Why A Sensible Valuation Is Crucial; FPC Backs LightBox To Own The $85 Billion TV Market; And Our First Mark-Up Thanks To Watching That Growth
This is the FirstPartyCapital weekly newsletter. It covers news and updates about the FirstPartyCapital fund and its portfolio companies.
After a two week hiatus the FirstPartyCapital newsletter is back. Apologies for depriving you, readers, of our insightful deep dives on the things that matter in the world of MadTech and money. Anyway, here is this week’s newsletter.
Why Sensible Valuations Matter More Than Ever
Ever since we launched the fund a year ago, we have been really fixated on valuations. We felt the public market companies and late stage private startups in MadTech were wildly overvalued.
And it’s not because we are looking for cheap deals. No, we are trying to give our startup portfolio a realistic chance to grow into valuations - and not have to do a down round if they haven’t hit KPIs.
Imagine valuing an early stage startup right now on a 20-30x multiple on 12 month forward revenue? That is setting yourself up for failure.
We tend to value companies on a 10x multiple on a mix of current and forward revenue. This would have to be on recurring revenue - rather than “occurring”, which is predominantly unpredictable media income. Media should always get valued at a much lower multiple.
We are now in a period of “valuation compression”. Howard Lindzon, founder of StockTwits and famed early stage investor, does a great job summarising this in his recent post.
“As valuations compress it is most important that founders and investors honor the power of momentum by holding it close. That means lower valuations early so that there is more optionality as the company builds momentum and more optionality if momentum is slow to take hold. I believe it is much harder to build momentum in 2022 because of the costs of customer acquisition and the lack of new platforms to harness inexpensive acceleration.”
As Howard outlines in the post, there is real value in early stage startups building for big problems. Pricing at the right level is crucial for any startup’s trajectory. Get ahead of your skis and it could end in disaster.
Thankfully, companies in our portfolio have taken a sensible approach to valuations, and consequently are in great position to build and scale. This will make it easier to get follow on rounds. Exciting times ahead for the disciplined. Not so much for those who continue to ignore the realities of “value compression”.
New Deal Alert: LightBox Attacking An $85 Billion TV Market
We have been talking about the untapped $85 billion TV market in recent editions of our newsletter.
MadTech is ignoring this huge opportunity in favour of an over-hyped CTV space (important but still represents a small percentage of overall TV).
We said we are looking to invest in companies addressing this huge market - and true to our word, today we are announcing our first data-driven TV investment.
Lightbox is a startup focused on the aggregation and media activation across a fragmented TV market. Think of it as the enterprise Finecast (WPP’s media arbitrage solution) for agency groups, indies and in-housed brands.
We are excited to bring Lightbox to our syndicate first before we announce our official investment from the fund in the coming weeks.
Why are we investing? Below are a few FPC hot takes as to why we are backing Mark, Dean and the team.
The company is focusing on the ignored $85 billion dollars of the TV sector, aggregating inventory and activating media across CTV, siloed walled-garden inventory, AVOD, linear TV et al.
Finecast has already established a sizable market for this new TV technology segment. Lightbox is the enterprise antithesis of WPP’s “black box” solution, giving power and control to buyers. The LightBox product map is looking to roll out analytics, measurement and access to 3rd party tech integrations.
The founders are ad tech veterans. CEO Mark Giblin has worked with some of the biggest CTV-focused ad tech companies, enabling him to spot a gaping gap in the TV market. His co-founder, Dean Cussell, sold his last company, Statiq, to Telefónica. Include the likes of product maestro, Simon Macson, and you have a ridiculously strong team attacking a juicy ad tech segment.
Lightbox straddles the world between Mediaocean and The Trade Desk - in terms of activation and workflow management. Nobody in ad tech is knitting the TV landscape together for buyers. Increasingly, it is a siloed mess - split between digital and TV buying teams. Lightbox is offering buyers unique technology, giving a holistic view of the entire non-US $85 billion TV inventory market.
CTV-focused ad tech companies looking to move into data-driven TV will come calling soon. We expect LightBox to be high on the corp dev hit list in the coming 12-24 months.
The deal goes live on our platform today. If you are interested in investing, get in touch with Rich (rich[AT]firstpartycapital.com) to get more info.
Regardless, we will be sending out a bonus newsletter on Monday with full details on how to access the LightBox deal.
Watching That Raises To Scale
FirstPartyCapital did its first “mark-up” thanks to an early investment in CTV revenue and optimisation specialist, Watching That.
The company has been on a tear of late, signing up a number of global streaming platforms and broadcasters.
Watching That announced a pre-Series A round this week, as it looks to make a number of senior hires to help scale operations in the US, Europe and APAC.
Despite headwinds in the industry, Cameron and the team continue to grow and ship new features in its core platform.
We are expecting big things from Watching That for the rest of the year and 2023 - as well as that inevitable sizeable series A later next year. More mark-ups for FPC are imminent.
Have a great weekend, readers.