The FPC Stack: Optimising For Global Ad Tech Investment
They say necessity is the mother of all invention. Circumstances and environment invariably dictate outcomes. A non-US-based ad tech company starting out today will have a very different trajectory than a US-based one. Different markets. Different funding requirements. Different macroeconomic hurdles to navigate. Different buyers.
This also applies to capital allocators - albeit in a very different way. In this edition of The FPC Newsletter, we discuss the evolution of FirstPartyCapital - and how we operate as a multi-faceted fund.
The FPC Stack
FPC has never just engaged in passive investing. From day one, we have been evolving our investment model. We are very much a fund of one in an ocean of generalists (outside the US).
The opportunity in our vertical is significant; the specialism is finite. That has shaped a lot of our thinking and strategy thus far.
We have travelled a long way since the investment syndicate launched all those years ago. During FPC’s brief but eventful lifetime, we have had to build our own quasi-stack with a different set of capabilities that enables us to invest, position, scale, and make money for founders, LPs, and, of course, ourselves.
We call it The FPC Stack (see graphic below), and we break it into four constituent parts: FirstPartyCapital Fund; FirstPartyStudio; FirstPartyFinance; and FirstPartyCapital M&A. Let’s dig into those parts.
FirstPartyCapital Fund: Where It All Starts
FirstPartyCapital Fund 1 raised over $18 million and invested in 19 startups. We are now onto our second fund, looking to raise £50 million. The focus is still on the seed/pre-seed range, with room for follow-ons if necessary.
The investment thesis, as always, is framed around the vertical in which we operate. Fund 1 was very much about 1PD, signal and infrastructure. Fund 2 is more closely aligned with our ADO (AI, Data and Outcomes) positioning.
Through our investments and unabashed ad tech evangelism (via our newsletter, podcast, conference, etc.), we are changing entrenched views around ad tech investment.
Educating the market about the critical role ad tech plays in powering a $1 trillion ad business is paying off.
We now have a growing and influential group of co-investors that we can bring into our deals - something that we have successfully built out.
The fund continues to be the key part of the overall stack, underpinning everything we do at FPC.
The Studio: The Hub Of Innovation & Utility
FirstPartyStudio was established about a year ago to provide a dedicated technology resource for our portfolio companies and third-party partners. It has since expanded its scope to support incubation launches. We have already completed 4 incubations, with 2 more scheduled for this year.
We will be announcing something pretty innovative for corporates that combines the best bits of FPS and FPC without requiring a direct equity investment. Most brands, agencies, ad tech companies, and media businesses often struggle to secure investment funds.
By combining a commitment with FirstPartyStudio (offsetting expansive Capex), we give them access to the fund. More on this next week (stay tuned).
FirstPartyFinance: Financial Oxygen For Scale
Cash flow management is a huge issue in ad tech. Payment terms (anything up to 180 days) can cripple growth and expansion, jeopardising future raises. Startups are often forced to raise money to cover the float. That is an unacceptable position for us as a fund.
Our primary motivation for FPF: we wanted to provide easy access to the private credit market, helping our portcos scale without diluting. Cash is king. It oxygenates growth - and gives our startups agency over their fundraising timeline.
FirstPartyFinance is also looking to flip the script on financing overall, turning a reactive process into a more proactive one. In short, how can we weaponise it to help our portcos win more business and accelerate revenue growth? We have a few ideas on that one.
Someone recently asked FPC whether we were serious about our FPF business. We are very serious. An announcement outlining a partnership with a big US lender will be made in a few weeks’ time.
FirstPartyCapital M&A: Selling The Ad Tech Dream
The last part of The FPC Stack is our M&A offering. Important to note here that we are not running an M&A shop - and have no interest in competing with seasoned bankers.
The M&A service we offer is exclusively internal; it is available only to portfolio companies with a valuation below $50 million. There is no mandate from FPC either. It is the prerogative of the management teams and boards to work with us.
We know we can sell these sub-50-million companies. We know the buyers. We have the infrastructure. And we possess a very large megaphone to shape the narrative that (fairly) amplifies strategic value.
The FPC Stack keeps evolving. We have the requisite toolkit now to help us build and scale great companies outside the US. It’s an ongoing decades-long process. But the flywheel is starting to spin.
And that’s it for this edition, dear reader. Thanks for stopping by. Have a great ad tech day.