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Securing the Future of Innovation: Why Government Affairs is Vital for Investor Success
By Christine Davies
March 11, 2024
In the relentless pursuit of disruptive innovation, investment firms rightfully focus on identifying groundbreaking technologies and transformative business models. Yet, amidst the thrilling chase for the next unicorn, one vital element can be overlooked: the ever-present (and often underestimated) influence of government activity and a government affairs capability to assess and manage it.
Here’s why integrating government affairs into your investment strategy — both at the due diligence stage for potential deal flow and through dedicated support for your portfolio companies — is a game- changer that can secure the future of your investments and mitigate unforeseen risks.
Early Identification: Minimizing the “Regulatory Blind Spot”
Pre-empting Roadblocks: A comprehensive government affairs assessment during due diligence uncovers potential policy hurdles your target company might face. Think restrictive regulations, looming legislation, or even unfavorable public sentiment, all of which can derail even the most promising technology or business model. Early awareness empowers you to make informed investment decisions, negotiate contingencies, or even walk away from deals with hidden political risks.
Understanding Policy Tailwinds: Conversely, proactive analysis can reveal untapped opportunities. Favorable policy landscapes, upcoming subsidies, government funding opportunities, or burgeoning regulatory frameworks can provide jet fuel to your target company’s growth and market penetration. Knowing this early on allows you to capitalize on these tailwinds and optimize your investment thesis.
Portfolio Protection: Equipping Your Investments for Success
Navigating the Policy Maze: A government affairs advisor can become a silent guardian angel for your portfolio companies. They navigate the complex web of regulations, lobbying efforts, and stakeholder engagement, ensuring your companies operate within compliance and maximize policy advantages. This proactive approach can prevent costly legal troubles, reputational damage, and missed opportunities due to policy ignorance. Companies like Poligage can provide Risk and Opportunity Assessments to provide a lay of the land of the relevant policy and government activities that organizations need to consider.
Building Resilient Businesses: Government affairs advisors help companies develop both proactive strategies and contingency plans to adapt to changing policy landscapes, regardless of whether they are in a heavily regulated industry or not. Whether it’s to introduce themselves to government leaders and influencers in order to generate support and prevent nasty government activity surprises, or to respond to a potential impactful policy shift or a public relations crisis, your portfolio companies will be equipped to manage risks and seize emerging opportunities.
Influencing the Future: By engaging with policymakers and industry stakeholders through the insight and advice of a government affairs advisor, you can also advocate for policies that benefit your portfolio companies and the broader innovation ecosystem. This proactive shaping of the regulatory landscape not only safeguards your existing investments but also fosters a favorable environment for future ventures within your investment thesis.
Beyond Risk Mitigation: A Strategic Differentiator
Investing in government affairs expertise extends far beyond mere risk mitigation. It sends the powerful message that you understand the dynamic interplay between innovation and policy, and you’re committed to navigating this critical intersection for the success of your portfolio. This can attract top-tier founders and LPs who recognize the inherent value of navigating the policy landscape.
Ultimately, integrating government affairs into your investment strategy is about proactive risk management, maximizing opportunities, and securing the long-term success of your investments. In the relentless pursuit of innovation, embracing the power of policy can be the difference between a fleeting flame and a beacon of disruptive change. And new business models like on-demand resourcing and agility-based budgeting are making government affairs easier than ever to access.
CASE STUDIES
- An investment firm wanted to ensure that a portfolio company in the rare earth mineral industry engaged effectively with the U.S. federal government in support of a mine and processing facility under development in the United States. Poligage experts quickly developed messaging material and stakeholder mapping at key departments and agencies for them to target, as well as a plan to seek U.S. government funding from the $1.2T U.S. Infrastructure Investment & Jobs Act.
- An early-stage robotics start-up was considering a pilot in either Miami or Boston and wanted to factor regulatory issues into their decision. For just $1000, Poligage Experts provided feedback on issues they might face in both locations that influenced their pilot location selection. This effort also impressed investors the founders were seeking to raise money from through demonstrating their awareness of the impact of regulatory and other government activity issues on their business strategy.
- GoFundMe shut down a fundraising campaign on its platform that drew attention from members of the U.S. Congress. Lawmakers quickly demanded that the U.S. Federal Trade commission launch a probe into whether GoFundMe committed a deceptive trade practice, with similar investigations quickly announced at the state level in Texas and Florida. With a limited government affairs function, GoFundMe executives had to deal with massive disruptions to their agenda and expensive legal fees to deal with allegations they were unprepared for. Having greater government affairs awareness and engagement before this crisis could have helped GoFundMe avoid these headlines, massive headaches, and huge expenses.
Want to explore obtaining on-demand, cost effective government affairs expertise for your firm or portfolio? Schedule a short introductory meeting here.
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