New Rules For Scaling MadTech Startups In A Privacy-First World
Many of our fund LPs ask us about our investment thesis. Why do we invest the way we do? What differentiates us from a typical horizontal fund?
The answer to that is simple: FirstPartyCapital is a vertical fund focused on “enabling” tech startups at the intersection of media, marketing and commerce.
We believe this decade will fundamentally change the way non-US marketing technology, ad technology and digital media startups are scaled.
Our investment process is very much underpinned by a progressive outlook on the future of our industry.
Here I distill this thinking into a short guide on how to scale madtech in a privacy-first world.
It’s PRIVACY, stupid
It seems so obvious to build your madtech startups from a privacy-first position. Why would you want to waste money and resources hacking privacy?
Most of ad tech is still obsessed with keeping the status quo. I am telling you now those days are over.
Time to stop obsessing about that “scalable” ID that will replace the 3rd party cookie and device ID. It’s nonsense. You cannot beat an army of well paid product engineers in Silicon Valley.
Start with privacy when building your product, and you will win all day.
Think “enabling tech”, not media
I wrote a piece a few months back about the “madtech middleware”. I made the assertion that “tech enablers” will thrive in this decade.
Why? Agencies, publishers, marketers and the gowing service layer are looking to take control. They actually want tech - not a margin-heavy managed media service.
Sure, there will be pockets of spend scattered across the ecosystem that will require a bloated account management and sales resource.
But do you really want to be chasing erratic PMP spend or would you prefer to be a global tech partner, helping clients solve real problems like measurement, infrastructure and data governance?
Solve for big problems
Does the world really need another contextual targeting solution? Or an in-game advertising platform? Or ID solution?
Focus on the bigger problems, such as how am I going to measure my media spend?
Or how do I join and activate disparate data sources in a privacy compliant way?
Or how do I bring together a fragmented European ecommerce marketplace (50 scaled platforms and counting)?
There are so many critical problems to solve in this industry. Spend your time building those solutions.
Recurring revenue, not occurring media spend
A SaaS model is hard to build in this industry, and requires a longer sales cycle. It will prove to be a solid strategy in the long run given the higher multiples on top line revenue, when it comes to funding rounds and exit valuations.
Media spend, conversely, is easy to access; a key reason why it’s such a popular business model. It is unpredictable though, and will result in weaker multiples. Ultimately you will end up chasing the media pound/euro/dollar.
This always leads to the next point in the guide: the obsession with getting to America.
Don’t get obsessed about the American market
The US is the gold mine for media spend. Getting to the US as-quickly-as-you-can would seem like such a logical strategy for most startups in our industry.
There are two key problems with the US: 1) it’s stupidly expensive and 2) very competitive. You could easily spend millions of dollars trying to set up there, competing with well-funded local players. The high marketing and staff costs will blow a massive gaping hole in your P&L.
Our advice: make the jump if your model is dependent on media spend. Ad nets do great there. And let’s face it, all the recent successful European successes in the US have been ad nets - bar a very few exceptions.
Tech enablers need not worry about the “American conundrum”. Global marketing, publisher and agency deals can be done outside the US.
It’s also smarter to focus on the fragmented mess of non-US markets. Americans have never excelled at this. Solve this problem first - as there is little competition here.
Better marketing, smarter positioning and tighter messaging
This really applies to startups outside the US. The Americans are the masters of madtech marketing, and can talk magnificent bullshit about their product.
Startups in the “madtech middleware'' could learn a lot from the marketing tactics used by American ad tech. Articulating what you do in a simpler way can win so many hard yards as you sell into the market.
And remember the golden rule: if you can't explain what you do concisely in five seconds, you are an ad network.
This is of course an abridged guide for readers of this blog. Hope it gives you a flavour of the opportunity ahead of us all.
A NOTE TO READERS: The FirstPartyCapital fund is still open to investors. Our minimum investment starts at $10K. We have already raised $3 million from 100s of your peers, and have already invested in 7 companies. We have a strong portfolio of global startups that are building world class technology for the big problems of this new era. Come join us.