• by Joe Marchese , May 4, 2010

Having raised millions in venture capital and worked with major brand advertisers to deliver millions in digital media, I have noticed that the two worlds both intersect and parallel each other more than one might think. And going forward I think there is a lot more the two worlds can learn from each other, even just by avoiding the other's mistakes.

VCs betting on brand advertising (and vice versa?) Perhaps the most obvious intersection of venture capitalists (VC) and digital marketing is the number of start-ups backed by VC, based on the potential of that start-up to build an audience and then monetizing that audience through advertising. Of course building an audience and building a system that works for advertisers are two very distinct businesses -- and VCs that have a better understanding of what will work for advertisers have a significant advantage in picking winners.

Also interesting is that the reverse is true. Brand advertisers, and their agencies, are constantly placing bets on new media platforms (the same ones often backed by VCs), in the form of experimental media budgets. The dynamic at play here is that a start-up can have an audience, but no way to deliver advertising to that audience that satisfies brand marketers -- or else have a system for delivering advertising that satisfies brand marketers, but not a large enough scale of audience. It's where you have both scale and delivery that the VCs and advertisers win. Which brings us to the next point...

Putting capital to work. Both VCs and major brands are constantly looking for the most efficient way to put large amounts of capital (money) to work. That is a very distinct statement from simply looking for the most effective uses of capital. As I mentioned above, it's a question of scale for both VCs and brands.

A media platform might offer the absolute most effective connection to its audience for any given brand, but if that platform can't do so at scale for a major brand, it remains more efficient for brands and their agencies to buy less-effective media (television) that they can buy at scale, creating efficiencies.

For VCs the problem is the same, but again with a twist. VCs have a certain amount of capital they are looking to invest (similar to a marketer's media budget), but each time they invest money, it takes time and resources -- so they can only invest money in so many different ventures. Sounds a lot like the challenge facing agencies as the media landscape fragments, doesn't it? One thing to note is that there has been a trend in VC to make smaller investments, sacrificing the ability to put larger amounts of capital to work. This is more difficult for brands, as their ability to put media budgets to work at scale efficiently can directly impact their market share.

Despite all of the obvious interdependencies and parallels between the world of venture capital and the world of brand advertising, it is very difficult for the two worlds to be more collaborative. I think this is because VCs and marketers play key roles for emerging media companies at very different points. VCs place bets on who will have the best audience and monetization system, while brands and agencies are more often looking for who already has the best audience and advertising platform. When brands and agencies get involved at earlier stages in a start-up's development, perhaps even making an investment, it can create bias in the market, both real and perceived.

Have you touched both the VC and the brand advertising worlds? What similarities do you see? Continue the conversation on the Spin Board and drop me a line on Twitter at www.twitter.com/joemarchese