Agency VC Still Going Strong, Says KBS+ Ventures

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VC-curiosityLike the rarely seen zedonk (half zebra, half donkey), agency-led VC is an odd little hybrid — a sometimes-awkward marriage of investing and marketing services. But the genre has staying power. Investing arms within WPP Group, Publicis Groupe (VivaKi Ventures), Interpublic Group, and MDC Partners are all notable players that have been researching and making investments in the digital ad ecosystem for years. And some have had major payouts, such as when IPG sold part of a position in Facebook and earned $133 million — a more than 20x return on its original $5 million stake.

One small but influential agency VC entity is kbs+ Ventures, a division of MDC Partners' agency kirshenbaum bond senecal + partners. KBS+ Ventures last week parted ways with its single full-time employee, Taylor Davidson. Davidson, who was assisted in the role by two part-type analysts, is pursuing new unspecified opportunities.

So, what gives? Is kbs+ Ventures pulling back? Far from it, according to Josh Engroff, managing partner of kbs+ Ventures and chief digital media officer at sister agency The Media Kitchen.

"We expect to increase our investment activity this year and next beyond what we did in the previous two years," said Engroff, who stated kbs+ Ventures will replace Davidson's position and grow the VC team in other ways. "Our deal review pipeline is very full and very active."

The kbs+ Ventures portfolio includes Adaptly, AdsNative, Awe.sm, Crosspixelmedia, and Yieldbot. After a dormant second half of 2013 with no new investments, the group has made two new ones so far this year, including AdsNative. Its investments tend to be small compared to dedicated VC firms. In the case of AdsNative, a sell-side ad tech company focused on (you guessed it) native ads, kbs+ Ventures was listed as a participating investor but the $2 million round was led by Interwest Partners.

In addition to the role vacated by Davidson, Engroff's group recently added two part-time analysts. These have joined two others who focus on vetting deals and diligence and a marketing person who does some work preparing decks for portfolio companies. Together this team vetted 200 potential investments last year. It's a scrappy effort, but growing.

"We have been adding by borrowing from the agency, leveraging people who are already here," he said. That internal beefing up will be accompanied by more spending both on staff and growing the portfolio. "As an experiment, Ventures is getting bigger. It's something we've responded to organically — the back half of last year saw not a whole lot partly because there wasn't much interest. We're opportunistic about it."

He said there's also a sense of accomplishments around the investments kbs+ Ventures has made thus far. "The portfolio has done very well — better than a traditional approach, which might be two stars, a bunch in the middle that neither succeed nor fail, and a bunch of failures. That's not us."

Often when it makes an investment, kbs+ Ventures retains the right to participate in future rounds — called pro-rata rights in VC parlance. "When we can and it's not too expensive we would tend to participate in those pro-rata rounds," he said.

For the next phase of its "fund," Engroff said his group is looking at categories including cross-device, data science, real-time location, and programmatic TV. "Ad serving and DSPs are mature areas that aren't as interesting," he said.

As for the full-time position, "We have a lot of candidates for role, it's an extremely sought after position. Trying to hire a C++ programmer or a front-end developer is much harder in a way. The number of attractive VC jobs is much smaller than the number of people who want to get into it."

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