Entrepreneurs are willing to sell a share in the business for an advertising campaign. Why is it benefit?
In 2011 Zalando, one of the most famous online shop of shoes in Europe, decided to conduct second advertising campaign on TV. The first experiment was successful in 2009: on the results of 2010 the revenue amounted €150 million. At this time, the company has decided not to withdraw money from circulation and has given a share of the business for the advertising campaign. Shares were received by Seven Ventures Fund that is venture subdivision of German media holding ProSiebenSat.1. They first invented and developed the investment model Media for Equity (M4E) or “share for advertising”. The practice has become popular in the West: investment structures working on “media” model were created by other large media groups.
Independent venture funds, which in contrast to subsidiaries of media holdings, can work with several partners and have access to a greater number of media platforms, and thus makes it more attractive to consumers of advertising inventory, began to master new format.
Only one Seven Ventures was closing about 40 such transactions for three years. Other European companies went the way of Zalando, in particular, online service of rental of private accommodation 9flats.com (German equivalent Airbnb), shopping club for men Paul Direkt and International dating site eDarling.
Why this version is more attractive than classic scheme “if you have attracted an investor, you bought advertising” or “if you have attracted advertiser, you got money”?
This scheme is profitable to media holdings by additional income on available recourses. Investments allow increasing one of the main indicator of efficiency of their business – the advertising inventory utilization that is not sold on 100% even in peak season, and for some sites – only on 50-60%.
Purchase of a share for the advertising for investment funds is a new tool of investing, the ability to manage not only money but also media assets and a way to reduce risks by portfolio diversification.
This model is useful for a company, attracting media investments, for the following reasons:
1. Simplicity and quickness. Middle link of classical scheme of “investor-money-advertising” is fallen.
2. Cheapness. The scheme allows you to get an additional discount on the advertising inventory. Its owners expect to increase capitalization of the company after holding the advertising campaign, and also on growth of value of their shares.
3. Quality. And the fund and its media partners are interested in that the advertising campaign will be effective. They will pick tools to advertiser with optimum value for money and as accurately as possible “will target” the campaign on the right audience.
4. Intellectual resource. As a result of the transaction, the company acquires several partners - Venture Fund and owners of the advertising inventory that are interested in developing their business and are ready to provide intellectual support.
With all benefits the model “share for advertising” suits certainly not for everyone.
Its main customers - e-commerce and “consumer” Internet – are resources for health, dating sites, travel and financial portals. These growing companies realize the need to promote and raise awareness. Zalando, eDarling, and Trivago resorted to this practice in sufficiently mature age. If the company needs, for example, investments in product development or team expansion, this model does not suit it.
Today online business has used mostly search engine optimization and contextual advertising for the promotion. However, they do not always give the result of the scale and may enhance the effect of a high brand recognition, which is achieved only at the expense of media promotion. The combination of these two approaches increases the effectiveness of the advertising campaign.
The scheme “share for advertising” is a new for Russia. Several years ago, e-commerce has not large advertisers, but today, according to our estimates, there are at least hundreds, and this number is constantly growing. According to research by McKinsey and J'son & Partners Consulting, a Russian e-commerce market is the biggest in Europe (number of adult Internet users are able to make online purchases has reached 50 million people). It grows by 50% per year and at the end of 2014 reaches $25 billion. Online shop of shoes Sapato.ru, shopping club KupiVIP, dating site Teamo, advertising service Avito and many others actively use media advertising and attracting investments, including and for the promotion. Thanks to M4E they will be able to do it more effectively.
Venture market is also ready for a change. Now in Russia work about 50 investors who specialize in IT and Internet projects in higher seed rounds. The number of attractive projects is measured by only a few hundred. Competition between funds is growing, and they will have to invent new models of work, including M4E.
http://www.forbes.ru/
