AppNexus Attracts Public Equity Investment, Now Valued At $1.2B

BrianOKelleyThe independent ad tech company that powers more than 30 billion ad impressions per day through its platform is now, officially, a $1 billion-plus business.

AppNexus revealed Monday it has closed a $60 million investment round from an unidentified Boston public equity and asset management firm, valuing the company at about $1.2 billion. At the time of this writing, the company expects up to $40 million in additional financing to follow from “other interested parties” in the coming months, which would make the new investment total nearly $100 million.

The company’s past raises have totaled $140 million. AppNexus has also increased its debt facility to $75 million, extendable to $100 million.

Rather than riding the ad tech IPO train and weathering the ups and downs of Wall Street, for now co-founder and CEO Brian O’Kelley said the public equity financing will give AppNexus the currency it needs for future M&A, to “aggressively” ramp up on engineering talent and further global expansion.

He spoke with AdExchanger about the deal and ad tech investment landscape at large.

AdExchanger: You were considering an IPO in 2015.

BRIAN O’KELLEY: We’ve been very reticent, as you know, to go public because all of that hullaballoo doesn’t actually change your business. In many ways, it actually makes it harder to run your business. At the same time, there’s a sense that the public companies have more money than the private ones, traditionally, because the public markets and public investors validate what they’re worth. You can use your stock to make acquisitions in ways private companies often can’t. That was just a choice we made. We’ll be private. We won’t have as much money or the stock price, but we can really focus on the product and our customers. What happened was, in the spring, we began to get a lot of interest from public investors – not to go public, but to invest. So it was a crossover of public investors investing in a private company.

How did you decide this was the right course of action?

We were sort of mixed. On one side, Q2 was our first-ever profitable quarter. We truly didn’t need money and we still had about half of the money we raised last year in the bank, but if you think about the difference between having a lot of money and not needing money, there’s definitely a difference in those two scenarios. And because these are public investors, it would be a validation of the value of our equity and we could use that as currency to go be acquisitive. It lets us get the benefits of being public without the overhead of being public.

Can you share more detail around the raise?

One of the largest public equity firms in the world invested in the company. The way I would describe it is, we did a first closing [at $60 million] and we have a second closing coming that would [make the total size] around $90 million. It will all be primary, so we’re not using it to cash out existing investors. It will give the company well over $100 million of cash in the bank and it values the company at about $1.2 billion. Obviously it’s a very significant valuation and one that is comparable to the other public companies. We did this financing after one of the worst quarters in the public markets ever for ad tech, which of course has been really painful and so the fact that an active public investor would value us at $1.2 billion gives you a good sense of the amount of confidence they have in our business and what we’re doing. It feels important.

Did Alibaba look to invest in you, as The Wall Street Journal reported?

If you look at the goals we had in this fundraising, one goal was to have enough capital to compete with some of these public companies. I think we would have achieved that with any investor. Goal No. 2 was to really validate that AppNexus is a billion-dollar company and it was a comparable valuation to what we would get in an IPO. The advantage of a public investor is that it’s apples to apples. One of the challenges with Alibaba or any other strategic investors – they’ve made a lot of investments at high valuations and I’m not sure that that necessarily translates into what those companies are really worth. So it wouldn’t have achieved our goal of creating a real currency to do M&A with.

If there was a strong thesis we had around entering the Chinese market, they were interesting. At this point I don’t think we really know what the right way to enter China is, and so I think taking a wait and see approach is what we’ll do. Alibaba may invest in the company at some point or we may do something more deep with them or with other players there, it’s just really hard to commit without knowing anything else about the market. Certainly we have been talking to them and to many other strategics about what the opportunities are, but they are not a participant in this round.

You just acquired Parisian ad viewability firm Alenty. Speaking of currency for M&A, what are you interested in buying?

We’re still figuring that out. We’ve always grown pretty organically and Alenty was our first sort of material acquisition in the space. Right now it’s a pretty hot M&A market and there’s a lot of companies who are sort of trying to find a way in. We’re going to be pretty price-sensitive on anything we do but we’re interested in the idea of finding good teams and technology. To the extent that there’s folks out there with really, really strong tech and really strong people, we will certainly talk but I think it’s more about that than trying to buy revenue or buy customers. We just don’t need that. While I’m saying we want to have currency for M&A, we’re also going to be cautious about this.

Cautious, because?

We’re in this for the long term. Since we’re not public, we don’t have to do things quarterly. I’ve been in ad tech now for 11 years and I plan to be in it as long as it takes to do what we set out to do – make Internet advertising better and I won’t say that we’ve accomplished that yet. That’s why Alenty was so exciting. If we can make viewability the currency of advertising, I think it’ll put more money in the hands of the best publishers and dramatically improve results for marketers and that feels like it has more meaningful value than a bucket of revenue or two here and there.

Thoughts on the broader investment picture?

It’s as hot as this industry’s been since 2007 and possibly overall. The more that investors dig into this space, the more hungry they get for companies that have a real technology approach to ad tech as opposed to only a media approach to ad tech. If you look at the public companies out there today, at the core they’re all media businesses and their margins reflect that and I think when they went public everyone was excited about their growth trajectories and as investors have a chance to see them for a few quarters, they’re saying, “How sustainable is this growth and what does this really mean?”

On the one hand, it’s really fun to have an IPO. You get to go ring the bell, have fun and everyone talks about you. You get capital, so it’s like a fundraising and you get $100 million or so in the bank. And then you go operate quarterly and there’s a whole bunch of other issues. From the sidelines, not being a public company, we’ve had the ability to watch and see what happens.

What was your response when the Rocket Fuel and [x+1] deal went down?

It’s really a harbinger of consolidation so I think that’s the clear theme. I worked at [x+1] or Poindexter when that was the name back in 2003, and it was my first ad tech job. … This is a very, very complex web that’s been woven over a very long period of time. I think in some ways it’s great to see market leaders coming together. I wouldn’t underestimate the challenges of a merger or acquisition across the country. We just did one across the ocean and there’s cultural and product differences. But at the end of the day, there hasn’t been as much early stage activity in ad tech in the past couple of years and I think what we’re seeing is an overhang of interesting companies at some stage of maturity like [x+1] and probably a dearth of innovative small companies. When you’re a large company looking to acquire, it’ll be more of these mergers. We’ll have fewer players and they’ll be bigger and execution will be what matters, and not necessarily some strategic purpose.

Are you seeing more direct deal activity with Twixt (AppNexus’ new programmatic direct tool)?

It’s a brand new thing for the industry. No one as far as I know has tried to build something like it. This idea that we can bring technology to bear around the process of the RFP is game-changing. We’ve gotten great response from media buyers and I’d say we’ve gotten more traction we expected for people who try it and more trouble getting people to try it than we expected. We thought, “Hey, programmatic direct is inevitable. It’s built by media buyers for media buyers. It’s a no-brainer.” We found that as people tried it, they liked it, but it wasn’t as obvious outside our ad tech ecosystem what was coming. Heading into 2015, we’ll see more and more volume transacted through it but just to give you a number, our 2014 number is still like tens of millions of dollars through Twixt. It’s a pretty major number considering we launched in April and I think we’ll see a significant multiple on that next [year].


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