Value Beats Unicorns; The Lumen Waiting List Grows; And European Ad tech Wins Again
Seeking Value, Not Unicorns
After our “triumphant” American debut on the Marketecture podcast last week, FPC has been reflecting this week on our core investment thesis.
Most non-US VCs invest across a vast number of disparate startups, hoping to have one or two outsized winners with a few break-even companies.
The money returned to LPs is dependent on the “hope” of bagging a unicorn like Skype. Very rarely does it work.
We have taken a different route, focusing instead on 20 top-tier startup investments in a single sector.
In a focused vertical like ad tech, it is possible to find multiple winners - not one (LUCKY) outsized return that will give you some ego-boosting column inches on TechCrunch or WSJ.
The optimum exit range for ad tech is between $50 million and $400 million - not billions. That is the sweet spot for this industry. If you invest the right way, everyone (founders, LPs and fund) can have a great outcome.
It is also hard to see how anyone can add real value to a 200+ company portfolio - regardless of what that VC tells you (note to any LP reading this). We work closely with our tight portfolio on everything from product fit to marketing to financial planning.
Our objective remains the same: to make money for our investors, and fund great MadTech companies.
After the guts of two years investing, we have settled on a few key criteria for allocating capital:
Startup must be solving a real problem, positioning itself as a category winner.
Founders (preferably team) need to be ad tech people. In-the-weeds knowledge of industry economics would also be helpful here (areas like inventory pricing, agency trading deals, etc).
Enablement tech should be built for global fragmentation, and can be easily activated via resellers and partners.
FPC is not averse to a US market strategy (ie, one mid-market launch followed by sizeable raise then entry into US) provided it is a category winner.
There needs to be a quick route to profitability. This is ad tech afterall: media spend is fairly accessible.
We do invest in ad nets and managed service, but it needs a media channel or technology moat.
Capital efficient businesses are an absolute requisite.
The FPC investment thesis is always evolving. But it’s guaranteed that we will not actively chase make-believe hype cycle unicorns, as value will always be top-of-mind.
The Lumen FOMO Continues - Until Monday When Deal Is Published
Our Lumen syndicate deal is nearly live on the platform, but the waiting list grows. We have now over 30 people looking to access. To make sure you can get access to this tiny allocation use the email below to contact us.
Just in case you missed last week’s email, here are some high-level points about the opportunity:
Category: The post-privacy attention-based measurement and targeting to rule them all.
Financial performance: The company expects to grow revenue 200% y-o-y; specific details are available on the platform.
Valuation: Ridiculously attractive valuation.
EIS tax relief: Lumen has received advanced assurance that it will qualify for an extension to the initial EIS period by being a "knowledge intensive" company. Therefore UK taxpayers will benefit from EIS relief on their investment.
Team: Mike Folett, and the Lumen Research team, have been pioneering the use of attention measurement in advertising for 8 years. Ezra Pierce and the team at Avocet, are some of the brightest minds in ad tech. The merger of these two teams has created a category winner that has the team and tech to scale attention.
Exit potential: The list of buyers is - to say the least - extensive.
370 Million Reasons To Love Equativ
Equativ (rebranded from Smart last year) has worked with premium publishers for the better part of a decade, building out a full stack solution for supply-side customers.
The company has grown revenue significantly over the last few years, and is now positioning itself as the credible independent alternative to Google and other publisher-owned solutions.
Here’s more on the deal from Insider’s Lara O’Reilly:
[Arnaud] Créput said Equativ is taking market share from its competitors. Google's Network business posted a 9% decline in revenue in 2022, for example, while Yahoo recently announced it is shutting down its SSP.
Equativ's ad server gives it a key point of differentiation from its competitors, Arnaud said.
"The ad server is back to growth and is probably our strongest strategic asset," he said.
Other publisher ad servers are owned by companies that are also publishers themselves, such as Google, Microsoft's Xandr, and Comcast's Freewheel, he added. In areas like CTV and retail media "more than anywhere else you need neutrality," he said, to ensure the ad servers doesn't favor its own ad inventory over others.
It's yet another example of PE’s insatiable appetite for European ad tech.
FPC is heartened to see an important Google competitor like Equativ going hard after sell-side market share.
Congratulations again to Arnaud and the team. Arnaud, of course, is an LP in the FPC fund.
As ever, European ad tech FTW.
Have a great weekend, readers.