With early-stage ad tech venture capital (VC) dwindling in recent years, some ad tech entrepreneurs stepped in to fill that funding gap, forming an angel investor ecosystem.
While institutional investors are disenchanted with ad tech, insiders are more optimistic. AppNexus founder and CEO Brian O’Kelley said he hopes to invest “in a space I understand better than most.” His portfolio includes MediaMath, Tapad, LiveIntent and Moat.
Because they’re tapped in to marketer concerns, ad tech chiefs can identify problems and fund the solutions.
Take digital advertising measurement. When Jonah Goodhart, Noah Goodhart and Michael Walrath founded online analytics startup Moat, MediaMath CEO Joe Zawadzki and O’Kelley were seed investors. Zawadzki and DataXu CEO Mike Baker also helped get Integral Ad Science off the ground in 2009 and 2010.
Ad tech entrepreneurs typically step in at the seed stage with investments ranging from $25,000 to $75,000 per person, according to more than 10 current ad tech entrepreneurs with industry portfolios. The combined stakes are usually insufficient to sustain a business, but they form an early bridge to loftier funding rounds.
For instance, mobile data platform mParticle started with about $500,000 in commitments from ad tech advisers as a step to securing its $3 million seed round. “I knew when I went to local firms their first due-diligence calls would go back to a number of the people we had on board,” said co-founder and CEO Michael Katz.
MParticle angel investors include Zawadzki, Undertone co-founder Eric Franchi, Michael Barrett, the newly appointed CEO of Rubicon Project, and Walrath, who’s invested and advised internet startups since selling Right Media to Yahoo in 2007.
Because these investors were well connected in ad tech, Katz didn’t have to invest early in a sales team, focusing on expensive product development while “leveraging my angels to plug me into situations with warm introductions.”
Similarly, bidder startup Beeswax “raised a little from everybody,” said co-founder and CEO Ari Paparo, whose seed round included Zawadzki, Walrath, former LiveRamp CEO Auren Hoffman, former DoubleClick CEO David Rosenblatt, Noah Goodhart, Jonah Goodhart and others.
Despite the number of participants, industry angel investors provided only a fraction of the capital Beeswax required, Paparo said. But “it was very advantageous to take money from ad tech luminaries just for their connections, lead generation and support,” en route to an $11 million Series A round from established VCs.
VCs or private equity analysts spend months poring over market research before placing investments, but industry entrepreneur-investors are more like old hands at the track betting on favorite horses.
O’Kelley said he invested in SafeGraph, a pre-launch machine-learning and data analytics company, based solely on its founder, Hoffman, without a clear sense of its business model.
“We all know each other and have been friends and colleagues who came up together,” O’Kelley said. “There definitely is an ad tech cabal.”
Zawadzki, another SafeGraph investor, said he also doesn’t know or care what the startup does. “You’re betting on the ability of a team to evolve and adapt, because whatever the product set is in a given moment it’s going to recycle its tech stack multiple times.”
Conflicts of interest are mostly relegated to hypotheticals.
Franchi said he has to run investments by Perion, the publicly traded marketing software company that acquired Undertone in 2015, and he wouldn’t invest in a company competing against his own. But “the best value comes from being able to see exactly what’s going on in the market.”
Other active CEOs said they run ad tech investments by their board. But the partnership-driven ad tech ecosystem obscures the line between competitor and collaborator. Personal checks for $50,000 or less also don’t raise eyebrows compared to seven- or eight-digit VC rounds.
