What’s happening in late stage AdTech? A look at public markets, VC and M&A

by Nima Wedlake on June 12, 2017

Public Market Performance

We’ve just published an update to our report on late stage advertising technology companies. Our full report is available on Slideshare & we have included some highlights below:

Public markets: Criteo and The Trade Desk have thrived as public companies — both have consistently met or beat investor expectations, sustaining growth and profitability over several quarters. The Trade Desk went public in September of last year and has performed exceptionally well in 2017; its stock price has more than doubled this year (see our deep dive on The Trade Desk for more information). However, with the exception of these two companies, advertising technology vendors have struggled in the public markets. For instance, Rocket Fuel’s stock price has dropped nearly 95% since its IPO in 2013.

The chart below shows the performance of Facebook, Google and an index of several adtech companies (Criteo, Rocket Fuel, Rubicon Project, The Trade Desk, Tremor Video & YuMe). While companies have rebounded slightly in 2017, public market investors have generally soured on the sector and multiples have dropped to less than 1x 2017 net revenue (not including Criteo and The Trade Desk, which are trading at 3.1x and 7.8x 2017 revenue, respectively).

Public Market Performance

Late stage financings: Investment in late stage advertising technology companies (defined by Pitchbook as “usually Series B to Series Z+ rounds”) peaked in 2014, both in terms of number of deals and total dollars raised. While we saw a drop in the number of companies raising capital in 2015 (41 vs. 64), the total amount of capital raised dropped only slightly (down 12% YoY to $753M). However, we saw further declines in both deal count and aggregate capital invested in 2016.

Late Stage AdTech Financings

M&A: While late stage venture capital has softened, we’ve seen many healthy exits for advertising technology companies over the last 18 months. There were 79 acquisitions in 2016, in line with deal count in 2015. We count 20 acquisitions of $100M or more since 2016, including Oracle’s $850M acquisition of Moat, Amobee’s $310M acquisition of Turn and Salesforce’s $700M Krux acquisition. Additionally, Chinese companies have emerged as eager buyers of adtech — notable deals include Orient Hontai Capital’s $1.4B acquisition of AppLovin and Miteno Communication’s $900M acquisition of Media.net (see our research report on the Chinese advertising ecosystem for more detail)

AdTech Acquisitons

We’ve embedded our complete findings below, and you can download the report directly from Slideshare.

Late Stage AdTech Market Update (Thomvest Ventures) from Thomvest Ventures

Why Fintech?

by Laura Cain on February 1, 2017

Fintech is a hot sector. As a fintech focused VC, we are firm believers in the potential of the space. However, we must carefully watch and re-evaluate the landscape to ensure we are investing in the right place and at the right time. Take a look at our latest piece, originally presented at the Northwind Forum, which provides our perspective on “why fintech?”.

Why Fintech? from Thomvest Ventures

Thomvest Research: Deep Dive on Header Bidding

by Nima Wedlake on January 12, 2017

As investors in the digital advertising space, we closely track emerging technologies that impact how media dollars flow between advertisers and publishers. Header bidding emerged as such a technology in 2016 — it has been embraced by publishers and inspired a spirited discussion within the industry on its benefits and potential drawbacks.

So what exactly is header bidding? In short, it is a technique wherein publishers offer inventory to multiple ad partners simultaneously before making calls to their ad servers by placing code in the header (hence the term) of their webpages. This allows all demand sources to compete side-by-side for a given ad impression, which increases bid density and ultimately yields higher CPMs for publishers. We’ve created a report detailing the mechanics of header bidding, which is embedded below and can be downloaded directly here.

The concept of header bidding has been around for several years — Amazon and Criteo have a history of working directly with publishers to access inventory through the header. Over the last 12 months, however, we’ve seen much broader adoption of header bidding by publishers as a means of connecting to demand partners.

What prompted the change? Publishers who have implemented header bidding report significant revenue gains vs. a traditional waterfall ad server setup. It’s due to a small, but critical change to how demand partners are called to bid on a particular ad impression. In a header bidding setup, partners are called simultaneously, meaning each partner has a shot at bidding on a given impression. In a waterfall setup (common in most publisher ad servers like Google’s Doubleclick for Publishers), publishers are called sequentially until an acceptable bid amount is placed. We’ve illustrated each setup below:

Waterfall vs Header Bidding

The waterfall model is inherently inefficient, as ad partners who may have provided winning bids are often not called to participate in an ad auction. The resulting revenue gains from header bidding can be significant — publishers report advertising yield improvements of 10% to 70%, according to Business Insider. It’s no surprise then that the many publishers have rushed to implement the technology. We analyzed the top 100 hundred media publications in the U.S. — 69% of these publishers had at least one header bidding partner integrated.

Percent of Sites with Header Bidding

Top Header Bidding Partners

We expect more publishers to embrace header bidding in the coming year, especially as technology providers develop solutions that streamline the implementation and management of header setups.

Thomvest Research: Security Industry Overview

by Kareem Aly on December 12, 2016

Even the most intelligent security minds are struggling with how to resolve the current cybercrime epidemic. Data breaches are at an all-time high. The costs to remediate these breaches are at an all-time high. Hackers are more collaborative than ever. Attacks are more sophisticated than ever. Malware has become so incredibly dynamic that it can change shape, alter form, manipulate appearance the second it senses that it is on the brink of being detected. We are witnessing the prevalence of cybersecurity wars between nation-states, with the US parked firmly in the middle of things. The days where we could feel secure entering personal data are long gone.

We at Thomvest believe the security market is poised for vigorous growth over the coming years, and we are believers in companies who are alleviating the ineffectiveness that is present within the current security paradigm. Whether it involves the cloud and applications, the new BYOD (bring-your-own-device) landscape, or the ever popular Internet of Things, security is at the forefront of executives’ priorities.

Feel free to peruse our latest overview on the security industry, available on SlideShare as well as below:

Security industry overview from Thomvest Ventures

Thomvest Research: Understand the Chinese Mobile Advertising Ecosystem

by Nima Wedlake on December 1, 2016

It’s no secret that the Chinese advertising market – much like the broader Chinese economy – is large and growing rapidly. As investors in advertising technology, we’ve seen many of our portfolio companies rapidly scale their businesses in China over the last several years.

In order to better understand the Chinese advertising market we kicked off a research project earlier this year, which included a trip to China in July. Our goal with this research is to grasp the many nuances of advertising technology in China – what role does programmatic play, who are the key vendors in the space, what challenges do these vendors face, and how do we expect the market to evolve over the next several years? This report is a culmination of those efforts.

The full presentation is available on Slideshare, and below we’ve included some highlights from our research:

Fueled by mobile adoption, the advertising ecosystem in China is flourishing

china-mobile-advertising-spend

There are more than 620 million Chinese consumers with access to internet-connected mobile devices. These consumers have come to rely on mobile devices for commerce, communication & entertainment – Chinese mobile users between ages 16 and 45 spend nearly 40 minutes more per day on their devices than consumers in other countries.

As such, advertising spend on mobile devices has ballooned over the last several years, from $8B USD in 2014 to more than $27B USD in 2016. China is far and away the fastest growing digital advertising market globally, by both impression volume & ad spend.

However, most digital ad spend is being captured by a small set of premium publishers

bat-properties

As Chinese consumers have come to embrace mobile connectivity, we’ve seen the rise of three dominant technology companies – Baidu, Alibaba & Tencent (collectively known as “BAT”). Through both innovation & acquisition, these companies have developed full-stack consumer experiences, including messaging, commerce, gaming, entertainment, and payments. Chinese consumers are constantly using apps owned and operating by either Baidu, Alibaba, or Tencent – 71% of time spent on mobile devices is within a BAT-owned application.

Because these companies capture so much consumer attention, they’ve become advertisers’ primary destination for deploying ad dollars. According to eMarketer, Baidu, Alibaba and Tencent will nearly 73% of China’s mobile internet ad market in 2016.

Cross-border M&A is driving competition & innovation in the advertising sector

cross-border-ma

In spite of BAT’s dominance, the broader advertising ecosystem continues to thrive, evidenced by the uptick in M&A over the last year. In particular, we’ve seen a number of acquisitions of US and Europe-based companies by Chinese buyers, including the $1.4B acquisition of AppLovin by Orient Hontai Capital & the $900M acquisition of Media.net by Miteno Communication Technology. While these acquisitions are often driven by financial arbitrage opportunities, they are also a sign of the growing role of digital advertising in China. We expect these acquisitions to continue into 2017, especially among western companies with a strong presence in the China market.

China Mobile Advertising Landscape Report (Thomvest Ventures) from Thomvest Ventures

Shopping Habits of Smartphone Users & Implications for Advertisers

by Daphne Ewing-Chow on October 26, 2016

In a recent research report, we shared our findings around the rise of mobile device usage and its effect on the advertising ecosystem. We found that adults in the U.S. spend more than three hours on mobile devices each day – playing games, connecting with friends and consuming media. As consumers have shifted to mobile, so have advertisers: ad spend on mobile devices is expected to exceed $40B in 2016. in this post, we dig deeper into the psyche of consumers on mobile in order to better understand its implications on e-commerce.

The Monetate Ecommerce Quarterly provides purchase conversion rates across several device types. The chart below shows that buyers are increasingly more likely to purchase items on tablets; however, the story is quite different for mobile devices which convert at about one-third of the rate of desktop computers.

conversion-rates

Statistics from eMarketer’s US Mobile Time and Activities Stat Pack reveal that smartphones are more of a browse or research platform rather than a buy platform, and that consumers tend to use smartphones in tandem with tablets and other larger screen devices when making purchase decisions. The eMarketer study shows that although 8 out of 10 US Smartphone users shop on their mobile devices, less than half actually buy something.

smartphone-activities

This picture is made clearer when paired with data from Signal around multiscreen shopping behaviors. According to Signal, nearly two-thirds of consumers begin the “path to purchase” on a smartphone. Among those consumers, 61% continue their shopping experience on a PC or laptop.

What’s driving the use of multiple devices along the path to purchase? The higher conversion rate on tablets and desktop computers can be attributed to convenience, perceived trust and a larger device screen. It thus makes sense that the consumer tendency to conduct research on products via mobile devices would also be based on the convenience factor. Further, the increasing convenience and trust of using apps to make retail purchases and the trend of mobile phones increasingly having larger screens is having a positive impact on mobile conversion rate, although conservatively so.

Implications for Advertisers

These findings beg the question, with the rapid increase in mobile ad spending, what would the most cost-effective ad-format be for mobile shoppers, and would this vary by type of type of item?

mobile-ad-formats

In terms of format, mobile video ads have the highest conversion rate of all forms of mobile ads. A study conducted by Trusted Media Brands in January reveals that video ads are expected to replace banner ads as the top mobile ad format by the end of 2016. This study found that increased brand awareness is the primary benefit of video ads on mobile.

It is clear that mobile advertising dollars should be spent in ways that facilitate comparison and research of items. Travel is one of the sectors in which this is evident. In 2016, around half of smartphone users will plan a trip using their phone, but only one quarter will actually book a trip via this medium (eMarketer). Further, given issues with trust and size of screen, it is logical to assume that higher-value items will be researched on smartphones but purchased via a larger device. That said, Criteo research has found that committed app users on average make the largest purchases, as illustrated in the diagram below. We attribute this to a higher consumer trust in apps than mobile browsers.

mobile-order-values

Based on this study, we believe that cross-device behavior should be the primary focus for both advertisers and e-retailers. For those focused on mCommerce, in app purchases and user-experience in-app should be a strategic imperative. Trust, screen size and convenience in conducting research and comparison shopping are primary criteria driving the behavior of mobile shoppers.