VC or PE?

The Pros & Cons of each model for modern marketers

If your current or next role is working for either a Venture Capital (VC) or Private Equity (PE) firm, it’s important to know the key differences. Each of these has varied approaches, objectives, strategies, and timelines.  I will share my take on working for each and which one I prefer.  First, however, whichever path you pick, there are wide variations among VC and PC firms, so you should carefully choose the actual firm in addition picking a VC or PE.  To illustrate this point, I’ll share a couple of real-world examples.

I worked for a VC-backed firm a while ago. After we had just closed the Series C investment round, my boss, the CEO, said he had a conversation with a lead investor who suggested I be replaced, to which my boss said, “everyone has a superpower- we’ve got Superman, do you want Spiderman instead?”  The point is not that I survived the challenge, it’s that you should try to carefully pick a CEO who you believe will have your back through the ups and down you’ll surely experience.

On the contrary, one of my peers was working for PE-backed firm and after several years, a lead investor told the CEO to replace the head of marketing. The company was doing well, the CMO and marketing team we’re excelling, but the investor had a theory that a PE firm should replace key execs every few years.  It’s a really dumb idea to randomly swap out high performers and not one I expect will be ever written up in the Harvard Business Review.  Let’s now examine the pros and cons of VCs vs. PE’s.

Venture Capital firms invest in early-stage startups with high growth potential. They typically provide equity financing to startups and play an active role, especially in mentoring and guiding the founders.  

Pros of running marketing under a VC-backed firm:

1. Innovation: The focus on growth and innovation allows for creative and experimental marketing strategies.

2. Equity Participation: Many VC-backed firms offer significant equity incentives, providing the potential for substantial financial gains if the company succeeds.

3. High-Growth Environment: The fast-paced, high-growth environment can be exhilarating and provide valuable experience, including in scaling the business (e.g., PLG) and dynamic business models.

Cons of a VC firm:

1. High Risk: The emphasis on growth can lead to financial instability and a high risk of failure and precarious tenure.
2. More Limited Resources: Startups often operate with limited budgets, which can restrict your ability to execute large-scale marketing campaigns.
3. Uncertain Exit: VC-backed firms may not have a clear exit strategy, which can lead to uncertainty about your long-term prospects with the company.

Take note:  All VC firms are not the same.  While they share characteristics, the actual investors overseeing your company, the composition of the board, and who’s really in control, can make a huge difference in your personal experience as a CMO.

Private Equity firms invest in established companies with the goal of optimizing their operations, increasing their value, and eventually exiting the investment for a profit.

Pros of running marketing under a PE firm:

1. Resources: PE-backed firms often have significant resources, sometimes allowing you to implement marketing strategies with adequate budgets. When Bookings or Revenues miss targets, however, many PE firms freeze or reduce marketing spend, which can make it much more difficult to achieve key targets.

2. Focus on Profitability: The emphasis on profitability can lead to more stable job security and the opportunity to work with experienced business professionals. On the other hand, it can also make it more difficult to obtain adequate support for growth initiatives (including human and financial resources)

3. Long-Term Vision: PE firms often have a longer investment horizon compared to VCs. This allows marketing leaders to plan for sustainable growth, brand building, and customer loyalty over the long term, rather than focusing more on short-term gains.

4. Access to Expertise:  Some PE-backed firms may have a network of industry experts and advisors that can provide valuable insights and guidance to marketing teams. This expertise can vary widely and at times can hinder, rather than help marketing.

5. Data-Driven Decision Making: PE firms tend to value data-driven decision making. As the Head of Marketing, you can leverage data analytics to demonstrate the ROI of marketing initiatives, making it easier to secure budget and make a business case for incremental revenue growth campaigns.

Cons of a PE firm:

1. Less Exposure to Innovation: PE investments primarily focus on established companies, so professionals may miss out on the excitement of working with cutting-edge technologies and startups.
2. Longer Investment Lifecycle: The longer investment horizons in PE can also mean that it takes longer to see the results of one’s efforts, which may be less satisfying for those seeking quicker feedback and results.
3. Risk of Portfolio Underperformance: Poorly performing portfolio companies can negatively impact a PE firm’s overall returns, which can put pressure on professionals to turn around struggling businesses.
4. Struggle to Understand Marketing’s value Many PE firms are mostly focused on pipeline creation and conversion and undervalue all the other things CMO’s do to create category leadership, grow market presence and build brand strength. The Marketing Performance Index^TM and the associated strategies and tactics can help address this gap.

In conclusion, being the head of marketing at a PE-backed firm and a VC-backed firm offers distinct experiences and challenges. In a PE-backed firm, the emphasis is on stability, profitability, and long-term vision, with access to resources and expertise. However, the relatively slower decision-making process and pressure for cost-cutting can hinder innovation.

Conversely, VC-backed firms provide an environment of innovation, agility, and creative freedom, with access to capital and high growth potential. Yet, they come with higher uncertainty, limited initial resources, and, generally, the need to build brand recognition from scratch.

Ultimately, the choice between these roles depends on one’s career goals, risk tolerance, and the type of organizational culture you thrive in. For me, I’m glad to have worked for a few VC-backed companies earlier in my career, but I definitely prefer a PE-backed company, especially a well-run one like EQT.

Whatever one you choose, make sure to do reference checks of the firm.  I’m involved with several CMO groups like the CMO Collaborative, CMO Huddles and CMO Coffee Talk, and I’m sure they have CMO’s who have likely worked at all the major VC and PE firms.  Regardless of your choice, both roles offer valuable experiences that can contribute to a well-rounded marketing career.  Happy hunting and here’s to a great run and your next liquidity event!