It’s fair to say investment in the ad tech space has somewhat dried up since its heyday, as venture capitalists’ enthusiasm for ad tech has waned.
But we’ve still seen ad tech businesses managing to raise impressive sums over the past year. Mobile ad platform AppsFlyer has raised over $210 million this year, publisher data platform Permutive raised $18.5 million, and customer intelligence platform Zeotap raised $60.5 million.
The same challenges which have dampened enthusiasm in the ad tech space, like privacy regulation and the decline of third-party cookies, also create room for innovation. And the companies providing solutions to those hurdles can be attractive from an investment perspective.
Will Gibbs, principal at Octopus Ventures, a VC firm which invested in Permutive, suggested the company made for an attractive investment specifically because it confronted these challenges. “Given the evolving regulatory and customer priorities, Permutive’s technology could be genuinely pioneering in its field,” he said.
And these same challenges are likely to continue driving investment in areas like identity and cookieless targeting over the coming year.
David De Jong, co-founder of cross-screen identity company Screen6 (which has since sold to Samba TV) and an investor in the ad tech space, sees a couple of opportunities around consumer data.
One is in solutions which give users more active control over which companies can access which parts of their data.
“I think that the consumer is going to take more and more control,” he said. “There could be instances where I’m actually totally fine with electricity providers having access to my consumption data, because then they know if it’s relevant to advertise to me, and they can send me through appropriate offers. And we haven’t really seen these sorts of platforms emerging yet.”
And De Jong believes there are still opportunities for more CTV-specific data solutions to attract investment, given rising CTV viewing.
“There’s a big need for very granular analytics on user consumption, and ways to manage broadcasters’ data now that they’re able to see each individual’s viewing behaviour,” he said. “We’ve been talking about CTV data for years, but I think there’s still a big, big opportunity for businesses which can tie all this CTV data together.”
More broadly, the shift towards privacy from regulators and web browsers can be seen as part of a trend of focusing more on the consumer experience in advertising. And this trend itself could open up new areas for investment.
Ben Williams, director of advocacy at Eyeo, a company which pushes for a more user-friendly advertising experience through its ‘Acceptable Ads Standards’ certification, said there is still room for innovation around video formats specifically. “The Acceptable Ads Standards group just finished a very large video ad study to see whether we can come up with video formats which even users of Acceptable Ads software [which blocks ad formats which fall short of the Acceptable Ads Standards] would be willing to see,” he said.
“So I think that opens up room for new, innovative video formats which provide a better user experience which would fall within those acceptable standards, and that could certainly be interesting from an investment perspective,” he said.
Williams also sees opportunities for companies which help mid and long tail publishers bolster their ad revenues with direct contributions from users. While big publishers are finding success in pivoting towards subscription models, mid and long tail sites have a harder time convincing users to pay for content. Tools which help users quickly and simply make small donations to sites they find useful could gain traction, and attract investment themselves.
And 2021 is likely to also see opportunities for tech companies operating in high growth areas of advertising like influencer marketing and gaming.
Yuanling Yuan, senior associate at SignalFire, a VC fund which invested in Zeotap back in November, believes the influencer space offers some interesting opportunities.
Yuan says there is still room for specialist influencer agencies and tech platforms to grab a significant amount of market share. “There is an opportunity to build a large, scalable business in the platform/marketplace segment given that brand marketing is still the #1 way that creators generate income,” she said. “There is still room for a business to rise up and become the DoubleClick of influencer marketing.”
Yuan added investors might be cautious, given that we’ve not yet seen any truly impressive exits from influencer platforms.
But other tools, which help influencers and influencer agencies quickly and simply create and edit content for social platforms, and platforms which help influencers create more direct relationships with their fans, could also attract investment according to Yuan.
Size Over Substance?
As ever though, investors and VCs won’t just be concerned with which companies look capable of carving out a space for themselves and turning a profit. They will look for companies which have the potential for a strong exit.
As SignalFire’s Yuan said of influencer platforms, investors might be wary of areas where we’ve not yet seen big sales or IPOs.
And De Jong agreed that this principle has been something of a block to ad tech investment in recent years, and continues to stifle investment today. In niche markets like ad tech, where VC companies will likely not have a specialised knowledge of how the businesses work, it can sometimes be hard to see the appeal of businesses which often appear to have a fairly low revenue ceiling.
“In ad tech, you can build a profitable company fairly easily, and you can reach $5-8 million in revenues quite quickly,” said De Jong. “But then most plateau at a certain point, and it’s hard to scale any further. Some, like The Trade Desk and Criteo, manage to grow much larger, but the majority don’t.”
“And that’s why VCs have such difficulty understanding this ecosystem,” he said. “They’re used to investing in scalable companies, which have a much easier time growing by investing more in marketing. But that’s not really the case in ad tech, ad tech is much more ‘all or nothing’ where you either pass that plateau, or stay in the $10 million revenue range.”
