3.1 A driver of brand performance and global growth for startups
We have designed this chapter for diving into the performance and results of media-for-equity investment deals from around the world. As we have seen in the previous chapter, media-for-equity has been adopted in many regions worldwide in the last five years, with promising results. In 2021 alone, in areas such as Southeast Asia and Brazil, where digital media is flourishing and thriving, media-for-equity has become a popular choice for startups and scaleups looking to grow revenue and brand equity and access new markets.
Startups that have traded equity in exchange for advertising in the last decade register an 86% survival rate compared to the industry average of 10%. Our 2021 Media-for-Equity Report showed that internet-based companies and startups do 47% of all media-for-equity investment deals. Some startups have achieved up to a 29,900% profit increase following media-for-equity deals and growth strategies. The total volume of deals has increased by 950% in the last decade compared to the preceding 10-year period.
In the 2022 report, we took a global perspective on the media-for-equity phenomenon and observed a similar trend following the European one.
Media-for-Equity is a critical development stage in generating B2C unicorns.
From a global perspective, 85% of startups that have done a media-for-equity deal are still active.
We have identified 26 unicorns that got to this position following a media-for-equity deal.
From 2010-15, 17 startups reached unicorn status, each in a timeline of 2-3 years, meaning that media-for-equity has been a critical factor in generating this status and valuation.
Moreover, compared to VC investments, media-for-equity investments are 300% higher in valuation in some regions worldwide and are generally higher and stronger than VC investments.
We have also identified 20+ companies that have benefited from media-for-equity and are on their way to becoming unicorns in the next three years.
Company stage when accessing media-for-equity as a strategy for growth
Split per industry
The following are the most important industries to be considered from our research. Of 793 media-for-equity investments made worldwide, many companies operate within the following industries.
Split by business type
From 700+ companies that have completed at least one media-for-equity deal, are split in the following business model:
Split by revenue model
Split by country
Split by company status
The data collected from our previous research on media-for-equity data proved that media-for-equity investments are viable in Europe. This time, we have included investments done by worldwide media-for-equity funds from areas such as North America, South America, the Middle East, Sout-East Asia, Australia, Europe, and India.
Of the startups that have made media-for-equity investments, 85% are active.
Media-for-equity investment benchmark
Due to confidentiality constraints, we had limited access to more detailed investment data, and the media-for-equity investment amounts are rarely made publicly available, thus giving us a limited view of the total media capital invested worldwide. However, a snapshot of the average media-for-equity investment from the last two years in some European, Indian, and Sout-East Asian areas can be seen below.
The latest average of media-for-equity investment raised by startups under the UK’s Channel 4 Ventures is approximately $8.3mn.
The average media-for-equity investment raised by startups under Sweden’s Aggregate Media is approximately $23mn.
The average media-for-equity investment raised by startups under Germany’s GMPVC is approximately $27mn.
The average media-for-equity investment raised by startups under France’s 5M Ventures is approximately $4mn.
The average media-for-equity investment raised by startups under Spain’s AtresMedia is roughly $14.9mn.
The average media-for-equity investment raised by startups under the Spanish/Italian Ad4 Ventures is roughly $15mn.
The average media-for-equity investment raised by startups under India’s Brand Capital International is roughly $6.5mn.
The global startup ecosystem — a comparison between continents
The European startup ecosystem raised over $120bn in 2021 from VC investments, according to Crunchbase data.
However, only $9bn was invested in 431 early-stage startups, an average of $20mn/startup.
Only $2.8bn was invested in 1,124 seed startups, an average of $2.5mn/startup.
The North American startup ecosystem raised a sum of over $329bn in 2021, according to Crunchbase data.
Only $33.2bn was invested in 1,134 early-stage startups, an average of $29mn/startup.
Only $3.1bn was invested in 2,403 seed startups, an average of $1.3mn/startup.
The Indian startup ecosystem raised $41bn, of which $24.3bn was invested in the tech sector (s. India Times, Entrackr, India Times).
640 funding deals were made in 2021, an average of $37mn/deal.
- 396 seed startups earned an average of $705,000/startup.
- 241 early-stage startups earned an average of $1.9mn/startup.
The Southeast Asian startup ecosystem raised a sum of $4.4bn in 2021 (s. Bloomberg).
There were 393 deals done, with an average of $11.2mn.
Less than 10% were Series C or later; most startups were early stage.
The Australian startup ecosystem raised AU$10bn ($7.6bn) in 2021 (s. Startupgenome).
There were 682 deals done, with averages of $5.4mn for Series A rounds and $835,000 for seed rounds.
The Brazilian startup ecosystem raised $10bn in investments in 2021 (s. Labsnews.com).
217 seed rounds raised $157mn.
83 Series A rounds raised $894mn.
25 Series C rounds raised $2bn.
The Southeast Asian startup ecosystem raised a sum of $4.4bn in 2021 (s. Bloomberg).
There were 393 deals done, with an average of $11.2mn.
The Mexican startup ecosystem raised a sum of $4.7bn in 2021 (s. Altios).
Currently, Mexico has 8 unicorns: Kavak, Bitso, Clara, Clip, Konfío, Incode, Jokr, and Merama.
The Israeli startup ecosystem raised a sum of $10bn in 2021 (s. Sifted).
Israel added 41 unicorns in 2021 and 22 in 2022 up to August, bringing the total to 97 unicorns.
As we can see, in some cases, media-for-equity investments tend to be higher than VC financing, especially when referring to seed and early-stage startups.
It should be noted that, according to our previous findings, seed and early-stage (Series A, B) startups make up the majority of media-for-equity investments, with 72% of the total investments.
The average sum for seed and early-stage startups in European media-for-equity investments is $15.3mn. The average sum for seed and early-stage startups in European VC investments is $11.2mn.
The average sum for seed and early-stage startups in European media-for-equity investments is $15.3mn. The average sum for seed and early-stage startups in European VC investments is $11.2mn.
The average sum for seed and early-stage startups in Indian media-for-equity investments is $6.5mn. For seed and early-stage startups in Indian VC investments, it is $1.6mn.
Regarding the Mexican space, there are currently eight unicorns. Two of them, Kavak and Clip, benefited from media-for-equity deals that allowed them to reach unicorn status. Furthermore, TelevisaUnivision has invested in two more non-Mexican companies that ended up being unicorns. Of the 10 unicorns, four benefited from media-for-equity, bringing the rate of media-for-equity-backed unicorn success in the Mexican space to 40% in just under five years since the model appeared in this region.
Australia and Israel are thriving regions for VC investments. Still, media-for-equity is growing: several media-for-equity investment funds have been founded in Australia, while In Israel, media-for-equity fund The Partners has already invested in several companies in the last two years.
Benefits of media-for-equity for company founders
The relatively high costs of traditional media buying and advertising deter many companies from using it. However, a media-for-equity partnership can bring many benefits you can justify, given the power and advantages of using traditional media for brand performance and sales growth.
“TV has a unique ability to reach mass audiences. It offers an unparalleled level of brand awareness, which is why it remains a key channel for consumer-facing companies looking to launch new products or services. With this in mind, here are 3 tips for startup founders when thinking about a media investment deal:
“TV has a unique ability to reach mass audiences. It offers an unparalleled level of brand awareness, which is why it remains a key channel for consumer-facing companies looking to launch new products or services. With this in mind, here are 3 tips for startup founders when thinking about a media investment deal:
01.
Have clarity around what you want to get out of TV, and go after that single-mindedly.
02.
Make sure you are operationally ready to scale. Broadcasting on TV will generate a huge amount of customer demand, and you want to ensure that you are in the best position possible to serve and monetize that demand effectively. You only get one opportunity to launch on TV; make it count.
03.
Think about an omnichannel marketing strategy. TV is a fantastic amplifier for other forms of marketing, such as performance marketing”
- Sheena Amin, Director, ITV AdVentures.
We spoke to several company founders worldwide who have done a media-for-equity deals. In summary, our 2022 and 2021 reports have clarified that revenue growth, market expansion, and brand performance are some primary benefits.
In this section, we list and give extra details about the most important benefits we saw repeating from one deal to another, from one interview to the next.
1. Boost positive revenue and company growth
Revenue growth might well be the general North Star of all business metrics and the Sun of the balance sheet; thus, founders and executives are guiding their growth efforts with and by this metric. Simply put, revenue growth is an increase in revenue over time. From an accounting perspective, revenue growth is the rate of increase in total revenues divided by total revenues from the same period in the previous year (30).
Thus the media-for-equity model has been most successful in this company growth metric; in all cases and applications, revenue growth is happening to various extents because the media-for-equity model always employs some form of a call to action for goods and services acquisition via their media and advertising campaigns.
The magic in sustainable revenue growth is to not grow in revenue at all costs. One of the unique qualities of media investments is that they enable companies to mitigate the risk of negative growth.
2. Accessing new markets with confidence and a soft landing
Media-for-equity has been a key tool for expanding to new markets, and for making a soft landing in cases where unpredictability has been one of the most important concerns in the market. Strategic media investments allow for slower growth in a market that is impacted by economic changes or if the new market culture and customer behavior might be an element of making it or breaking it in that specific market.
Media-for-equity deals used strategically to access a new market are extremely cost-efficient and take the pressure off the possible negative financial impact. US companies such as Piper and QYou have entered the Indian market through deals with Brand Capital International. They have seen great success in their strategy, and plan to use media investments to engage in light touchpoints with their future Indian customer base. Heading towards the same offerings, TelevisaUnivision, under the new merger with Univision, is now considering expanding its media-for-equity practice in the US, meaning that a plethora of South American companies will have the possibility to use this tool to expand to the US.
3. Build strong brand awareness and performance
The differentiating factor between traditional media and performance advertising is that the end consumer holds traditional media as trustworthy in their perception; therefore, any company with, for example, a TV appearance is by default associated with a trustworthy brand.
Brand awareness represents your target audience’s familiarity with your brand and how well they recognize it (62). Companies with high brand awareness are generally referred to as ‘trending,’ ‘buzzworthy,’ or simply ‘popular.’ Establishing brand awareness is valuable when marketing and promoting your company and products, especially in the early stages of a business (31).
Media-for-equity has been the tool to elevate brand awareness and consequently accelerate revenue growth to such an extent that some companies have reached unicorn status in a relatively short period. The Germany-based companies Zalando and About You, as well as Mexico’s Rappi and Kavak, are examples of the model’s efficiency in brand performance.
While large media groups have not only traditional media such as TV but also various digital media, having advertising space on all media platforms available from the group’s portfolio, the level of brand awareness generated by a group similar to The Times Group India can easily transform your business and take it to a different level. QYou has managed a staggering 300mn+ views for their video content in India, and their Youtube channel sees over 100mn+ people visit weekly.
4. Benefiting from preferential media rates
Preferential media rates sit at the foundation of the media-for-equity model; it has been designed around discounted media rates as a skin-in-the-game statement for the companies they invest in.
Founders will get preferential rates and several media discounts, which is impossible in the open market. Multiple media-for-equity investment funds offer discounts the founders could benefit from in short- and long-term conditions.
This element of composition in the media-for-equity model builds trust and confidence when evaluating and considering the model. The consensus among the founders we interviewed was that it is a ‘no-brainer.’
5. Access to media experts and market intelligence
Something that is not talked about much regarding media-for-equity is the intelligence you tap into as a company when growing with this strategy. You get direct access to consumer behavior and market intelligence. What does this mean?Market intelligence is a company's data about a specific market or industry to help make business decisions and build competitive strategies (32).
Market intelligence is used to learn about the existing market, customers, problems, competition, and growth potential (63). Companies can gather this information through internal and external sources such as sales logs, surveys, social media, news websites, manufacturers, clients, market research, or distributors.
In a non-media-for-equity scenario, the cost of this type of intelligence can be thousands or hundreds of thousands of dollars, and various efforts of trial and error, in the hopes of identifying the perfect data insights that will lead to the best product positioning, the appropriate messaging, perfect coloring, and many other elements necessary to approach and decide when planning an international scaling strategy.
From the market intelligence perspective, a media-for-equity deal means a media and advertising campaign planned and built with the support of senior media experts and advertising and marketing specialists, sometimes skipping the hassle mentioned above, thus gaining a competitive advantage over the competition.
Several media-for-equity investment funds — such as Channel 4 Ventures, TelevisaUnivision, and Brand Capital International — have dedicated teams working diligently and directly with the founders to obtain the best outcomes possible. Moreover, the campaign's efficiency is the most important goal, as both parties (the investors and the founders) are involved in the outcome and will greatly benefit from its success.
6. Extend the financial runway and build better unit economics
Based on our research, the average sum for seed and early-stage startups in European media-for-equity investments is $15.3mn. The average sum for seed and early-stage startups in Indian media-for-equity investments is $6.5mn. These are larger than their VC counterparts.
This information gives us the key insight that media-for-equity can be strategically used to extend your financial runway and readjust the existing VC budget accordingly, focusing on building good unit economics, thus leading the company’s next round of fundraising to a better position to negotiate percentage details, among other things.
7. More than media, get personalized support and build long-term partnerships
A media-for-equity investment comes with more than just another investor in the company. The deal’s nature is planned, so both parties will benefit from its success. It is essential to provide the intelligence, tools, guidance, and mentality to achieve the best possible outcome. In this regard, many media-for-equity funds — such as Brand Capital International and Arrandale Ventures — help founders in many areas, from providing access to a network of media professionals, mentorship, and guidance. Since a media-for-equity deal is a medium-term journey for both parties, mutual support, communication, and pragmatic approaches to achieving success will be needed.
The media investment is complementary to the VC and does not come in competition; rather, the value added from the media is there to optimize how the VC is spent. Working with these two parties can deliver great results for all parties involved.
Best practices and considerations in media-for-equity investments
Do not expect your metrics to look the same by market. Differences between countries are normal and do not always reflect a team’s performance. However, they must be considered when assessing if the existing team’s expertise and skills are right for expanding to a different market.
1. The right time for media-for-equity investments
A majority-driven consensus among media-for-equity stakeholders states that there are multiple elements to consider when a media-for-equity investment should occur. The following are the top six points to review when considering media investments:
01.
A strong revenue model and competitive advantage;
02.
Achieved and beyond product-market fit — not expecting big changes in their offering and ready to scale;
03.
Strong and sustainable financials, specifically good unit economics;
04.
Marketing and advertising should create value for the business;
05.
High-performing management team;
06.
Timing — positive macro and industry dynamics and a good push of exposure to reach profitability are just a few examples.
In our research, startup founders Shree Bose of Piper and Zachary Richner of Arrandale Ventures agree that a media-for-equity deal should ideally happen when the startup has already reached product-market fit.
As the advertisements are focused on audiences, having a product validated by the market to show to the world is essential in this deal.
“I think many things must align with a media-for-equity model to be the right choice for a company. I believe a few years ago, it would not have been the right choice for us.”
- Shree Bose, CEO, Piper Learning
Meanwhile, those mentioned above are not rules set in stone. From our research, we have discovered that media-for-equity is used primarily to generate early customer growth in areas such as Santa Catarina, Brazil. So far, NSC Comunicação’s investments have been at the seed stage but continue to focus on product-market fit and a good operations setup.
“Contrary to cash investments, a media investment allows you to take risks. Moreso, there is no additional cost involved, being managed by the already existing teams. In a media-for-equity investment, you are investing the media resources you already have.”
- Bruno Watte, Director of Product and Operations, NSC Comunicação
2. The mix of media platforms and channels for efficient results
“We had multiple campaigns from television to newspapers and print and out-of-home billboard marketing across all media methods in a multi-language way: Hindi language and Marathi language.”
- Curt Mavis, QYou Founder
The luxury of having access to a large portfolio of media brands and channels empowers early-stage companies to maximize the output of their growth plan. To have a successful media campaign, Borderbridge has learned that media companies recommend creating a media mix between platforms and channels to improve the likelihood of success.
An integrated marketing strategy and plan are necessary for elevating brand awareness. In our research, case studies such as FEEL and QYou have obtained impressive results in engaging different audiences on different media platforms.
3. Media-for-equity investments complementing the established investments landscape
Media-for-equity is simply a niche investment mechanism, and it should be approached as a complementary investment model to the established private equity and VC investments model. The saying ‘cash is king’ is true, and founders prefer cash above all else. Still, a media-for-equity deal comes with mentorship, know-how, and higher market share, faster than capital resources can bring, by developing internal capability, capacity, and intelligence.
The VC fund’s ambition is growth, and media-for-equity perfectly complements this goal, especially in the current troubling economic times. Meanwhile, partnerships with media groups are being developed, and stronger collaboration enables risk-free investments for all parties.
“Implementation of a media-for-equity deal doesn’t relate only to advertising. It also means mentorship, know-how access, and higher market share if done right.”
- Chris Sheldrick, CEO, what3words
4. The globalization trend of media-for-equity investments and breaking into new markets
Media companies are investing hundreds of millions of dollars in digital startups, searching for ways to diversify away from stalling growth in their core media businesses, innovate their business model and de-risk their long-term cash flow.
This research paper has shown us that in the past 20 years, more than 50 media groups and media-for-equity funds have made a total of 1800+ media investments globally. This is a continuous upward trend. Borderbridge’s team continuously receives positive signals and interest from media groups interested in this model and how they could implement it inside their organization.
The case studies we documented in this paper are not intended to be exhaustive. Still, they will hopefully provide food for thought for media groups when considering maximizing their media inventory ROI while investing in upcoming digital companies.
Media-for-equity investment funds, such as Brand Capital International and German Media Pool VC, have adopted a global perspective, enabling startups with global ambitions to expand to the Indian and German markets.
Brand Capital International has helped QYou, Piper, and what3words, to name just a few, break into the Indian market. At the same time, what3words has also received help from German Media Pool VC regarding the German market.
“I always wanted Piper to be accessible to the next generation of inventors in India. With Brand Capital International, it worked in realizing that we had created this product line that was a great fit for India. So we decided it was the right time to expand into India and Brand Capital was the best partner.”
- Shree Bose, CEO, Piper LearningChris Sheldrick, CEO, what3words
5. The media-for-equity strategic campaign for startups
As we have seen in the case of a mix of media platforms and the detailed startup benefits section, every media-for-equity deal will be done with a strategic campaign in mind. Startups need to connect the media investment to a clearly defined growth strategy and objective, understanding the added value of the model.
Our internal data shows that the companies that used media-for-equity investments as a growth tactic worked attentively on when to use it. For example, some companies may use it to grow revenue in their home market, others to grow their revenue in a foreign market, and other companies would use the model purely for new market brand building and educating consumers about the brand.
Some funds, such as Brand Capital International, have dedicated teams studying the market and will develop together with the startup founders based on the startup’s growth strategy and objective. Other funds, such as Arrandale Ventures, collaborate with media partners to build a strategic media campaign around the channels and audiences to help the startup achieve its goals.
“From our experience, having made over 1,000 investments to date, through our market analysis, we need to identify that there is an opportunity for the product to land itself in India and that there is a consumer market for it.”
- Neville Taraporewalla, President, Brand Capital International and The Times Group, North America
6. The future of investing looks positive for media-for-equity
Media-for-equity deals will become more prevalent in the business ecosystem. Media groups are forced to adapt to the industry’s disruption and diversify and increase their revenue stream. In this context, exchanging media resources for equity has become an attractive choice.
Southeast Asia’s FAME has become the first media-for-equity fund in that region. Mexico’s TelevisaUnivision and Brazil’s Globo Ventures, two of the largest media companies in their respective regions, have already started implementing the model.
When adopting the model, one element of investment transparency and visibility is that the media groups become vocal about its practice. On the other hand, News Corp Australia has already made media-for-equity investments for over 15 years; in 2016 it established Scaleup Mediafund as a dedicated media investments fund.
“As the startup sector in Australia grew rapidly and matured over five years ago, we saw an opportunity to invest in high-growth businesses that were not necessarily strategically aligned to our business, but would generate a financial return and become ongoing media clients.”
- Tim Archer, Head of M&A and Investments, News Corp Australia
The team at News Corp Australia reviewed media-for-equity models internationally, particularly in Europe, and decided to create Scaleup Mediafund and partner with other media organizations as a multiplatform media fund, which offered a stronger proposition for startups than a single media company fund.
“Grai’s team and their 2021 study on media-for-equity have helped me set the foundation of FAME Global — the first media-for-equity fund in Southeast Asia, home to 600mn+ people.”
- Hasnain Babrawala, CEO, Fame Media Global
7. The change in the media landscape and its impact on advertising
The US and Southeast Asia are two places where the media landscape is changing very fast for certain audiences. In the US, younger generations exclusively receive their news on digital platforms, while countries such as Singapore and Malaysia have seen increasing popularity of eSports and video game streaming. Advertising is influenced by these movements as well.
For decades, the media industry has faced challenges connecting its ad spending to actual customer purchases (64). Identifying whether they were delivering impressions for the right audience, for the right price in the correct channel was clunky and, most of the time, an imperfect science, with many assumptions, data insights, and a decentralized measuring method. Technology and software are changing this by directly connecting the audience impressions with multichannel customer transactions, delivering real-time insights and analytics, and providing the customer with factual information about how the campaign performs in a specific time and context.
While the FANG performance-driven advertising engine is having its moment of fame, the media industry is becoming more digitized and adding technology layers to its advertising offerings. If it does so while using a media-for-equity business model, it can influence how technology-based companies look at the traditional media and may start adding it more and more to their marketing mix.
8. The value of media inventory and equity transactions
In the past 20 years, the number of traditional media companies that have started investing their media inventory increased significantly, as mentioned in point 4. From our research, we discovered that company founders and traditional media companies should be cautious when using the value of the advertising inventory and services (rather than the equity acquired) to establish the transaction value.
The provided advertising is often ‘spare capacity,’ so it may have much less value than a theoretical rate card. Robust, granular analysis is needed to support a reliable measurement of the media services provided or the equity stake received.
“At Scaleup Mediafund, we provide media inventory at discounted pricing of agreed commercial value in exchange for company shares, and the transaction is non-cash in nature.”
- Tim Archer, Head of M&A and Investments, News Corp Australia
The Borderbridge Media-for-Equity Framework™
A tool we developed to guide company founders and leaders when analyzing a media investment as part of their global expansion strategy. A four-circle grid, focused on the relationship between the investee company and media group to help companies determine the potential new market expansion within a media-for-equity investment.
As your company develops a market expansion strategy and media investments are one option, what is the best way to evaluate global opportunities and determine which new markets make the most sense to pursue?
Some companies focus on the largest markets, but that approach fails to consider the nuances and risks of particular markets. It neglects essential factors most likely to contribute to success or failure.
From our research, we have found that the companies choosing media-for-equity as their growth strategy for new market expansion followed a similar pathway when choosing the next market to expand to.
The Borderbridge Framework™ consists of:
Culture — can you find a relationship between your product or company service and the culture of the new market you are targeting?
For example, you are developing a new form of a game built on blockchain technology with play-to-earn fundamentals integrated into the game’s design. When looking at your next market, a key factor to consider is if the culture is open to various game types, which could make your market entry easier or more complicated and determine the required advertising spend.
Customer — spend time understanding and defining your ideal customer profile in detail.
This part is coupled with culture and will represent a considerable part of your decision-making in choosing one market over another. You could use a more loose culture-customer relationship at a later stage of growth when the company has a better and stronger brand performance at an international level, which will ease your market entry.
Content — what content type from a media company’s offerings fits the market, and how could that best support your brand exposure?
Collaborate with the media group to identify the best content — your company relationship, topics discussed in a specific content context, audience, attention, etc. Ask yourself: which TV show would best showcase my brand, and how would that impact my brand perception?
Channel — identify what channel your ideal customer spends most of their time on
This last part of the model is the final channel alignment, and sometimes the channels are already revealed by the decisions made in your culture-customer-content deliberations.
Based on the media group’s offerings, the last two parts consist of a mix of channels and content types, planned and deployed in a campaign-driven strategy, with defined objectives that ultimately flow into the creative operations, where you design and develop your advertorial assets.
For example, in all their media-for-equity deals, Brand Capital International emphasizes ensuring they align all the above parts. Brand Capital International’s benefits are usually presented and discussed with the company founders.
“We bring all the services to the table and all the resources that we have. We bring connections, we bring partners, and we bring advice. We make it easier for companies to get up and launch in India.”
- Neville Taraporewalla, President, Brand Capital International and The Times Group, North America
3.2. A strategy for media groups to innovate and tap into new revenue streams
In April 2021, "The Rise of The Media-for-Equity Model" by Grai Ventures and Borderbridge reported that traditional media companies were investing in consumer-facing companies as a strategic diversification and expansion of their core business and expand into new areas.
Media groups may have different objectives in making digital and technology investments. Some groups are looking for strategic investments, such as upcoming new media companies or companies that can support their TV and content development departments. Others are seeking financial gain and investment returns.
While most media groups in the past invested capital, some have started investing their advertising inventory, but not limited to these resources and services only, as the case studies of Brand Capital International in the Indian market demonstrate.
According to an online 2021 article in Axios, investments in digital media slowed down:
After the 2014 and 2015 boom of investing in US-based new digital media companies, new data from Pitchbook show that from 2015-21, media startups attracted far less cash from VC funds. (69)
VC investors are no longer willing to deploy hundreds of millions on new digital media platforms, given how long it has taken for some of those investments to return positive financial results. (69)
A small number of media firms — such as Puck and Recount Media — have successfully raised money to help fuel the growth of their platforms. But the raises are relatively small, especially compared to the hundreds of millions of dollars that companies such as VoxMedia, BuzzFeed, Vice Media, The Athletic, and Nine Group Media attracted previously. (69)
Why it matters: the upcoming new digital media companies lack the mass distribution and exposure, market intelligence, and financial budgets required to slingshot their reader and customer-base growth, similar to today’s new B2C digital businesses. (69)
The media-for-equity investment model complements and integrates itself with traditional venture capital investments in a smart way, to budget and spend resources more efficiently, while de-risking a company's success from the get-go.
Globally today, over 1,800 media-for-equity and media-for-revenue investments have been formed by media groups’ investment arms, boosting the growth of B2C service and product companies.
Media investment strategies in startups and considerations
Here are four investment strategies and objectives that media groups can explore and be guided by when thinking about launching their media-for-equity and media-for-revenue operations.
1. Opportunity investments — built on internal media assets and licenses
The scenario where some of the media group’s IP and media assets have a licensing revenue model, and the group sells the licenses based on a media-for-equity or a media-for-revenue model.
Within such a scenario, we consider that the group has seized the opportunity to invest opportunistically and may or may not want extended engagement and involvement in the invested company.
2. Strategic investments — built and driven by the DNA of the media group
In this scenario, media is again exchanged for equity. However, this example considers how the accounting might differ if the transaction is not simply an opportunistic revenue transaction that happens to have been settled in shares but is rather a chance for the media group to have a say in the strategic direction of the startup. For example, potentially significant synergistic benefits might have been identified by the media group and the startup that can be exploited through cooperation (34).
For example, the media group assesses that 10,000 advertising slots would be sold for $1mn, and the advertising would be delivered over two years. In return, the media group receives 10% of shares from the startup. In this scenario, the media group expects to receive revenue of a minimum of $1mn, 10% of voting rights, and the option to appoint a representative to the board of directors or, if the equity ownership and split permits, then appoint a director. Thus the media group becomes a more strategic pillar in the evolution and growth of the company.
3. Joint ventures and corporate venture building — built by common interests, assets, and resources
Another common way for media companies to collaborate is to establish new businesses with companies from other sectors. Many structures might be used, but some key considerations for media companies are ensuring that the media group has joint control in the newly formed company.
In this scenario, the media group is again presented with the opportunity to swap their advertising inventory to benefit the newco. Successful business growth requires understanding unmet or underserved customer needs and quickly developing new offers that deliver on them. The media groups have the capacity and capability to deliver those customer insights.
Another example of how media groups can leverage their resources is by venture building — ideating, designing, and developing new ventures strategic to the media group’s interests and strategy.
External venture building counters longer-term growth stagnation and loss of market share, where media groups cannot respond from within their core business or through fragmented startup collaborations. Investing in non-core business models gives large media groups an edge and a headstart in areas where new entrants and competition will emerge.
4. A new market — expand the geographic coverage and the media type offering of the media group
A traditional media company may seek exposure to new markets, gain control of the supply chain, and expand its media-type portfolio by investing in another business. In this example, we consider a group that wants to enter an emergent market. While doing so, in the media industry, it is important to retain the capacity and skills of the new company.
For this example, we can apply the same ownership acquisition strategy, i.e., media-for-equity. Within this strategy, the media group will have the opportunity to expand the new media company internationally and plug it into the existing audiences and distribution channels.
The media groups should analyze the accounting considerations for each of the above-described investment strategies and consult a professional accounting firm when designing their media-for-equity investment strategy.
Traditional media companies are committing millions of dollars to invest in digital startups as they look for ways to diversify away from stalling growth in their core media businesses. Such investments can be strategic or purely financial and can be made in cash or in exchange for services, such as advertising inventory (35).
In 2018 Jonathan Allan, Channel 4’s Chief Commercial Officer, said on Crowdcube’s website: “Crowdcube was the perfect fit for Channel 4’s Commercial Growth Fund investment. We both desire to support emerging talent and disrupt the status quo. This innovative business is powering the next generation of brilliant entrepreneurs across the country and energizing the investors who want to back them.”(67)
5. Guiding principles for company selection in media-for-equity investments
Media companies could have unsold media inventory and choose to use this as a strategic investment in outside companies. At the same time, these or other companies could have a corporate strategy to diversify their investments and choose media-for-equity or one of their investment models. Either way, the media groups should be attentive to company selection principles.
In our research, we talked to more than ten media companies and fund managers that have pursued the following guiding principles for selecting a company to invest in:
The company and its products should fit the media group’s media brands and content.
Focus on emerging companies for whom TV ads are not affordable.
The company needs to scale safely following the anticipated momentum due to media buy.
Focus on sectors with anticipated high equity valuation upside (social, games, lifestyle, etc.)
Be attentive and do not cannibalize the ongoing media inventory sales channel.
Define an investment strategy and select companies based on that.
Clearly define the new media-for-equity customer pipeline and internal operations.
6. Considerations and questions a media group should explore when addressing the media-for-equity investment model:
Does the media group have a minority holding in the new company, and what are the accounting, financial and operating benefits and disadvantages in that position?
Does the media group have a majority holding in the new company, and what are the accounting, financial and operational benefits and disadvantages?
Does the media group invest capital, media, or both?
Does the media group invest locally, internationally, or both?
Should the media group form a dedicated team to run the media-for-equity operations?
How much revenue does the media group expect to receive from the invested media?
At what price is the media being invested, and should the return on investment match the price at the value of the investment?
What are the media group’s rights in a co-investment scenario?
Does the media group lead the investment round?
Does the media group invest the premium, low-quality, or both advertising inventory?
How does the group value low and premium advertising inventory, and should it influence the equity stake?
How does the group mark the equity traded revenue in their accounting systems, and how does it influence the group's overall financial performance?
How does the media group approach investments in blockchain, crypto, and web3 startups?
7. Media-for-equity vs. media-for-revenue
A high-level overview snapshot of the advantages and disadvantages of media-for-equity and media-for-revenue. A simple guidance framework for media groups to quickly assess a decision as to which model to work with at any given time.
(1) Revenue share is based on positive effects of media ‘buy’
(2) Different options to reduce management intensity (third-party fund management, standardized deal templates, etc.)
