Using Communications to Define a Venture Capital Market
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Using Communications to Define a Venture Capital Market

Applied Communications and Crosspoint Venture Partners set out to channel the power of communication into Crosspoint's vision of architecting market sectors.

Paul Holmes

 

In November 2000, Applied Communications and Crosspoint Venture Partners struck a unique partnership. These two firms set out to channel the power of communication into Crosspoint's vision of architecting market sectors.  While many venture capital firms invest in single companies, Crosspoint has a history of identifying business models that serve as cornerstones of new technology sectors. Driven by its activist approach of architecting technology industry segments and building leadership companies within them, Crosspoint is currently the tech industry's top-performing early-stage venture capital firm. 

Applied and Crosspoint came together to research, design and implement marketing programs to drive discussion in the marketplace, creating an understanding of new market segments identified by the top tier VC firm.  The idea was bold, but the question remained whether or not the partnership could turn investments into viable markets.  Their first test came right away as the two immediately began work to build out the Vertical Service Provider market, an idea based on Crosspoint's strategic $350 million investment in 14 companies.

THE GAME PLAN

The two set out to spark and then drive the market discussion about this new sector.  Applied began by leveraging the unique capabilities of its Communications Research department to measure and understand how the market was using the terms "Vertical Service Provider" and "Application Service Provider."  Leveraging that understanding, Applied and Crosspoint then sought to broaden the vision of the individual VSP companies, helping them understand internally and communicate externally their shared characteristics of this strong new business model. To clarify understanding and unify communication, Crosspoint first defined what makes a Vertical Service Provider.  In December 2000, Applied and Crosspoint brought the VSP portfolio companies together to establish a VSP Marketing Council. Follow-up meetings were held with each portfolio company individually to discuss the VSP model, how their individual companies fit into that model and to craft company messaging documents to reflect this bigger picture.   Meanwhile, Applied and Crosspoint opened the discussion with key market players including business and trade press, financial analysts and market analysts.  

THE DISCUSSION

Applied played off the market's understanding of the popular ASP model to shape and spark discussion about the new VSP approach to service providers.  Over the course of two months, Crosspoint met with several of the top investment banks, including Morgan Stanley Dean Witter, Credit Suisse First Boston and Lehman Brothers. Moving on to market analysts, Crosspoint and Applied secured meetings with top ASP analysts.  Applied drove the press discussion, securing briefings with top tier business and trade publications.  And the market began to talk…

THE RESPONSE

Within two months of the inception of the VSP campaign, Applied had secured articles and shaped the VSP market discussion in multiple publications, including The Wall Street Journal, Industry Standard, Upside, Red Herring, Venture Capital Journal and ASP News. 

Rich Shapero, Crosspoint managing partner, was quoted in The Industry Standard as saying, "We believe the vertical model is where the true market lies," Shapero says. "At the beginning, people developed a variety of general software building blocks that appealed to all businesses. But now customers want applications that are specifically targeted to their business environment."  Upside said "the VSP approach does make sense…and Crosspoint does have a pretty good scorecard in b-to-b."

Venture Capital Journal quotes Rich Shapero as saying, "Applied is a world class agency who will be working with the VSP companies we have invested in to establish the positioning and messaging of this industry."  He went on to say, "VSP companies provide Internet-based services tailored to vertical markets, he explained. Over the past two year, Crosspoint has begun investing in VSPs and after committing $350 million to 14 VSP companies, the firm believes that now is the time to begin publicizing the VSP industry to the wider business world."

The Wall Street Journal said, "Crosspoint Venture Partners, a Woodside, Calif., venture firm, is making a big bet on what it calls vertical service providers -- Internet firms that offer specialized services to companies in different sectors."  Another source said, "The newly coined VSP sector will extend the ASP model to meet the specific needs of various industries. It could rewrite the rules of the business-to-business world, according to Crosspoint."

Analysts are talking too.  Michael Sherrick, Morgan Stanley Dean Witter analyst, was quoted as saying about VSPs and Crosspoint that, "We believe VSPs represent a new breed of service providers with the opportunity to generate rapid growth and high margin given the ability to deliver on-going application and business services to their respective target markets.  In fact we expect many VSPs will emerge as industry platforms addressing both the B2C and B2B needs of their clients, Crosspoint, with its existing portfolio and future initiatives, was early to recognize this opportunity, clearly positioning the company well to be a major player in the creation and evolution of this emerging sector."    Another source quotes Sherrick as saying, "We expect many VSPs will emerge as industry platforms addressing both the b-to-c and the b-to-b needs of their clients…They have the opportunity to generate rapid growth and high margins because they can deliver the software and business services targeted at their respective markets."   Sherrick is currently working on a report that will include discussion of this VSP model.
Crosspoint and Applied continue to move the discussion forward, looking ahead to a summer VSP conference highlighting the portfolio companies and open to analysts, press and other market influentials.  Each month, Crosspoint and Applied craft and send out a VSP newsletter to key press and analysts, keeping VSPs top of mind.  As the initiative continues to roll out, the unique partnership will continue to prove communication is more than an exchange of information, it is the power to drive and define the market.

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