5 VCs agree: COVID-19 reshaped adtech and martech

We last surveyed VCs about their advertising and marketing investment strategies back in January — which is to say, in a completely different world, before the coronavirus pandemic began to wreak havoc on the global economy.

While there don’t appear to be any comprehensive numbers yet about the effect on digital advertising (which is, after all, still playing out), early data and anecdotes suggest a rapid decline, with some categories of ad spend disappearing entirely.

And as we noted in our previous survey, Crunchbase data shows that adtech had already fallen at a roughly 10% compounded annual growth rate over the last five years.

So what does the landscape look like now, and where are the remaining opportunities? To find out, we’ve compiled updated answers from two investors who participated in the previous survey and brought in three new perspectives:

For the most part, they acknowledged the landscape’s challenges — not just the pandemic, but the general maturity of the industry — while also pointing to opportunities in areas like machine learning. As Elton put it succinctly, “Marketing and advertising are not going away.”

Eric Franchi, MathCapital

How much time are you spending looking at marketing tech or adtech startups right now? Are you more focused on one or the other?

Adtech and martech are our main categories as a fund. We selectively invest in categories that might benefit from it (think DTC brands or media) or be of benefit to it (think next-generation CRM or HR tech). But 90%+ of our focus is adtech and martech.

What are you looking for in your next investment?

As always — team first. We look for founding teams with talent, vision and grit. We keep a fairly wide berth in terms of products and categories but we are spending much of our time focused on two themes: the post-privacy era in marketing (i.e. new, cookieless, compliant forms of identity and infrastructure) and future of digital media (i.e. video, OTT, audio, etc.).

How has COVID-19 impacted the adtech and martech investing landscape? Are there still opportunities?

Dealflow is down somewhat, but we are still seeing great opportunities. We have several investments in the pipeline for Q2. The challenges right now are similar to other sectors: spending time getting to know teams and calibrating expectations for growth in a Zoom-only (for now) world.

What kind of advice are you giving to your portfolio companies?

Right now, two months post-lockdown, most adjustments have been made to budgets and plans, teams (and customers) are adjusted to being fully remote and things have somewhat stabilized. Now is the time to get teams focused on sales and marketing. It’s a unique and rare time to outflank larger, slower-moving competitors and adapt to the market.

Christine Tsai, 500 Startups

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7 VCs discuss how COVID-19 is changing the media startup landscape

The world has changed dramatically since May 2019 when we last surveyed venture capitalists about the trends they were seeing in media, entertainment and gaming.

Since then, COVID-19 and the resulting physical distancing measures have created plenty of demand for companies helping to inform and entertain us as we’re stuck at home. At the same time, there’s a dramatic reduction in ad spending, making it harder to monetize that consumer attention.

So we checked in a variety of top VCs about the new landscape, where they’re investing and what kind of advice they’re giving their portfolio companies.

Not all of them invest directly in what (paraphrasing Betaworks’ Matt Hartman) we might call media media — the companies whose business models revolve around content creation and advertising — but each of these investors are backing startups looking to change the way we stay connected and entertained.

Here’s who we surveyed:

  • Kevin Zhang (Partner, Upfront Ventures)
  • Pär-Jörgen (PJ) Pärson (General Partner, Northzone)
  • Vasu Kulkarn (Partner, Courtside Ventures)
  • MG Siegler (General Partner, GV)
  • Jana Messerschmidt (Partner, Lightspeed Venture Partners)
  • Matthew Hartman (Partner, Betaworks Ventures)
  • Gigi Levy-Weiss (Managing Partner, NFX)

The consensus? You can’t count on the ad business to recover in the next few months, but there are still opportunities for startups exploring new formats and new business models. And there’s still plenty of excitement about gaming and esports.

You can read their full responses, lightly edited, below.

Kevin Zhang, Upfront Ventures

What (if any) media trends are still exciting you from an investing perspective?

Live and interactive formats, especially shorter form, continue to be very exciting, made even more evident in this time of shelter-in-place. What has worked in China and broader Asia has not yet translated into explosive success in the West. As interesting as celebrity live broadcasts are from their homes, the lack of real interaction and participation features hampers long-term engagement and doesn’t make up for the lack of production quality.

Modern content production technology is needed to push both production and live ops cost down while enabling more interactive and engaging formats. Game engines are one example, there’s of course the Travis Scott concert that just happened in Fortnite built on the Unreal engine, but that 15-minute, pre-rendered show took months to create, we’re only just scratching the surface of what’s possible.

One of our investments in this space is Tellie for live-action formats, another is The Wave for rendered, live formats, and we continue to look for great combinations of tech and media talent innovating on new formats.

Speaking of gaming, multiplayer games continue to grow and grow exponentially, there is a lot to unpack in popular titles from new favorite Animal Crossing to classics like World of Warcraft to indie hits like For the King. They all have social cooperation as a core part of the game loop and design. I’d love to see more teams working on cooperative play and just overall a broader diversity in multiplayer experiences beyond purely competitive ones.

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