A version of this Q&A was originally published by Illinois Venture Capital Association.
Venture capital (VC) and private equity (PE) firms must build their brands and create trust with prospective limited partners and portfolio companies. Moreover, as VC and PE sponsors become larger and more successful, they face added reputational challenges as they interact with audiences that may not be financially sophisticated. I discussed how the 2015 Edelman Trust Barometer on “Trust in Financial Services” has useful insights for these firms with Maura O’Hara, executive director of the Illinois Venture Capital Association. Read the full Q&A from our conversation below:
Q: What is Edelman’s “State of Trust in Financial Services” survey?
A: It’s part of Edelman’s Trust Barometer, a global survey we’ve completed for the past 15 years to track trust in business, government, media, and non-governmental organizations, or NGO’s.
Since its start in 2000, we’ve documented long-cycle changes, including the fall from grace, then gradual recovery of trust in business; a plunge of trust in government due to stalemate and perceived incapacity; and a gradual ebb in trust in traditional media and a gradual increase in trust in “a person like me,” which explains the power of bloggers and social media. Following the Great Recession, we began measuring attitudes about the state of trust specifically in Financial Services.
Q: What is the big takeaway from this year’s deep-dive into the State of Trust in the Financial Services industry?
A: The bad news for VC and PE sponsors as well as other financial entities is that of the fifteen industries we surveyed, financial services ranked among the least trusted – ahead of only chemicals and media, and behind fast food, technology and even makers of alcoholic beverages. There has been an unprecedented drop in trust since the start of the Great Recession, which plays into the nearly half (45 percent) of informed respondents in the U.S. who say there is not enough regulation of the Financial Services industry, which is more than any other industry.
Q: That’s depressing. What can financial entities do to create and rebuild trust?
A: For IVCA members, the starting point is to recognize that your portfolio companies are substantial assets in building trust in your firm and your brand. Highlight the innovations your portfolio companies are making that benefit society at large, the jobs they create and the long-term sustainability of the businesses you’re building.
Q: This year’s survey indicated that for the first time, search engine results are themselves the most trusted source of information. Why is that significant?
A: Trust in search engine results has been climbing steadily and this year, at 59 percent trusted, eclipsed traditional media for the first time. Not only are search results most trusted, they are also the first source of information that people consult. The implication is obvious: How your website looks and is discovered matters, and PE and VC sponsors need to be aware of and manage how their firm appears, both by itself and in comparison to peers.
Equally important is the fact that all sources of information are important: Hybrid media, such as Fortune’s “Term Sheet” and The New York Times’ “DealBook,” are trusted by 47 percent of respondents. Social media, like LinkedIn, are trusted by 40 percent of respondents; and owned media, which includes a firm’s own website, are trusted by 39 percent.
Q: Does the survey indicate who should be the spokespersons for PE and VC firms?
A: For several years running, technical experts, including academics and industry experts, and “a person like me” were trusted by 65 percent or more of respondents. This was followed by a regular employee, who is trusted by more than half (56 percent) of respondents. CEO’s ranked just ahead of government or regulatory officials, with 38 percent and 36 percent trusted, respectively. This suggests that when you’re trying to build trust for your firm, don’t only put your senior partners out front: Use your expert operating partners, portfolio company employees and mid-level investing professionals to help build your profile.
Q: For the first time, you explored the link between Trust and Innovation in Financial Services. What did you find?
A: Greed and money (54 percent) and business growth targets (66 percent) are perceived to be the primary motivations for innovation among business in general, greater than a desire to genuinely improve peoples’ lives (30 percent) or make the world a better place (24 percent). This suggests that communicating the “why” as well as the “what” about your portfolio companies’ innovations is critically important.
One reason for optimism is the trust in the area of electronic and mobile payments. These spaces are most trusted at a global level (69 percent). We theorize this is due to an industry that has responded quickly to shield consumers from liability for card fraud and is working collectively to protect financial systems on a broader front.