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There’s nothing new about a tech-and-media giant like Comcast creating a venture capital arm.
But Forecast Labs, a unit of Comcast Ventures, is putting a new spin on VC investments by leveraging unique access to Comcast inventory and media services.
In 2018, Arjun Kapur, now the managing director of Forecast Labs but then the SVP of marketing, growth and analytics for meal kit company HelloFresh, was frantically hunting for scalable marketing channels.
For example, HelloFresh had started investing in mall kiosks, Kapur said, because they cost only $2,000 to set up, which meant they paid off after a relatively small number of sales … at least back when malls had steady foot traffic.
“That’s how desperate we were for growth channels outside the big social platforms,” he said. It took longer to realize that a traditional media channel like television might be the hero startups need, if not the one they deserve right now.
A year later, that seed of an idea grew into an investment thesis when Kapur joined Comcast Ventures and started Forecast Labs, an internal group that invests in startups, including Acorns, Hippo Insurance and the Public.com brokerage, and helps them grow with access to inventory, media reach and data-driven services.
AdExchanger caught up with Kapur to discuss Forecast Labs’ VC model, and what founders and startups need to know right now.
AdExchanger: What was the thesis for Forecast Labs when you started it?
ARJUN KAPUR: In late 2018 to early 2019 I was raising capital for Aaptiv [a fitness app, where he was CRO]. At the time the business was struggling to scale efficiently because Facebook and other online CPMs were rising.
I believed this issue was going to come to a head at some point. There was a need for diversification outside Google, YouTube, Facebook and Instagram even before COVID happened. And now the market is noticing.
I came to Comcast Ventures in 2019, and it was clear we were sitting on a goldmine of distribution in TV advertising.
Although marketers have been trying Pinterest, Snap and TikTok lately, the performance and scale doesn’t work for them. The reality is, modern growth marketers don’t know a time before Facebook and iPhones. They don’t have the “classical” training on traditional media like television, so they think of it as a dumb channel that can’t be tracked – which is absolutely untrue.
If we could create a CPA-based TV advertising model to underwrite investments, we could scale our investments meaningfully because this is the only other channel that can rival the mass market size of the digital incumbents.
Does Comcast offer cost-per-acquisition ad products?
Our services are not available outside of the companies we have equity interest and investment in.
Buying TV ads on a CPA or CAC [customer acquisition cost] model is one of about 12 services we offer to companies in our portfolio. Pretty much 100% of the portfolio uses the TV CPA ad model, but there’s also conversion optimization, A/B testing, PR services, SEO and payment processing.
Do you invest as well, or is it more of an exchange of media and services for equity?
We invest in all the companies in the portfolio. But it is a different model.
If you think about the venture capital model, investors don't bring much value other than capital. And, frankly, cash is cheap. If you have a good idea, people will line up to give you money. It is still a very efficient and valuable model, because an entrepreneur gets capital and gives up only a minority share of the business.
On the other end of the spectrum is private equity, and that’s majority ownership, where they bring in their team and take a controlling share.
There's nothing in the middle. And that's what we're trying to build.
But it is more like venture capital?
The middle is closer to venture capital, in that it’s minority ownership. But it’s more hands-on help and guidance in ways that materially impact the value and growth of the business.
Other VC groups aren’t bringing actual paying customers to the table. For us, it’s about asking what value we can bring beyond just capital.
I don't want to use the word agency because we're not actually an agency. We're an extension of the internal team helping them scale the business, but we also bring media to the table and can drive growth through advertising because we own the media.
How many companies are in the portfolio?
Six active right now, and we’ll probably add a handful next year.
Another difference from VC is we’re not trying to do every deal under the sun or invest widely in a category. In the VC world, there’s the 80/20 rule, because 80% of deals go nowhere and the 20% carry the funds.
We're trying to make sure pretty much all of the companies in our fund are really scaling and becoming unicorns, essentially.
And if we believe in a company, we commit. We have Hippo Insurance in the insurance category, Public.com is a brokerage we believe in and Nurx is a women’s health and telemedicine company we’re invested in.
We put our efforts into those companies and explicitly will not back another competitor in the space while they’re in our fund.
Have any exited?
Acorns has a SPAC exit plan, and Hippo Insurance is listed on the stock exchange now. Those are our only two exits so far.
What are the priorities of the founders and companies you’re investing in?
Reducing their dependency on companies like Facebook and Google, because CPMs are rising like crazy and it's becoming more and more difficult for direct-to-consumer businesses to reach profitability.
And it's going to be become even more difficult in the future. This is not a pandemic-driven issue. Although it's become a bigger part of the conversation given the pandemic, this issue has existed for a long time and won’t end with the pandemic.
Companies and founders have great ideas and want to build businesses. But being able to acquire customers efficiently is a problem.
We've never lost a deal, unlike the typical VC firm, because our value prop resonates with founders. They need media companies that can drive efficient scale for them.
And, the reality is, those media channels exist. It’s TV advertising and it’s direct mail. These things seem old, but they work.
This interview has been edited and condensed.