Media for Equity: the newest VC concept from Europe Elena Bocharova for Berliner Börsenkreis 30 June, 2015
Outline: get excited How do you finance a company? A brief overview Media for Equity: what do we know about it Usual timing Practical mechanism Players Key takeaways Q&A 2
How do you finance a company? You can classify the ways to finance a company along 2 dimensions (note: these are external ways of financing) Public Private Debt Bonds?? Loans Equity Stocks?? PE (LBOs) & VC A company can borrow from a private or a public investor and choose between debt and equity 3
There is a timeline of financing Usually, a company chooses a certain way of financing at a certain point in its development Seed 2nd stage 3rd stage Public Equity: IPO Idea 3Fs: Friends, Family & Fools Venture capital Private Equity: private placement/ LBO Private Debt: bank loans Established business Public Debt: bonds The choice often depends on how much money a company has to spend on raising money! 4
Media for Equity: what is it? Media for equity is a way to quick recognition A company gets media coverage ( out-of-home ads, TV time, newspapers and magazines ads, radio spots) in exchange for its equity. Goals: + brand recognition + growth of customer base + increase in sales Was practised first in the late 90s by the Ströer company (billboards and out-of-home advertisment) Media for Equity is one of the newest alternative investment models in the world 5
Where does media for equity fit in? You need to think about when the company especially needs media coverage Seed Media for Equity 2nd stage 3rd stage Public Equity: IPO Idea 3Fs: Friends, Family & Fools Venture capital Private Equity: private placement/ LBO Private Debt: bank loans Established business Public Debt: bonds even though media coverage is needed permanently 6
A detailed look at timing as seen by Media4Equity Invest Seed Start up Second stage Third stage Established Concept Product development Product ready to market Develop markets Sustainable revenue Increased media coverage starts making sense when the product is ready to go on the market 7
Another example of timing as seen by SevenVentures (ProSiebenSat.1) 1 2 3 Founded strong team Prototype stage First contacts established & sales generated Scalable business operations Proof of concept No clear category leader established yet Mentoring + EUR 25k Cash (min EUR 2m) and Media investments (min EUR 1m) TV Media + Cash Seed 1st round 2nd/3rd round 8
The mechanism is really simple Three parties typically involved are an investment fund, a start-up and media partners Media partners Cash investors 500k Ad space 180k cash 500k M4E Management GmbH Media4Equity Invest GmbH 500k Ad space 200k cash Startup 300k cash Product & business development 500k The trick is that media companies usually have unused media space which would either stay empty or be used for the corporate ads of the company itself. In this scenario, however, they sell this space, even though with a discount. All parties involved claim that it is a win-win transaction 9
Reference case: mjam.at Mjam.at is the biggest Austrian food delivery business a part of pre media valuation @ EUR 800k Shareholding 7.6% Media investment EUR 195k Increase in orders during campaign: +90% After financing rounds dilution to 5% Exited @ valuation EUR 7.4m (EUR 370k) Multiple: 6.2x Apr 10 May 10 Jun 10 Jul 10 2011/2012 Jun 14 It also indirectly led to the development of the whole Delivery Hero group 10
Who are the players? Germany Investment fund Media company Investment examples Founded in 2000 Located in Cologne 30 portfolio companies Focus on Hi Tech, online marketing & ecommerce International out-of-home and online advertising Founded in 2011 Located in Munich 14 investments A network of TV channels through Media Alliance Europe (Germany, France, Scandinavia, Poland, etc.) Founded in 2011 Located in Berlin 13 investments The first MfE fund to combine different types of media The concept appeared in Germany in the late 90s and then expanded into other markets 11
Who are the players? Outside of Germany Austria Sweden India France The best markets for media for equity to work are those where venture capital is in short supply 12
Key Takeaways Media for equity is one of the few VC innovations coming from Europe Companies need brand recognition to expand their customer base and boost sales. They can get it from media partners in exchange for a stake in the company (through an investment fund) It is an early-stage financing (2nd 3rd stage in the venture phase) The concept appeared in Germany in the late 90s It works best on the markets where lack of VC financing can be obsereved There are seemingly no losses for the start up, media partners and the investment fund only venture capitalists can loose their investment if the start up fails Media for equity covers the gap in the early-stage financing and solves the problem of inssuficient marketing expertise 13
Q&A time! And thanks for listening till the end