Last summer I had written about how our firm is organized around four core investment areas (Adtech/Internet, SaaS/cloud, security, and healthcare IT). Each of these areas has a dedicated investment team that is able to invest on both early and late stage opportunities, as well as its own advisory board. An investment team meets with its advisory board every 8-10 months. Our investors frequently ask us how we derive value from each advisory board. These boards
- Provide insights about the sector-specific market conditions and trends that can impact a) our firm’s approach to relevant new investment theses, new investments under consideration, and potential exit opportunities for existing portfolio companies; b) how existing portfolio companies may approach specific initiatives, e.g., entering a new geography, or raising new capital.
- Offer their perspective on new business models, e.g., daily deals, so that we can determine if an investment around such a model is warranted.
- Help existing portfolio companies with introductions to potential customers and partners, as well as offer them business advice.
- Participate in the due diligence process for new investment opportunities.
In fast-moving markets, such as adtech, where significant capital inflows by venture and private equity firms continue, and new companies are created regularly even though every subsector is crowded (see below the most recent version of LUMA’s crowded landscape for the display advertising ecosystem of adtech), receiving advice on which subsectors to avoid or where to invest, even if the subsector appears overcrowded, increases our opportunity to provide better returns to our investors.
A few weeks ago we convened our adtech/Internet advisory board, a group of 15 industry executives. During the lively discussion that ensued among the participants, we came away with the following conclusions:
- Market: The display advertising market is doing better than it is officially reported while the search advertising market is not doing as well as reported. Within display advertising, social advertising, particularly around Facebook, and non-premium display are doing extremely well, with DSPs (such as our own portfolio company Turn) increasing their market share over ad networks. Power is shifting to demand aggregators.
- Budgets: While 2012 online advertising budgets in the US remain more tentative than in years past, for yet another year online advertising will continue to be a US-centric market because of European macroeconomic conditions and approach to data privacy, and still immature Internet infrastructure in the rest of the world.
- Advertisers: Advertisers are starting to care about engagement, rather than just a funnel. There will be strong demand to create a brand’s social graph and quantify the value of a fan (big issue for 2012). Brands are starting to care again about how and where they show up, so ad safety will be a big issue. Media is becoming part of the brand message. Performance marketers and brand advertisers are separating.
- Data: Managing and analyzing data assets will continue to be a growth opportunity for 2012. Our advisors expect to see increasing adoption of big data management and analytics approaches as ad buying is shifting away from site/network or even audience buys and is now directed to identifying the right people to target. Advertisers will continue to combine online with offline and social data in order to better understand who to target. In fact, managing data assets is a big opportunity.
- Mobile: All 2012 metrics point to the continued increasing importance of PostPC (here and here) devices (both for advertising but also for commerce) along with the growth of social, but attribution is important.
- Exits: Large corporations, even those outside the traditional Internet ecosystem and particularly certain IT vendors such as IBM, realizing the importance of advertising for the monetization of online content and services, will follow Adobe’s example and become increasingly interested in private adtech companies. They will thus provide exit opportunities to high-growth private adtech companies even if the IPO window remains only slightly open.
Next up is our SaaS advisory board that will be meeting in February.
(Cross-posted @ Trident Capital Blog)