For ad tech vendors, chances for exit are still slim and getting slimmer, according to a panel of investors at ad:tech New York at the Javits Center on Thursday.
Warren Lee, a partner at venture capital firm Canaan Investors, an early investor in DoubleClick and Tremor Video, put it bluntly: Those who want to succeed should “go work for Amazon, Facebook or Snapchat.”
Others had more actionable suggestions. Dan Chen, managing partner at Siemer & Associates, an early-stage investor in GradientX, which was acquired by SingTel via Amobee, and an advisor to DataPop in its sale to Criteo, said private equity is the way to go.
“It might be a better path to act as a consolidator in their space,” he said. “Partner with a private equity firm and spearhead that effort.”
Chen also nodded toward a Chinese buyout á la Smaato, Media.net and AppLovin. Up against Baidu, Alibaba and Tencent at home, which control 80% of China’s inventory, Chinese buyers will spend astounding multiples to grow outside their borders, he said.
“These companies may not garner a lot of interest in the US, but when it comes to Chinese buyers who are all trying to compete against a strong competitive set … these businesses are some of the best buyers,” he said. “It’s probably the only source of bright light I see in the market right now, and I think it’s going to continue to grow.”
Success At Home
What about companies that want to make it at home? Data management platforms (DMPs) and sell-side tech have the best bet of finding a US buyer, investors agreed.
Lee said many companies are aggregating data sets to compete with Google and Facebook – and as such, data has been a very lucrative investment for venture capitalists over the past three to four years.
For enterprise software companies building end-to-end marketing suites, DMPs add audience segmentation capabilities. Lee pointed to marriages between Salesforce and Krux and between Oracle and BlueKai.
Marketing cloud providers sit at the convergence of advertising and marketing and make the increasingly complex job of a chief marketing officer (CMO) easier. For Michael LaSalle, a partner at private equity firm Shamrock Capital Advisors, an ad tech company is worth investing in if it adds value to the CMO.
“We would argue [the CMO is] possibly the most important position outside a CEO in many organizations,” he said. Many solutions need to show value to the CMO, LaSalle explained, but many point solutions get buried in the value chain.
As corporations break down silos and become more digital, marketing clouds will help marketing divisions move from cost center to strategic asset.
“As we look at corporations five to 10 years from now, there will be a collapse of functioning areas,” Lee said. “Where do sales, marketing and support end? If you can provide a single suite of software to encapsulate advertising and marketing, you’ll streamline costs.”
Sell-Side Saviors
While investors see the buy side as commoditized, they see investment opportunities on the sell side.
“The life of a publisher isn’t getting easier in terms of creating and monetizing audiences,” Lee said. “They will have to increasingly rely on partners to monetize.”
Publishers should acquire companies that have unique data and can grow their audiences to compete with Google and Facebook, panelists said. Chen pointed to Time Inc.’s acquisition of Viant, noting it had the largest repository of audience and consumer online data, behind Google and Facebook. This acquisition, he said, gives Time Inc. the infrastructure and data to go after ad dollars.
Acquiring ad tech isn’t the only move. Profitable consumer-facing media companies are more favorable acquisition targets than sell-side tech, said Scott English, senior managing director and co-head of Hearst Ventures, a corporate venture fund from Hearst Corp.
“The landscape moves so rapidly, we want our operating divisions to move freely between tech,” he said.
But English is wary of investing in companies that are 100% ad-supported, as they tend to be more volatile with shifts in the economy.
“We’re looking for businesses where users, God forbid, pay for content,” he said.
While there are some faint glimmers of hope in the ad tech market, overall it’s buyer beware.
“If you’re just a run-of-the-mill advertising company, you’re like a run-of-the-mill service provider,” Chen said. “That’s unfortunately what ad tech has become.”
UPDATE: Siemer & Associates was not an early stage investor in Amobee, but rather GradientX, which was acquired by SingTel via Amobee. It did not sell DataPop to Criteo, but rather acted as an advisor in that sale.
