When venture capital gets involved in M&A deals, the goal is to typically create value by combining assets and operations of two companies.
VC’s face a number of risks, one of which is over-valuing assets. In this case, VCs may rely on future profits that don’t materialize as expected.
One thing VC firms can do to mitigate risk is create a methodology for understanding the current and future potential of the brands it is considering acquiring.
This starts with acknowledging an idea that some VCs still overlook, namely that brand is a powerful asset for any company that needs to be managed–even at the early stage or growth stage.
Assuming your VC firm believes this, the first step is to assemble a team of people–both at your firm and outside partners–to assess, measure and monitor key factors, including:
- Role of Brand: How important is the role of brand in the category?
- Value Creation: What are your target brand’s real value creating strengths?
- Positioning: Does your target have a clear brand positioning and can it create one?
By going beyond the deal sheet and diving deeper to understand the value of every brand you acquire, you can set your firm up to de-risk each acquisition, identify new synergies with other portfolio brands you manage, and give your firm a much better chance of growing brand value over the life of your investment.
