and reputation management. Perlroth highlights Andreessen Horowitz, a firm whose ascent “has served as a case study in successful self-promotion.” Founded in 2009, the firm has quickly climbed the VC ranks with a bold strategy consisting not only of “aggressively marketing their expertise to the reporters and bloggers who follow start-ups,” but also “regular off-the-record dinners for reporters at the homes of Mr. Andreessen and Mr. Horowitz” and personal blogs maintained by its partners. That approach has resulted in enthusiastic coverage from the likes of Forbes, Vanity Fair, Wired and CNET, as well as a more direct reputational boon. Ben Horowitz’s blog has attracted 10 million followers, Perlroth notes, and many tech bloggers “have become protective of the firm, attacking any reports that cast Andreessen Horowitz in a negative light.”

Still a New Trend…But Growing

Other VC firms have been following suit—even stalwarts like Sequoia Capital, which Perlroth says, “sniffed at the notion when the trend began.” The firm “has a reputation for being tight-lipped about its investments,” according to the Wall Street Journal, but openly touted its role in three recent IPOs. Last year New Enterprise Associate, another veteran firm, launched a “new NEA Seed fund, aiming to boost the firm’s reputation among tech entrepreneurs,” and a trio of scholars debuted the Lee-Pollock-Jin VC Reputation Index. Many firms “are bringing on PR talent for the use of portfolio companies,” according to TechCrunch, but “others are trying to use PR to boost their own images, and promote their VCs to the press.”

A Double-Edged Sword

The increasing significance of reputation and PR is a double-edged sword for venture capitalists. In the past they have cast themselves as Wizard of Oz-like masterminds, but stepping out from behind the curtain, they are learning, has both its rewards and risks. Take Kleiner Perkins Caufield & Byers, a major firm whose reputation benefited from the addition of “Queen of the Internet” Mary Meeker, an analyst noted as one of Time’s Ten Most Influential Women in Technology. More recently, though, KPCB’s image has been damaged by a sexual discrimination lawsuit by junior partner Ellen Pao. CrunchFund, the VC firm founded by former TechCrunch editor Michael Arrington, also faced complex issues when it launched. Clearly aiming to harness the popular tech blog’s brand, the firm’s reputation was immediately threatened by questions about journalistic ethics and potential conflicts of interest.

Interestingly, the new landscape that VC firms find themselves navigating has been shaped largely by the very startups that they have helped nurture. In the future they may consider not just the potential return on their investments, but also how the technologies they have funded might help build and manage their reputations.

A New Guiding Vision for Yahoo

Marissa Mayer

After Scott Thompson’s abrupt departure from Yahoo, ex-Google executive Marissa Mayer has been named the new CEO.  Mayer is now the company’s best chance to arrest its precipitous slide from dominance—she was in fact behind many of the changes at Google that has earned it its leadership position, including working for 11 years to perfect its search engine.

Central to Yahoo’s problems is that it lost its once-strong identity, losing pace with changes in the way the Internet is used since the age of “Web portals” in the late ’90s. Considering Ms. Mayer’s role in Google’s ascension, she may be the perfect executive to reverse Yahoo’s fortunes. We expect to hear about some major changes at the company soon.

Anderson Cooper’s Deft Reputation Management

Anderson CooperEarlier this month CNN’s Anderson Cooper revealed that he is gay in a letter to The Daily Beast’s Andrew Sullivan. According to the Huffington Post, Cooper’s decision to officially come out followed “a long discussion with his team making sure he wasn’t committing career suicide.” With rumors that Cooper may soon marry, that letter could be part of a larger plan to open up about his personal life while closely managing the tone and context of that revelation.

A Good Choice

The decision to make the announcement was a good choice. “I’ve always believed that who a reporter votes for, what religion they are, who they love, should not be something they have to discuss publicly,” Cooper states in his letter to Sullivan. But he also acknowledges that keeping his sexual orientation private had the potential to harm his reputation for honest and accurate journalism. “It’s become clear to me that by remaining silent on certain aspects of my personal life for so long, I have given some the mistaken impression that I am trying to hide something –something that makes me uncomfortable, ashamed or even afraid. This is distressing because it is simply not true.”

Taking Control of His Message

By choosing to share the news in a thoughtful and eloquent letter to Sullivan, a friend and himself an openly gay journalist, Cooper took control of his message and preempted any threat to his reputation that his previous secrecy had posed. By doing so he was also able to frame the announcement in a way that underscores his values and reputation, both personally and professionally. “I have always been very open and honest about this part of my life with my friends, my family, and my colleagues,” Cooper wrote, adding that he has always tried to keep his private affairs and identity out of his journalism. “I’ve never wanted to be any kind of reporter other than a good one, and I do not desire to promote any cause other than the truth.”

Cooper also minimized the story’s ability to expand by making the announcement while he was in Botswana, out of the reach of the media.

The way Anderson Cooper has handled this is a model of how to get in front of potentially controversial personal issues.  On a broader level, Cooper has set an important example by treating sexual orientation as a subject that is not relevant to public or professional reputation.

Photograph: Tulane University

Seventeen’s Photo Retouching Dilemma

We’ve mentioned the backlash against photo retouching. Seventeen magazine has been a touchpoint in that argument. It was the subject of the petition by a 14 year old against retouching that garnered 85,000 signatures.

James F. Thompson of PRNewser points out that it is actually glamour—an idealized version of reality—that Seventeen is selling to its (well, often pre-teen) audience. By abiding by its promise to offer more authenticity it will be taking a tremendous leap of faith, and the effect on sales will be a clear judge of the magazine’s decision, whichever way it goes. Is it true, as Thompson puts it, that “Inevitably the real world prevails, warts and all”?

Dollars & Sense: The Shareholder Value of Reputation

Major companies currently owe an average of 26% of their market capitalization to their reputations, according to this new study from Echo Research. Looking at around 700 companies in the United States and United Kingdom, the study highlights the considerable impact that reputation can have on shareholder value.

The study gives ExxonMobile the most valuable reputation overall, but Apple claimed the highest “Reputation Contribution” score, with its reputation valued at 58% of its market cap. Apple has a knack for leveraging its reputation in the areas that count the most: its success in building buzz for its new products, its status as a consistent leader in design and customer service and its high ranking when it comes global success. The company has weathered a fair amount of hits lately, including questions about its outsourcing practices and tax avoidance, but its reputation remains “virtually ‘Teflon’” according to YouGov.

While companies with the most significant reputation values generally held steady at just over 50% of their market cap, the study found that among all S&P500 companies that percentage fell by an average of 4% from the previous year. “Having helped to mitigate the pressures of the downturn in 2009 and 2010 reputation value slipped in 2011,” the study says. “Companies appeared to take their eyes off the ball and were diverted by growing optimism for improved financials.”

In contrast to Apple’s resilience, Best Buy’s reputation has taken away an increasing amount of its shareholder value, costing the electronics retailer $544 million, or 6% of market cap, a 38.7-point change from the previous year. Poor customer service, particularly during the holiday season, likely contributed to that drop, but Best Buy’s more recent PR crisis won’t help turn things around. Taking a cue from Apple for the design of new its stores, though, is a step in the right direction. Like many other companies, Best Buy has learned that reputation can not only be extremely volatile, but also have significant financial impact.

Rachel Botsman’s Reputation Revolution: Trust Trumps All

Last week at the annual TEDGlobal conference in the Edinburgh, Scotland, social innovator and technology consultant Rachel Botsman posed this question: “If someone asked you for the three words that would sum up your reputation, what would you say?”

Botsman imagines a time where you won’t need to answer with a traditional “elevator pitch,” or even a list of references or credentials. Instead, she sees “a future in which resumes and even credit scores are irrelevant, replaced by an aggregated digital reputation based on our interactions in the collaborative economy,” according to Mashable.

“I believe we are at the start of a collaborative revolution that will be as significant as the industrial revolution,” Botsman told the TEDGlobal audience in Edinburgh, and she has further explored such ideas as the co-author of What’s Mine Is Yours: The Rise of Collaborative Consumption. Pointing to services such as the vacation rental hub AirBnB, errand outsourcer Taskrabbit and community-based learning marketplace Skillshare as examples of how “the old market principles of sharing, swapping and bartering” have been “reinvented for the Facebook age,” Botsman notes that “we have moved from sharing information and music online to transferring trust about how we get things done.”

Ultimately, she foresees an “age where reputation will become your most important asset” and “reputation dashboards” will provide “a real-time stream of who has trusted you when, where and why.” Botsman acknowledges that privacy would be a major concern and a simple algorithm or score wouldn’t suffice, but she still believes the outcome would be worth it: “When we get it right, reputation capital creates a massive positive disruption in who has power, influence and trust. Reputation data will make the resume seem like an archaic relic of the past.”

The future that Botsman predicts is still on the horizon, but she’s not the only one anticipating its impact. Last year TIME included collaborative consumption in its list of “10 Ideas That Will Change The World.” And while talk of “dashboards” and “algorithms” might seem foreign and impersonal, the concepts at the heart of her vision are familiar and natural. “When people are asked why they use farmers’ markets rather than supermarkets they say it is because the first is more social,” she says. “And it is the same reason why people choose AirBnB, there is an authenticity and social element to it that they like.” TIME even traces it down to the chemical level: “We yearn to trust and be trusted — one researcher has found that people get a spike of the pleasant neurotransmitter oxytocin when they’re entrusted with another’s goods.”

Barclay’s Crisis

With News Corp’s hacking scandal still percolating through the news and legal system, another totemic British company is facing a reputational crisis—though the response from the two companies could not have been more different.

At the end of last week Barclays was hit with a fine for fixing the LIBOR rate. Rupert Murdoch’s counterpart at the bank, Chairman Marcus Agius, has already announced his resignation, acknowledging that the bank’s reputation has been devastated and that “as chairman I am the ultimate guardian of the bank’s reputation.” Banks are facing many issues – and they seem to be growing rather than contracting.