Article
Raising money for digital signage growth and acquisition
Experts examine what it takes to successfully raise venture capital for building screen networks.
At the root of every successful digital signage network lays one thing, and its not a screen, software or content. It's money. To get off the ground, each project requires a certain amount of funding. But how do those in the industry go about successfully acquiring that funding?
In one media veteran's experience, it was a combination of factors. A solid concept and business model, the right management team and execution, particularly for B round, the first time a company brings in true institution money.
"It's not as much as betting on an idea, while important, it's as much betting on the existing team and performance," said Lon Otremba, CEO of Access 360 Media, a multi-platform media network. "It's betting on what you've done as well."
Unintentionally, the company kicked off its fundraising process in March 2008, at a time when it was focused 100 percent on "doing business." Executive members were attending investor conferences to get a sense of the climate and landscape. They met people. They talked to people. One thing led to another, and eventually the shopper-focused network secured $8 million in Series B funding in the fourth quarter.
The round was led by Mission Ventures and also included Bessemer Venture Partners, an investor from its A round back in 2006.
Otremba also thinks timing and luck came into play, since it closed the round just before the economy crashed and when the company didn't need the money as badly.
"The lesson we learned is if you're healthy, and things are looking good, and you have the ability to raise money…do it," he said.
The roadblocks
Compared to 2008, companies and founders looking to raise money in 2009 have hit some roadblocks.
Since his departure as a senior vice president at Captivate Network, Paul Jankauskas spent the first five months of the year pitching investors to build out a new healthcare-based network.
"There was a lot of interest, a lot of questions. But at the end of the day, they're taking a wait-and-see attitude," he said.
While there is money available on the sideline, nobody is anxious to invest it right now. Until the economy and investor confidence returns, Jankauskas has since morphed his business concept. As the president and CEO of American Media Health Network, he has assembled eight healthcare-related networks to create an "unwired" national footprint to sell to advertisers, putting his years of national sales experience to use.
"A lot of people in the industry, across the board, don't tend to be media people," he said.
This observation has been discussed more widely as digital signage companies and networks continue to struggle with declining ad dollars. Bright entrepreneurs, technologists and professionals in general don't know how to package the network as a story to sell advertising, he said.
Jankauskas is optimistic that his efforts in generating national ad dollars for the networks under his umbrella will increase their success rate in fundraising, as none have been able to secure money to build out their networks thus far despite recruiting and securing good sites. The investor's perspective
Just as companies should always be on the look out for potential and suitable investors, those with money are also continuously evaluating opportunities.
Syncom Venture Partners, a venture capital firm focused on the media and communications industry had looked at a number of out of home and digital signage companies over the years, but never saw anything of interest. In 2008, a chance run-in at a conference with an investment bank engaged to raise money for a network led to another serious look at the space.
"When we looked at Indoor Direct, they had done a lot on their own already and we certainly value that," said Duane McKnight, a senior partner at the Silver Spring, Md.-based firm. "They were way past the idea stage and had raised a lot from family and friends."
What the restaurant network also accomplished prior to second round funding was build out its network and engage restaurant chains to participate in pilot programs. The ability to successfully penetrate what was considered a reluctant industry, plus having the right people who came from the restaurant business and had contacts in it helped sealed the deal.
In February 2009, the announcement came that Indoor Direct secured $22.5 million for its future growth. Syncom led the round and was joined by Northwood Ventures based in Syosset, N.Y., and Poseidon Enterprises based in New Jersey.
"We saw this as an opportunity to build out a platform during a down time when things cost less, when potential competitor can't raise money and can't potentially compete especially given the head start of these guys," said McKnight.
As quick-service and fast food restaurants move away from pushing people through the drive-through window, the digital screens become an integral part in creating a nicer dining environment. The thinking goes the longer people stay, the more opportunities for up-selling additional menu items.
With solid backing, from now until the end of 2010, the network will focus on:
• Managing expenses • Improving network infrastructure and operations • Sourcing and creating content/programming effectively • Grabbing market share
The plan is to set the stage for accelerated revenue growth once the economy bounces back, expected in 2011.
Another investor in a mall-based network is also betting on the industry's capacity for growth, describing digital signage as the "safe haven" amidst the advertising meltdown of the current financial crisis.
"Digital OOH has been the bright light in a very bleak advertising landscape over the last 12 months…and we think it's just the beginning," said Tom Blaisdell, general partner at DCM, a venture capital firm with offices in Silicon Valley, Beijing and Tokyo.
Ad dollars for DOOH
From the agency perspective, client interest continues to grow in digital out-of-home (DOOH). However, given the new economic climate, every ad dollar is being scrutinized and thus "bullet-proof" rationale is required for the suggested media buy.
"The upshot is that these recommendations are becoming easier to justify as OOH networks continue to scale, improve their technology, and secure quality content partners that reach highly desirable audiences," says Donna Speciale, president, investment and activation, operations at MediaVest Worldwide.
While optimistic that more buy-in will come and that 2010 will fair better as clients continue to test, optimize and try to create new models, Speciale says more work in audience measurement still has to be done.
"For the first time, OOH can begin to compete for TV dollars, as many of our clients are adopting a ‘video netural' strategy," she said. "The key to keep those dollars firm is to be able to say how digital OOH will deliver as well or better than linear television on ROI."
While the metrics in digital OOH are not considered up to par yet, outside of a few exceptions like cinema, the standardization efforts by the Outdoor Video Advertising Bureau (OVAB) is recognized as a step in the right direction. The growth of industry aggregators such as SeeSaw, Adcentricity and DOmedia is also viewed as having the potential to further the industry.
"They each offer compelling systems and tools that I'm sure will prove helpful in the coming planning year," said Speciale.
For more insights on fundraising tips and what investors are looking for, join Lon Otremba, Duane McKnight, Tom Blaisdell and other leaders at the Digital Signage Investor Conference on Oct. 6, 2009, in NYC.
Christie Liu is a conference producer at Strategy Institute, host of the Digital Signage Investor Conference.
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