Lately, the venture community’s relationship with advertising tech has been a rocky one.
Advertising is no longer the venture oasis it was in the past, with the flow of VC dollars in the space dropping dramatically in recent years. According to data from Crunchbase, adtech deal flow has fallen at a roughly 10% compounded annual growth rate over the last five years.
While subsectors like privacy or automation still manage to pull in funding, with an estimated 90%-plus of digital ad spend growth going to incumbent behemoths like Facebook and Google, the amount of high-growth opportunities in the adtech space seems to grow narrower by the week.
Despite these pains, funding for marketing technology has remained much more stable and healthy; over the last five years, deal flow in marketing tech has only dropped at a 3.5% compounded annual growth rate according to Crunchbase, with annual invested capital in the space hovering just under $2 billion.
Given the movement in the adtech and martech sectors, we wanted to try to gauge where opportunity still exists in the verticals and which startups may have the best chance at attracting venture funding today. We asked four leading VCs who work at firms spanning early to growth stages to share what’s exciting them most and where they see opportunity in marketing and advertising:
- Christine Tsai, 500 Startups
- Scott Friend, Bain Capital Ventures
- Eric Franchi, MathCapital
- Jon Keidan, Torch Capital
Several of the firms we spoke to (both included and not included in this survey) stated that they are not actively investing in advertising tech at present.
Participants discuss trends in personalization and targeting, privacy, compliance and analytics, while also diving into startups focused on non-intrusive ad and marketing tech, while also evaluating the evolving regulatory environment.
Christine Tsai, 500 Startups
Which trends are you most excited about in advertising tech from an investing perspective?
Companies that are thinking about privacy from the start and trying to create new ways to provide ad targeting or optimization, while responding to consumers’ and regulators’ demands for privacy. People have become much more sensitive about how advertisers share their data.
The California Consumer Privacy Act is top of mind right now, but it’s only a matter of time until additional standards follow, so we’re excited to see companies that build new businesses with regulations in mind.
How much time are you spending on advertising tech right now? Is the market under-heated, overheated or just right?
We invest across a number of sectors, so we do continue to look at companies whether or not they are ‘en vogue’ with VCs at any given moment – adtech being one of them. We’ve invested in a number of successful adtech companies like Vungle, AdEspresso, Iterable, Firefly, AppOnboard, AdBro and more recently, Podcorn.
However, investors have poured a lot of money into the space in the past, which makes it very competitive and difficult for companies to have breakout success. The business models were too similar. Investors are hesitant to compete in a crowded arena, so to get funding now requires a more differentiated approach. The market seems under-heated at the moment.
Are there startups that you wish you would see in the industry but don’t?
Startups that are doing a great job at enhancing privacy controls while enabling advertisers to achieve results.
It would also be great to see startups that make a seamless, non-intrusive use of beacon technology to personalize content in real life, whether on public displays, smartphones, or some other method. We’ve seen (and invested) in some interesting companies working on things like this, but the technology hasn’t reached its full potential.
Scott Friend, Bain Capital Ventures
While it may sound obvious, the predominant theme in marketing tech is personalization. Over the course of my career investing in early-stage marketing tech and retail-related technologies, I’ve spent countless hours talking to consumer marketers from Fortune 1000 companies – from those in Bain Capital’s own portfolio, like Canada Goose, Michaels and Blue Nile to CMO friends at companies like Hudson’s Bay and Capital One, as well as from market disruptors like Rent the Runway.
And this theme of personalization is as universal as it is persistent and not a new theme by any measure. The idea of presenting the right message to the right individual at the right time via the most effective channels is as old as department store magnate John Wanamaker, who around the turn of the twentieth century famously quipped, ‘half the money I spend on advertising is wasted; the trouble is I don’t know which half.’
What’s new in today’s world, though, is the sophistication, maturity and rapid advancement of the tools to enable true one-to-one personalization. Specifically, there are three capabilities that allow modern marketers to reach consumers in a highly-personalized way.
First, a secure, compliant and mobile-first data store for all sources of first-party data (the Customer Data Platform, or ‘CDP’). Second, advanced machine-learning capabilities to optimize messaging (the actual words) so that recipients are most likely to react and respond positively. And third, two-way communication channels (predominantly SMS today, but there will likely many other two-way channels over time) to ensure a given message reaches the recipient in a personalized way versus getting lost in the clutter of email or the noise of digital ads.
At Bain Capital Ventures we’ve had a front-row seat over the past decade as early investors in several of the platform companies that have pioneered this new, modern marketing stack: mParticle (www.mparticle.com) in CDP, Persado (www.persado.com) in AI-based marketing language optimization and Attentive (www.attentive.com) in personalized messaging-based marketing communications. This trio of capabilities is being adopted by leading consumer marketers in financial services, retail, entertainment, hospitality and now even healthcare.
The impact, as we see it, will be a world with better, more appropriate communications from the brands we love with fewer messages and marketing dollars that, as Mr. Wanamaker feared, are wasted.
Eric Franchi, MathCapital
Which trends are you most excited about in advertising tech from an investing perspective?
Zooming out a bit, some of the most exciting trends are related to how consumer habits are changing. The growth in OTT, audio, voice and other new touch points is creating an opportunity to reinvent marketing for the better. From an enterprise perspective, we are excited about data, identity, creative, commerce and a clean/transparent supply chain.
How much time are you spending on advertising tech right now? Is the market under-heated, overheated or just right?
Adtech is our primary area of focus. We are certainly one of the most active early-stage investors in adtech, having invested in over 30 startups since we launched in 2018. That said, I think the space is under-heated — many VCs shy away from the sector due to its complexity and competitive dynamics — creating an opportunity for the true believers to build with less distractions.
Are there startups that you wish you would see in the industry but don’t?
I’d love to see more focus on the future of the publisher/media company. Digital has changed the landscape significantly for them and I think there is a real opportunity to help them reinvent with new technology.
Any other thoughts you want to share with TechCrunch readers?
The adtech market can be complex and hard to understand, but has produced some fantastic outcomes for founders and investors. Publicly-traded adtech companies outperformed the broader market in 2019 (with The Trade Desk up over 100%) and it’s always been an active M&A market. We’re excited about the future.
Jon Keidan, Torch Capital
Which trends are you most excited about in advertising/marketing tech from an investing perspective?
When thinking about advertising and marketing technology, we’re excited about companies that are finding creative, innovative ways to bring companies in front of younger generations (Gen-Zs especially). This younger generation has proven to be incredibly finicky, with low attention spans and a high skepticism of any advertisement that doesn’t feel wholly authentic.
Platforms like Perksy are generating insights from Gen Z’s and millennials through short-formed, interactive, fun surveys in exchange for rewards, providing large Fortune 500 brands with rich insights on advertisements and marketing campaigns. Companies like Kyra are creating entertainment networks for Gen Z’s, utilizing social media influencers to create original branded content while collaborating with brands to get in front of this hyper-engaged audience.
How much time are you spending on advertising tech right now? Is the market under-heated, overheated or just right?
We don’t spend a ton of time in adtech. However, within this category, we are particularly interested in analytic and insight platforms that empower brands to reach and understand their consumers over audio and video. As these channels continue to prove value and grow in effectiveness, we’re excited by ad/marketing tech companies that provide tools for brands to identify new customers and better understand existing ones.
Are there startups that you wish you would see in the industry but don’t?
I’d like to see more success with companies who partner with brick and mortar retailers to provide consumers personalized in-store guidance and rewards for products.
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