Matt Nichols is a Principal at Highland Capital Partners, a venture capital firm.
AdExchanger.com: Highland Capital Partners has a rich history of venture investment in the ad tech space. What sets it apart from other VC firms in the space?
MN: Highland has been a long-time investor in the ad tech space from the early days to today. We were investors in FastClick, one of the early pioneers in the ad network space, which we took public and then sold to ValueClick. We were also an early investor in Quigo which provided contextual advertising to top-tier publishers and who we ultimately sold to AOL. We invested in Navic which provided TV Advertising technology and was acquired by Microsoft. Most recently, we seeded and invested in Quattro Wireless which we just sold to Apple.
The consistent theme has been to identify growth markets early and find great teams that can execute against those markets. In some cases, like Quattro, we invested solely on the team and the market opportunity – the product had not yet been defined or built.
We also leverage our investments in other parts of the ecosystem to identify opportunity and put ourselves in the mindset of the ad buyer or the publisher. As investors in owners of inventory like Lycos, AskJeeves, and Mapquest early in the Internet and Digg, Metacafe, CafeMom, and others today, we know what challenges are facing publishers. We also have invested in major advertisers like VistaPrint, Cash4Gold, and others that are some of the largest buyers of various types of ad inventory. These perspectives are helpful as we help our ad technology companies define their products and strategy.
There are a few areas where I have particular interest:
A) Enabling ad technology for smaller advertisers. Google Ad Words works for small advertisers because it is simple to use and effective. The same cannot be said for display and other types of online advertising. I am looking for companies that are taking the sophisticated marketing tools and “dumbing them down” to make them easy to use for small advertisers. If you are using the words “exchange” or “demand-side” or other buzzwords, you aren’t going to win over the very small advertiser. There will be big wins for those that can find, market, and win over small business customers with simple ad solutions.
B) Social Media Targeting: We are still in the early innings of using social media data to solve marketing challenges. The power of using social graphs to expand existing advertising kernels has the potential to solve one of advertisers’ biggest challenges – having a great set of users to target, but not having enough of them to make a difference. Despite the massive amount of inventory on social networks, I believe the real value will come from using that valuable data to target users across the web.
C) Demand-Side Platforms: While it may be the flavor-of-the-month and an over-used term, there is a big need to help agencies and advertisers make sense of the increasing number of inventory sources (exchanges, sell-side platforms, ad networks, etc.) This need will only increase as Google and others flood the market with real-time inventory which will require more sophisticated technology to consume and analyze in real time. There are clearly too many players in this market today, but once advertisers and agencies get through the testing phase (which is still ongoing), there will be value in working with one DSP who will help them provide one unified view of their customers and their prospects.
When you meet an entrepreneur/co regarding possible investment, what characteristics are you looking for in her or him which go beyond the product?
Team, Team, and Team. If you have a great team going after a large market opportunity, you maximize your changes for success. These markets are changing so quickly that a great product is only a differentiator for a matter of months, and great teams will figure out where the market is going and build towards that. Our teams have been the reason for our success in this space to date, and we don’t expect that to change going forward.
How does your work with First Growth Venture Network differ from HCP?
My work with First Growth is very similar to my work at HCP. Our goal at First Growth is to identify and nurture great talent, which is very consistent Highland’s approach of building great companies together with our entrepreneurs.
We’ve backed a number of young entrepreneurs at Highland and we’re always looking to invest in the next wave of young entrepreneurs. Hopefully we’ll have a chance to fund one that comes out of First Growth, but are open to seeing great talent from any source.
You're based in Boston. How does the Boston-area compare to other hotbed of advertising and ad tech activity? Any momentum you can see/share?
Being an east-coast VC is certainly an advantage in the ad tech space as both Boston and New York are centers for customers and startup talent. Our last 3 exits in the ad tech space were east-cost companies – Quattro and Navic were in Boston and Quigo was in New York. We’re certainly seeing momentum here.
What's your view on momentum in M&A and acquisitions in 2010 in the ad tech space? Who will be the players? Or, is this more of 2011 or 2012?
I’ve been on all side of the M&A equation as a tech banker in Silicon Valley in the late 90’s and early 00’s, at Google for a short stint in M&A, and as a venture capitalist, but its still very hard to predict timing of M&A. If I had to guess, I’d say we’ll see some small company sales in the next 6 months as the strategic acquirers try to pick up a few companies before they get enormous customer traction. We’ll see the big acquisitions at the end of 2010 and 2011 as volume on exchanges increases and advertisers leave the testing phase and begin to direct very large budgets through the next-gen startup companies
Given the hoopla around demand-side platforms, where does the sell-side shakeout here in your opinion?
As I mentioned above, I think there are too many DSPs, but I do believe they provide real value and they will be a mainstream tool for both agencies and advertisers over the next few years.
Sell-side platforms also provide value, but it has yet to be determined whether they really just morph into exchanges (many already are). On the sell-side, I’m most interested in those that help the mid to smaller size publisher because they lack the staff and sophistication to optimize their inventory. They also lack the large direct salesforces that may feel threatened as exchange inventory improves and becomes a viable channel for non-remnant inventory.
We are very bullish on the ad tech space right now and with a new fund raised last year, are looking aggressively to fund great teams in this space.