Challenges Around Strategic Investments; LightBoxTV Raises £1 Million To Bring Order To TV; And European PE Continues To Love Ad Tech
Strategic Investment: Why It Needs Proper Consideration
Having led a bunch of big rounds recently, one of the big issues that keeps popping up is strategic investment. Strategic investors can write big cheques.
But with this “easy” money often comes a bunch of unseen consequences.
The first and most frequent problem with strategic money is “non-competes”. As part of an investment, a startup may be forced to agree not to work with certain perceived “competitors”.
This can be detrimental to growth and scale - especially for those at a very early stage - as everyone in this industry competes in some shape or form. You could be sacrificing millions in revenue for a small ticket.
Another impact of strategic money is the “ownership conundrum”. By taking investment from strategics, the market can rightly or wrongly conclude that two companies are effectively working as one.
The most recent high profile example of this was AppNexus. Arguably one of the most innovative companies of the programmatic age, the company powered a good chunk of programmatic spend in the digital advertising space.
It was on a trajectory to dominate and possibly go public. But adoption among the biggest holding companies was hammered by its relationship with WPP.
In 2014 WPP announced that it was investing $25 million “for a significant stake” in the company. It was a very public announcement.
Martin Sorrell couldn’t stop talking publicly about the importance of AppNexus to WPP. Whether on earnings calls or panels at Cannes, Sorrell dropped the AppNexus name wherever he could.
The deal obviously gave AppNexus a lot of WPP programmatic demand. But it did not help it with other holding groups. They were wary of pumping money into a “competitor’s tech stack”.
AppNexus ultimately could not win over the rest of the holding groups. New DSP solutions, like The Trade Desk, emerged to mop up holding group and indie money (including WPP). Eventually AppNexus sold to AT&T for $1 billion+. TTD went public, and is now valued at $22.5 billion.
In some instances it makes sense to take strategic money, but FPC would advise you to exhaust all other avenues first.
The AppNexus (and Videology) cautionary tale should be enough to give founders pause before making the strategic investment jump.
Most strategics are smart enough to understand the aforementioned implications. A lot of them are looking for financial upside only in hyper growth MadTech startups, and we have a few of them in the FirstPartyCapital fund.
No interference. No public bragging about ownership. Just capital. FirstPartyCapital, obviously.
That’s why we exist: to make it easier to invest in great companies and this (soon-to-be) $5 trillion dollar sector.
LightBox TV Will Bring Fragmented $200 Billion TV Ad Market Together
We announced this week that we led a £1 million round in LightBoxTV. It’s the first deal we’ve co-invested with our friends at AperiamVentures.
We invested because we love the product, the big problem it's addressing and the team at LightBoxTV.
LightBoxTV is solving for fragmentation in a $200 billion dollar media segment. TV is a mess in terms of execution. It exists in silos
And despite what the CTV purists are telling you, the majority of TV inventory will not be available to buy via OPM or RTB.
It’s very important to note here that FPC believes all TV buys will be data-driven over the next five years. But the buying mechanics will not follow the programmatic script that is a go-to for online display and video.
LightBoxTV sits in the layer between TTD and MediaOcean, helping TV buyers to plan and execute across a fragmented CTV, linear and walled-gardened inventory landscape.
Our managing partner, Rich Ashton, sums it up nicely as to why we are all in on LightBoxTV:
“We have been tracking LightboxTV since the idea was first conceived, and have been very impressed with their progress so far. We are excited to lead this oversubscribed seed round, which is packed full of industry insiders. The platform has already been adopted by holding groups, independent agencies, and direct clients, who have not previously had access to such a streamlined planning tool. It is no surprise that the company has already received interest from strategic acquirers that are eager to add capabilities in the fast-growth but highly fragmented data-driven TV space.”
The Big Roll-Up In Iberia: European Private Equity Loves Ad Tech & Ad Nets
There has been over $4.5 billion in M&A deals in ad tech in 2022. PE deals represent a chunk of that M&A activity.
It is no exaggeration to say that Private Equity - in Europe, anyway - LOVES ad tech and ad nets. And why not? They are after all a high growth business.
A lot of them have done very well out of ad tech. ECI, for instance, had a 6x return on its MiQ investment.
If you were at MadTechMoney (along with 200+ of investment leaders and startup founders), you would have witnessed this new love from the PE panelists.
And just to hammer the point home, we had another big purchase this week by Magnum Capital, picking up Rich Audience for an undisclosed sum (most likely, north of $50 million).
Having purchased SunMedia for $100 million, Magnum is attempting an ad tech roll-up for the Spanish speaking market. Revenue for the new entity is now €130 million euro. At a conservative 5 times multiple (depending on SaaS and managed service revenue), this new roll-up could be worth north of €500 million.
We live in exciting M&A times. Not only do we have a bigger pool of strategics looking to buy but we now have hungry PE firms searching for deals.
Have a great weekend, readers.