Discovery at Carlson·11 How media attention shapes investment

Daniel Forbes: How media attention shapes investment

When a private equity firm wants to launch a new fund, they turn to investors.
But anyone parting with their money is going to want proof that they can get a return on their investment. For PE firms with a track record of managing funds well, this likely isn’t difficult. But what about those just starting out that lack a historical record of success?
New research by Carlson School Associate Professor Daniel Forbes indicates there is a way for such firms to improve their chances: Get media coverage.
“Sometimes attention can really do wonders,” Forbes says.

Realized vs. Unrealized Performance

PE firms are fairly straight-forward businesses: They take money from investors with the promise that they will invest in companies, improve their performance, and then sell them at a profit.

However, the process of acquiring capital, buying up companies, and making them more profitable can take years. In the meantime, the PE firm might decide they want to launch another fund. Those that have already started to exit companies can provide their “realized performance” to potential investors—essentially the profit they were able to make from a given company, showing that they are indeed successful. But for those that have not, the only numbers they can give are projections or predictions of future sale prices. This is called “unrealized performance,” and it’s generally considered less reliable. Firms with realized performance find it easier to get money with investments, they found.

“It’s the difference between someone who flips houses saying, ‘I can buy this house, fix it up, and sell it for this much, and here’s all the other houses I’ve done this with as proof,’ and then someone who’s new to the flipping game saying, ‘Well, this is how much I think I can get based on a Zillow estimate,’” Forbes says. “You’ll likely be more convinced by the first person.”

But Forbes and his fellow researchers Tom Vanacker, Mirjam Knockaert and Sophie Manigart, turned up something interesting: If a firm with unrealized performance was able to attract media attention, the mere fact that they had a metaphorical spotlight shining on them made them significantly more likely to be able to get investor’s cash.

However, media coverage had little or no impact on firms who were able to show realized gains.

 

Media coverage fills the gap

Forbes says this suggests that media attention provides legitimacy to firms whose performance might otherwise be called into question. This could be because investors see coverage as a form of vetting by a trusted third party. Meanwhile, those with realized performance can let the results speak for themselves.

"Sometimes attention can really do wonders."

The study, published in the Academy of Management Journal, focused on private equity firms, but Forbes says there may also be lessons for other types of companies seeking funding, such as an entrepreneur seeking startup cash.

He adds that it provides takeaways for both sides of an investment transaction.

Those seeking investments, especially those who don’t have a long track record of success, should do everything they can to attract media attention.

For investors, Forbes says there’s reason to stop and consider what might be attracting them to a particular investment. “They should be aware that their judgments are likely influenced by the media environment,” he says. “So they should proceed with that in mind.”

 

 

Daniel Forbes：媒体关注影响投资

        在准备设立新基金时，私募股权基金企业会向投资人筹资。

        掏钱的人都希望得到一些证据，证明投资能得到回报。如果私募企业有出色的过往基金管理业绩，这当然不难。但如果企业刚入行、没有过往业绩呢？

       卡尔森学院副教授Daniel Forbes的新研究说明，有一种方法可以帮助这类企业：获得媒体报道。

        Forbes说：“关注真的能带来奇迹。”

 

已实现业绩vs.未实现业绩

        私募企业的商业模式很简单：从投资者处筹资，承诺进行企业投资、提升企业业绩、最后出售企业获利。

        但是，筹资、购买企业股份、提升企业盈利水平需要数年的时间。在此期间，私募企业可能会决定转而进行另一项投资。如果私募企业有退出企业的经历，他们可以向潜在投资者展示“已实现业绩”：即通过投资企业获取的利润，以此证明他们的水平。但是如果没有此类经历，他们只能提供对未来销售价格的推断和预测，即，较为不可靠的“未实现业绩”。研究者发现，拥有已实现业绩的企业更容易获得投资。

        Forbes表示，“这就像是做二手房投资。有经验的人会说：‘我准备买下这栋房子，修理翻新，然后以某某价格卖出去。这是我经手过的房产交易，请参考。’而刚入行的人只能说：‘呃，根据Zillow网站的预测，我觉得我能挣到这个数。’你当然更相信第一个人。”

        但是，Forbes和TomVanacker、MirjamKnockaert、SophieManigart等研究者发现了一件有趣的事情：如果能够得到媒体报道、成为关注的焦点，只有未实现业绩的企业获得投资者青睐的可能性会大幅提高。

        但是，对于拥有已实现业绩的企业，媒体报道的影响很低甚至没有。

 

媒体报道弥补不足

        Forbes表示，这一事实说明，媒体关注让备受质疑的企业获得了正当性。这可能是因为投资人将媒体报道看作可信第三方的一种审查方式。而拥有已实现业绩的企业可以让业绩说话。

       “关注真的能带来奇迹。”

        该项研究发表在Academy of Management Journal。虽然研究的对象是私募企业，但Forbes认为，这一研究成果也适用于其他类型的融资，例如，寻求初创投资的创业者。

        他还表示，这对于投资交易双方都有启发。

        筹资方，尤其是没有成功业绩的筹资方，应当尽一切努力获取媒体关注。