Ad tech companies are not only getting squeezed by advertisers, their investors are realizing there’s no way to get out. The market for IPOs is horrible.
“A lot of venture capital came in starting in 2007 and really kicked in in 2009 to 2011,” said Darren Herman, digital ad exec at Mozilla.
Most of that capital went to hiring.
“If you do simple math,” Herman said, “some of that capital is now running out, and the growth trajectory you were on in 2009 to 2011 is not there in 2014 to 2015."
Besides an IPO, companies can try to get acquired. But this strategy has a hitch.
“Everything is for sale right now,” Thompson said.
Plus, two of the biggest buyers, AOL and Yahoo, are “effectively closed for M&A,” Thompson said, thanks to Verizon’s acquisition of AOL and Yahoo’s activist investors angling to sell the core business.
With competitors all around and no way to get out, ad tech companies are exercising their only option: cutting costs.
By right-sizing their companies, these ad tech CEOs can make their firms remain solvent much longer without additional investments, while making themselves more attractive to potential acquirers.
But the current belt-tightening in ad tech may not hurt everyone. In an oversaturated market, there will be winners and losers.
“The companies in my portfolio are all hiring pretty aggressively,” said Jerry Neumann, a venture capitalist with seed investments in companies that include Yieldbot, The Trade Desk, Metamarkets, 33Across, Magnetic and PlaceIQ.
He believes overall employment in ad tech will rise – good news for those suddenly on a job hunt.