Does Wall Street not Understand Ad Tech, or Does Ad Tech Not Understand Wall Street?


Joanne Chen, Foundation CapitalInvestment in ad programmatic ad technology companies has declined over the last year or two as the market consolidates and matures. However, the ad tech party isn’t over yet either and there are still opportunities for companies who bring something new to the table. Here Joanne Chen, Partner at Foundation Capital, provides an insight into what’s happening from a VC perspective. In the video/ad tech space Foundation Capital have invested in companies such as Netflix, FreeWheel, adRise and AdRoll and TubeMogul.

There’s been a lot of talk about VC money drying up for ad tech but we’re still seeing some companies raise money in the video space. Is video the exception and are we likely to see more money coming in to video?

When people say money is drying up for ad tech I think the primary reason is that it’s a reaction to the public market valuation for ad tech. I know that we aren’t shying away from ad tech, although we are trying to find companies that have more of a focus on a software-oriented business model, whether that means working with brands or working with media. What that means is that it’s okay for each campaign and the company taking a percentage of that the brand will pay a subscription fee that they pay every single month no matter how much the media spend is.

A lot of the ad tech companies seem to be struggling to move into a SaaS-type model, and many of those who have tried have returned to trying to make money off the back off media again. Can it actually work?

It’s definitely a challenging shift to make because the way that those businesses were built were not perhaps great for that business model to begin with so it is a difficult shift. Many have also succeeded and that has implications on the teams you hire. It has implications on the kind of product you can build and how you think about yourself and the goals you try to achieve and so there’s a fundamental shift in company culture and philosophy with that transition.

Which companies come to mind when you think of ad tech companies succeeding with SaaS-based pricing?

TubeMogul is a good example. You could say TubeMogul has a SaaS-like model, if not a  pure SaaS model, but they have made that transition and as a result you can see that TubeMogul valuations are better than some of its pure ad-tech peers. So for example, you can look at recurring revenues that are happening, the length of the customer relationship vs. how much they spend, it’s more to a SaaS model than not.

Sometimes there’s a perception in the industry that Wall Street doesn’t understand ad tech. Is that the case, or is it more a question that ad tech doesn’t understand Wall Street and other markets value company performance?

I think there’s a little bit of both. It’s a very complicated industry with many challenges. The challenges are more specific than a typical media-based model, which is, the margins keep getting worse with more competition, the differentiation becomes more difficult, and the expenses are not reduced so from that perspective, I understand why Wall Street is reacting negatively, however Wall Street is probably also making broader categorisations of these businesses, because of how complex they are.


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