Media4Equity as a viable option to grow and scale your startup
This article is based on a guest post in Fundraising, Marketing & Sales by Sébastien Flury (June 30, 2016), re-written in co-authorship with Jasmin Heimann and edited by Jacqueline Wirz.
It is widely acknowledged that the S-curve is one of the most important concepts for a startup founder to consider when thinking about his or her startup’s growth.
1) In the beginning, growth is slow or not existing at all. This is the time where the startup founder is figuring out what to do, thus searching for the Problem-Solution Fit.
2) Once a possible solution for a problem is found (which can obviously always change and is not set in stone), the next step is to assess if the value proposition of the product actually meets the (underserved) needs of potential customers in the market (Product-Market Fit). In addition to finding out if the product solves a real pain, the startup also has to communicate and inspire others to join and use the product (Language-Market Fit). Sari Azout makes a strong point in her blog post on the power of narrative here and provides a storytelling framework that can be used to directly put words into action.
Both Product-Market Fit and Language-Market Fit are crucial to avoid this:
3) In case the market does not hit the startup in the face, the next step is to scale in an effective and efficient way. This is done by optimizing the funnel and by searching for the right channels to reach new users (Channel-Product Fit).
One possible option to achieve the required growth to survive in the market is through Media-for-Equity (M4E). You may not have heard of it before which is why we wrote this post. Let’s get started!
What is M4E?
Media-for-Equity is an alternative way of investment in a startup. The model can be compared to a traditional cash venture investment (“Cash-for-Equity”), except the “investment-currency” is advertising inventory, i.e. a net media budget, instead of real cash. M4E-investments are often done by media companies or their VC-arms like Ringier with us as Ringier Digital Ventures and Axel Springer with Axel Springer Digital Ventures or through specific media funds. Most startups receiving M4E-investments have a B2C-focus with a larger group of users/buyers. They can then use one (or more) media brands to place their marketing campaigns on various channels such as TV, digital and print publishing titles, radio, out-of-home ad spaces and cinemas. These channels are usually expensive, and few startups consider them in their marketing plans.
The value of the media is driven by the listed prices of the ad-space (gross value) minus a discount (net value). There is no general rule for discounts, as they depend on the chosen channels, the ad-format, prices in the overall-market and so on. However, our discounts at Ringier Digital Ventures typically range between 50 to 75 percent.
One of the pioneers in the field of M4E was Ströer Media. A couple of years later, Pro7Sat1 also started with M4E-investments through its venture arm, SevenVentures. They were the ones to make the state-of-the-art deal with Zalando and are mostly active in the DACH (Germany, Austria and Switzerland) region, like Gruner+Jahr, German Media Pool or MairDuMont. In Switzerland, we saw some deals from the NZZ media group, 3+, Goldbach and Tamedia besides Ringier.
What is the legal framework of M4E?
There exist currently two legal models for M4E-investments:
1. Direct investments from a media house or through its own venture arm (such as SevenVentures, Gruner+Jahr or Ringier Digital Ventures)
2. Specific media funds, where different media companies combine their media inventory (like German Media Pool or Aggregate Media)
In addition to the usual investment and shareholders agreement, a special media service agreement is set up. This media contract regulates the media channels, gross value of the media, discounts, and the timeline of the contract. There is however a significant difference with M4E-investments in Switzerland vs. Germany or Austria. In the two latter countries, the law allows a contribution “in kind” of the media. This model is not allowed in Switzerland: the media company must deliver the media upfront and then holds a loan in the startup. This loan will typically be converted into shares afterward, based on the negotiated and agreed valuation. No worries: it sounds more complicated than it actually is!
How to find the right channel(s)?
Once the required contracts are signed, the next step is to find the right ad-channel and ad-format for the right product or service. The ad formats range from classical display ads, radio commercials and print ads to business integrations with lead deals. Especially the potential business integrations are a valuable part of the M4E-investment, as startups can be directly built into the website and the customer journey of other Ringier subsidiaries like Scout24 and then generate leads. Radio commercials are a useful branding instrument to increase the image and awareness of the brand. There are also ad-formats which are exclusively available to the startups of Ringier Digital Ventures such as Content Commerce and Promo Placements with Blick.ch. These formats are useful to generate high-quality traffic and good conversation rates. Lastly, startups get attractive inhouse conditions for data-driven-advertising campaigns within the Ringier ad-inventory.
During this process it is crucial to get help from a media planning team (typically provided by the M4E-investor) to understand the target audience and to then choose the most effective ad-channels within the media universe. The effectiveness of an ad-channel mainly depends on the relevant target group, the reach needed for a product and the product or service itself. It is also extremely important to test and measure the success of each channel and each format — which is easier for some channels than for others (digital vs. print for example). One common way is to ask the customer during the checkout process in the shop where he or she heard from the startup.
How can M4E work?
As most startups are not familiar with the media industry, we guide and support them through the whole planning and implementation process of a media campaign together with the media specialists. Typical aspects to consider when planning a media campaign are seasonality, booking of ad-space and choosing the right ad-material (spots, banners etc.).
Usually, media campaigns are adapted to the stage of the startup, i.e. where the startup is positioned on the S-curve. Initially, raising brand awareness is critical to spread the mission of the startup. This can be achieved with branding instruments like radio commercials or ad-banners. Having a solid foundation with the brand is important, especially when the startup moves up the S-curve to the growth phase and uses more performance products to drive sales.
We also suggest A/B-testing different visuals to find the best ad-material and constantly adding new visuals, spots or claims to extend the efficiency and effectiveness of a campaign. Additionally, the landing page of the startup should fit the ad to make the customer funnel as comprehensive as possible and to increase the conversion rate. But as always, there is no guarantee or fixed rule for success and every case is different.
Why should M4E be considered?
Keeping the abovementioned aspects of an M4E-investment in mind, we see many benefits for both the media group and the startup of such investments.
For the media group: M4E not only provides the media group with additional advertising revenues but also with access to great marketeers and opportunities to develop innovative out-of-the-box cases. In addition, the media group can get new advertising customers which would usually mainly book paid campaigns through Google or Facebook.
For the startup: As stated at the beginning of this article, a startup must grow and sell its product or service to survive. M4E is a promising approach to support reaching this goal — if it is done correctly! Specifically for Ringier Digital Ventures, a startup can benefit from the following aspects of an M4E-investment:
💰 Attractive discounts: Get between 50 to 75 percent discount on all standard products
💎 Exclusivity: Some performance products are only available for startups in the Ringier Digital Ventures ecosystem
🤝 Partnership: Get professional support by a media specialist while Ringier learns from the startups’ product know-how
🔄 Flexibility & continuous development: Bring in special needs or situational factors and develop out-of-the-box-cases together with Ringier
💖 Long-term relationship: If the case is a success, long-term business relationships can form even after our investment
So, if you as a reader are the founder of a consumer startup post-Product-Market Fit looking to grow and scale in Switzerland or Eastern Europe, please reach out to us!
