FPC hopes you are surviving the usual Q4 chaos - and that you are smashing your golden quarter targets. No Pogues or Mariah Carey yet (too early?). But you know that big-voiced diva and raspy trad punk poet will own the airwaves in a matter of weeks. Like Santa and media rebates, it’s all so inevitable.
We have had a flurry of product launches and M&A news over the past few weeks - including our own DA sale to Zeta. Congratulations again to Ruben and the team.
We touched on it in the last update: this deal didn’t just prove out our thesis; it also set us on a different path in how we operate as an operator-led capital allocator (predominantly European).
We called it Full-Stack Venture (FSV). And we want to elaborate a little more on that in this edition. Here, we set out what FSV actually means for our LPs and corporate investors.
Vanilla Flavoured VCs Will Struggle
In an age when a handful of scaled (mostly Silicon Valley-based) funds are scooping up the lion’s share of LP investment, and mid-sized “vanilla” VC firms are being starved of capital, a new type of fund is flourishing.
Call them hands-on vertical specialists. Call them ecosystem funds. They do much more than allocate money in the vain hope of an exit. But we actually think you need to do more to survive in this new category. To make the grade, you need to go full-stack.
We believe FSV is the only logical route for our fund profile. We are very much an ecosystem fund with outsized influence in the non-US market. As noted in the last post, FSV has three core components: build, scale, and sell. The graphic below outlines this in more visual detail with a nice workflow:
Incubations (FPC & Corporate)
The key part of FSV is the build - specifically incubations. This is where FirstPartyCapital Fund 2 will get interesting for our LPs and the industry at large. Corporate investors de-risk international innovation projects by building incubations directly with FirstPartyCapital. We have the development team and internal resources to launch new ad tech startups successfully. We intend to make ad tech R&D more accessible for strategic partners.
We will also be building our own incubations. Our operator-led team has decades of experience working in non-US ad tech. We see the world through a different lens and have identified six or seven new opportunities around signal, infrastructure, and AAT (Adjacent Ad Tech).
We'll roll these new startups out over the coming months. We have a simple strategy: incubate and fund the development of new solutions, reach revenue fast, bring in a talented team, scale, and then sell.
Leadership Team Necessary To Scale
Very rarely does top-tier European talent have the opportunity to get real upside in high-potential ad tech startup businesses. Few can sacrifice salary to take a punt on an early-stage startup. We think we have found a happy medium: relatively stable, high-growth businesses with a salary and meaningful equity.
FPC’s incubation strategy is designed to take startups from MVP to revenue, fast. The next step is bringing in talent to scale and drive an exit. We intend to keep these companies very lean, but sales, product, and tech talent is requisite to move incubations from promising ideas to must-have acquisitions. We have already done this with Bedrock, so FPC has an existing blueprint that does work.
Understanding The “Goldilocks” M&A Market
FPC has acted, and continues to act, as an M&A advisor to European ad tech. You need to have a deep understanding of the ecosystem, market valuations, and what strategics want to buy.
We know there is a range in which non-US ad tech deals can thrive - like the ad tech equivalent of the Goldilocks zone, where, for life to survive, you need the right planetary conditions and a no-margin-for-error proximity to a star.
Generally, it’s a lower-to-upper-middle number: big enough to matter to a strategic buyer, small enough to get done (a quasi-tuck-in acquisition, if you will), but below the number typical bankers are prepared to get out of bed for. In that ad tech Goldilocks scenario, everyone wins: LPs, the senior team, and, of course, FPC.
Worth noting again: FPC has done this twice now (Nexta-to-Kevel and DA-to-Zeta), using our position in the ecosystem to fund and sell great European companies to bigger (US) buyers, achieving great outcomes for LPs, founders and the buyers.
All In On The FSV Model
This is not an identity crisis; it’s an evolution over six years. We’ve recognised that we know our market better than most. We have the tools at our disposal to build, scale and sell great ad tech companies at a range that is digestible for strategic buyers. Rinse and repeat.
Suddenly, the swinging-for-the-fences ad tech plays seem a lot riskier than a bunch of well-priced, well-executed exits. It’s always been a process for FPC. And what we now understand is that we will win in the aggregate by being the ultimate ecosystem play. FSV is the only game in town now. We are all in. Until the next edition, ad tech nation, keep smashing in those IOs.