Three Investment Trends To Watch In 2019

Investors are well over their brief love affair with independent ad tech, but other categories –namely mar tech, customer data platforms (CDPs) and advanced TV technology – are now catching their eye.

Why? In a word: growth.

“Growth is still what commands exit premiums – growth is what people pay for,” said Deborah Farrington, founder and co-chairman of NYC-based VC firm StarVest Partners, speaking Thursday at AdExchanger’s Industry Preview show in New York City.

Last year was tough for growth, at least for legacy ad tech. But it was quite a different story in other sectors, particularly mar tech, where SaaS is the name of the game. The marketing clouds spent billions buying up mar tech platforms last year.

“Investors have made a lot of money and will continue to make money in mar tech,” said Brian Andersen, a partner at investment bank LUMA Partners.

Even so, the bonanza has its limits.

“We do hear from investors now saying that, like ad tech, there are a lot of mar tech businesses, and the bar is starting to be raised,” Andersen said. “But hot companies, like CDPs, are getting a lot of VC investment.”

Here are three investment trends to track in the year to come.

Betting on mar tech

Marketing technology companies tick the boxes on the three main valuation drivers for firms seeking investment or M&A action, Andersen said: growth, operating leverage and predictable revenue.

Predictability is particularly enticing for private equity firms, the new hotness in strategic investing. PE firms now base their valuations on what they can achieve with their acquisition in the future, rather than what the acquisition target already has.

“There could be businesses with similar financial metrics, but one gets a 5x multiple and another gets a 15x multiple,” Andersen said. “And that’s just a matter of what that buyer can do [with the business or the product]. … That is the X factor in M&A valuation.”

CDPs FTW

The customer data platform space is crowded – because everyone wants to be a CDP these days. Brands want to rescue their first-party data from silos and get better at cross-channel marketing orchestrations. CDPs capitalize on this need.

The CDP sector grew more than 20% over the last six months, in terms of employees added and funding garnered, according to a recent study released by the CDP Institute.

CDPs, or at least companies with CDP-like capabilities, are also starting to get acquired. In July 2018, Salesforce snapped up Datorama for $800 million, and a semiconductor firm called Arm bought Treasure Data for $600 million.

Venture capitalists see deals like Datorama and “pay attention,” Farrington said.

In other words, watch this space.

“This is an area where we expect this year for there to be a number of sizable transactions and definitely over the next few years,” Andersen said. “We recognize that this is a really nascent category, but at the same time, there are a lot of investors that believe in this.”

An eye on TV

Investors also believe in the transformation of television from linear to digital.

“TV is ripe for both opportunity and disruption, so that’s where we’re spending a lot of our time,” said Darren Glatt, a partner at Searchlight Capital Partners.

The big, walled garden players command around 70% of the programmatic market. But television, an $80 billion industry in the United States alone, is still largely up for grabs, he said.

“Google, Facebook and Amazon have less than a 10% share of that market, because TV is still largely traded linearly today,” Glatt said. “But it’s only a matter of time before that whole process becomes more automated, enabled by data and SaaS-driven."

 

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