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Media-for-equity for fintech startups: the new way to raise funds

Vladislav Solodkiy, managing partner, Life.SREDA VC

Media for equity is an innovative form of venture capital in which advertising inventory supplied by media partners is provided to startups in return for equity. These days, media for equity is the talk of the town. Why? Incumbent media companies are seeing (or have been seeing for the past 7–8 years) their traditional advertising revenues contract and are looking for what they call diversification revenues (hence their backing of startups that can benefit from a boost from a media partner — air time, partnerships, licensing, you name it). Additionally, success stories are increasingly fuelling their appetite to come back for more of these deals. On the flip side, advertising on TV is a pretty interesting and effective way for a consumer-facing (mobile) startup to gain access to a mass market.

In January, SPH Plug and Play, the startup accelerator of Singapore’s largest newspaper publisher, has officially been declared dead. Starting from this year, the SPH Media Fund will focus on a direct investment strategy (The SPH Media Fund is the investment arm of SPH). SPH has not publicly articulated a clear digital investment strategy. The legacy publisher faces an uncertain future. Its first-quarter 2017 net profit fell 47 percent against Q1 2016. It’s planning to lay off up to 10 percent of its staff within two years in a “right-sizing” exercise. Vice versa, as we can found in Money Of The Future 2016\2017 report, European media accelerators and venture arms are experimenting with startups (including fintech) a lot. And even pop-stars jumped to this boat too.

Clark is Berlin-based insurtech startup, which is a digital aggregator of insurance products. It uses algorithms to analyze their customers’ insurance situation and automatically proposes optimization opportunities. In 2016, it’s closed €13.2 million in Series A funding, made up of both equity and media-for-equity financing. FinLeap has invested “several million Euros” once again, while additional investors include yabeo Capital, Kulczyk Investments, HitFox, TA Ventures, Tenderloin Ventures, along with various unnamed business angels. Media investment, will mostly be in the form of TV advertising but will also include some online and print, comes from SevenVentures (the venture arm of the ProSiebenSat.1 Group), Axel Springer, and media investor GMPVC. The split between equity financing and media-for-equity financing is roughly 75 per cent to 25 per cent.

Cringle is a smartphone app for users who want to send money to friends across Europe in a matter of seconds. Cringle has received numerous awards and has found a partner in German bank Deutsche Kreditbank AG (DKB). In the past year, Cringle has been able to build a bridge between traditional banks and Fintech, thus making a contribution to the digitization of payments. As part of its marketing initiative, Cringle has established an interesting promotion angle. They have partnered with global media company Axel Springer with a “media for equity investment” agreement. An agreement with Axel Springer SE in the amount of € 1 million has been signed.

And it works not only for fintechs: peer-to-peer marketplace for elderly and disability care services, Better Caring, became the first recipient of News Corp Australia’s dedicated media for equity fund, Scaleup. The media for equity fund was set up last August to provide ­advertising and marketing support to start-up businesses that show strong signs of growth and are seeking to become household brands. Scaleup works directly with businesses and venture capital by providing advertising inventory, advertising campaign executions, and real-time reporting from its owners and investors, which ­include News Corp, Fox Sports Australia, Nova Entertainment and Network Ten. In return for its advertising support, Scaleup receives equity in the business.

Groopify recently raised an €800k round to accelerate their growth, further develop technology and matchmaking algorithms and launch internationally. As part of the deal, some of the proceeds came in the form of media for equity, which essentially means a media company gave them advertising stock in exchange for shares in the company.

Planning and executing a media campaign could seem like peanuts or part of one’s daily routine, especially if your name is John Doe and you’re a Senior Associate Creative Brand Manager with Coca-Cola or Procter & Gamble. But as a startup, spending so much money in such little time and with such limited resources to commit to the whole operation… It is a big deal. Pawel Chudzinski, managing partner at Point Nine Capital, wrote: “I think media for equity works in Europe because the VC ecosystem is underdeveloped. The US has so much VC money, that startups will not look at anything else than cash when they raise, at least in the early stages.”

But media-for-equity works not only with media. Last year 5 British fintechs raised £6,9M from their (future) customers via crowdinvesting – and there are several neobanks between them. And two of the UK’s new digital banks are bringing on board celebrities and raising millions of pounds from investors in an attempt to boost scale and appeal to millennial customers. Monzo and Atom are among a new breed of app-based banks that are focused on customers who want to manage their finances via their mobile.

Monzo, an app-based bank that gained its licence from financial regulators last year, has raised £19.5m from a group of investors, paving the way for the launch of its current account in the summer. The mobile-focused bank is also set to raise money from angel investors in the next few months, which could include British singer Tom Odell, who is also a customer of Monzo, according to a banker close to the plan.

Another app-based lender, Atom, which launched last year, has signed a deal with record producer and singer Will.i.am to act as an adviser. Will.i.am is expanding his CV in a perhaps unexpected direction, striking a consulting deal with Atom Bank which could see him take a multimillion pound stake in the fintech firm. In return, Will.i.am will have the option to acquire up to 3.55m shares in the digital bank at £1.15 each during a three-year period. Will.i.am’s new role at the digital-only bank, which officially launched last October, will include taking part in public relations activities, attending board meetings and publishing social media posts about Atom.

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