According to Crunchbase data, venture capitalists (VCs) continued to slow down their investment pace in the first quarter of 2023. Global funding in the first quarter fell 53% to $76 billion, down year over year from $162 billion in the first quarter of 2022. This included Microsoft’s massive OpenAI investment, reportedly around $10 billion, making up a significant part of the total.
Not only is fundraising challenging, but in 2023 global investors are now having to navigate an increasingly challenging geopolitical environment – this brings new types of communications challenges that many VCs are currently ill-equipped to deal with.
A marketing-first communications approach
During the 2021 heyday in funding, founders could often negotiate favorable deal terms and were able to pick and choose their backers, selecting VCs that could bring more than just capital to the table, such as those with prestigious names and in-house resources to facilitate growth. Strong brand recognition increased the odds of getting in on the cap tables of exciting and potentially lucrative deals. Investing in marketing was unavoidable with firms needing to stand out from the pack.
But given the funding downturn of 2023, and in the wake of worldwide inflation and brutal geopolitical developments like the war in Ukraine, priorities for marketing and communications professionals have changed. Marketing is and always will be important, but there’s a growing argument for VCs needing new communications capabilities to be able to thrive in an increasingly volatile world.
Heightening geopolitical tensions
Geopolitical risks and opportunities are now top of most leading VC firms’ governance and investment committee agendas.
Geopolitics are becoming more polarized, within countries and between them. This is likely to persist, as the pace of technological change continues to accelerate. Disinformation, powered by AI, will feed that trend.
The world is also becoming more “contested”, as governments pursue national and political agendas more aggressively, and agreements on how to establish parameters or constraints fray. Countries are forced to think hard about their overreliance on others. Statistics like 71% of the world’s cobalt (vital to electric vehicles) being mined in one country – the Democratic Republic of Congo – have become increasingly unpalatable for nations looking to make electrification a cornerstone of their decarbonisation strategies.
Geopolitics are affecting a broader range of sectors than ever before, from new frameworks for investment, to the growing focus on the security implications of new technologies, to cross-border interdependence in financial services, to the politicization of supply chains, including in the energy sector. And a number of high-growth sectors are seeing growing levels of political and geopolitical involvement – US/Europe relations are a crucial factor for space tech, for example.
China is central to this contested world, with both governments and corporations now increasingly “China-conscious”. As China’s power continues to grow, the Chinese Communist Party is increasingly assertive. Kekst CNC polling with the Munich Security Conference shows that this assertiveness is driving wariness of China across the globe, with the publics in a wide range of countries becoming significantly more reluctant from 2021 to 2022 for their countries to cooperate with China.
Just last month, Sequoia, a well-respected VC firm, split its business into three separate entities to manage global conflicts and heightened geopolitical tensions – and it is likely not the last firm to restructure this year.
What does this mean for VC firms?
In this new, conflicted geopolitical age, global firms should make sure they have enough specialist geopolitics communications capability to:
1. Assess the communications elements of geopolitical risk – Ask the tough questions: Has the firm assessed its geopolitical risk, in reputational terms, across its business and portfolio, from the investor base to the founders? Is the firm exposed to geopolitical events? And critically, if so, is there a communications contingency plan in place to mitigate the reputational impact?
2. Plan and prepare for reputational risks: Does the VC firm consider geopolitics ahead of business-critical moments, including investment or exits? Is the communications team prepared for disinformation campaigns that could derail activity? The window of opportunity for executing deals in an age of extremes can be brief and unpredictable, so planning for potential scenarios and managing them, is increasingly critical.
3. Engage with and advise your portfolio companies: The companies in your portfolio may be too small, busy or too focused on their business model, but increasingly companies – regardless their size or sector – need to be geopolitically savy and consider these challenges when diversifying their technology suppliers, expanding into multiple markets, and fostering relationships with customers and investors across various regions. By actively addressing these risks, VCs can play a crucial role in ensuring the long-term sustainability of portfolio companies, protecting their value.
It's an increasingly volatile world and chief marketing officers are juggling too many plates. Global firms should consider increasing their geopolitical communications capabilities to assess and manage their risks/opportunities, and to plan for unpredictability.
Oliver Mann is a Partner at Kekst CNC and heads up the firm’s European RISE team, a group of communications experts across London, Berlin, Frankfurt, Munich, Paris and Stockholm supporting VCs, entrepreneurs, disruptors and early stage, growth and hypergrowth companies.
Mikey Hoare is a Director at Kekst CNC and was, until recently, Director of National Security Communications in the UK Cabinet Office.