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Defending The Ad Net Model; US Not Always The Sensible Strategy; And A Note On Industry Layoffs
In Defence Of the Ad Net Model
Last week FPC was called a “SaaS fascist” in a WhatsApp exchange with one of our LPs. Just for the record: FPC is neither a fascist nor a “SaaS fascist”.
The person in question was of course joking. Regardless, it is worth discussing again the “recurring" versus "occurring” revenue argument in relation to investment in MadTech startups - and the growing importance of ad nets to investors.
When we talk about “occurring” revenue we are generally talking about the ad network segment (“recurring” is more common in SaaS).
Despite being the greatest commercial model in the history of ad tech, ad nets get a very bad rap - mostly because of perceived value and partly because of the “party culture” (that infamous AOL party, the peak) that fuelled the pre-programmatic ad net vintage.
Programmatic, we were told, would wipe the ad net from the face of the earth, but as ever they managed to evolve, using programmatic to add new value to agencies and marketers.
Ad nets were also notoriously difficult to sell to acquirers. Most were seen as a “lifestyle” business, effectively a money earner for founders. Few strategic buyers looked to acquire out-and-out IO-based ad nets.
The ones that ventured into public markets flamed out in the most spectacular way. It was an M&A dumpster fire of epic proportions.
Oh, how things have changed. In a fragmented market (id/cookie deprecation et al), ad nets are a go-to for buyers particularly in emerging channels.
Having been shunned by buyers for years, ad nets are commanding a premium price tag - as PE specifically goes hunting for growth opportunities.
Our M&A tracker data (link available on request) for the twelve months of 2022 supports this trend. Out of the fourteen $100 million+ deals in Europe, seven were out-and-out ad networks.
And who were the buyers? Private equity, mostly. PE ♥️ THE AD NET.
Why does this matter to our investors? Well, the fund is investing in a few managed service businesses that will return money.
We like them because they can get to profitability quicker and they make money (which is attractive to PE).
So, what is FPC looking for in a managed solution?
Preferably, it has some sort of tech/ commercial moat. Generalist ad nets are a hard NO for us. There can only be one MIQ (the omni-channel trading GOAT)
We like ad nets that have technology or have a focus on a specific media channel with a well-oiled managed service commercial model.
Margins need to be toppy, as PE (the only realistic path to an exit) is ultimately buying profit.
The commercial team needs the best agency sales people in the market - as in the kind that are close personal friends with the real power brokers in ad tech (ie, the holding group trading directors).
In summary: FPC will invest more in the ever enduring - and evolving - ad net model.
You Really Don't Have To Go All-In On The US
It’s funny how horizontal VCs, who know very little about ad tech or martech, seem to use US expansion as a requisite for funding. They can’t see past the US - a product of a pervasive failed investment thesis.
FPC has seen some spectacular flame-outs over the years, as European ad tech has tried to beat well-capitalised US companies in their own market.
In general, it’s a terrible idea trying to win the US market. There are however exceptions to the rule: you have a genuine category winner (Grapeshot being a perfect example); or you are building market share using your own healthy cash flow (cc MIQ).
The market is now very different for ad tech. ID/cookie deprecation, privacy and local hero walled gardens are the reality outside the US.
For founders facing this US request at the series A fundraising stage, it might be worth giving your investors an overview of the new market realities, which we outlined in a previous post about MadTech deglobalisation:
Here is the FPC hot take on how investors should be looking at MadTech market opportunities:
The US, the ultimate monolithic media market that’s increasingly out-of-step on privacy-first innovation and global fragmentation.
Europe, the privacy moat that makes it impossible for legacy IDs and 3p cookies to work at scale.
And APAC/MENA/LATAM, fragmented mobile-first markets, building their own flavour of MadTech particularly around online commerce (social, live and conversational).
A Few Thoughts On Helping Industry Colleagues
LinkedIn has become a haven for virtue signalling. The feed is effectively a Facebook-lite for professionals.
Instead of quality content and recommendations, we are at the whim of the virtual soapbox warrior.
The latest virtue signalling trend on LinkedIn is the “Jobs Jesus”. We generally see this at the time of a big layoff - the optimum opportunity to score maximum virtue signalling points.
The mawkish post typically offers support and “thoughts and prayers” for the thousands of people that have been laid off.
For those engaging in this practice, it really isn’t necessary. Even if it is well intentioned, it comes across as a little crass and condescending.
The (relative) good news for those unfortunate ad tech people laid off is that there are lots of opportunities on the market.
Many of our portfolio companies are hiring as are new employers - beyond the usual Google, Facebook ilk - that are looking for skilled ad tech sales, account management, product and ops professionals.
It’s a terrible situation to be in. But for those who have recently lost their jobs, you’ll find there is demand for your skills on the market.
The advice here to everyone else: avoid the LinkedIn post; and instead reach out to laid-off people you know and try to help in any way you can.
Have a great weekend, readers.