Are Venture Capitalists Bad For The Media Business?

Randall Rothenberg, CEO of the Interactive Advertising Bureau (IAB), was recently quoted in an article saying that venture capitalists were the biggest obstacle to our industry. “Venture capital has supported and financed a bunch of chaos,” Rothenberg said.

Unsurprisingly, the response from the VC industry was swift and harsh. “Randall Rothenberg. What an idiot,” Jerry Neumann, a veteran VC, seethed on Twitter. The venture capitalists argue that they have helped bring tremendous innovation to the media industry, funding startups like Yahoo, Google, Facebook and Twitter.

The problem is that these are not the only startups that VC money has funded. If you have worked at a media agency at any time over the past 10 years, you have experienced the chaos that Rothenberg describes firsthand. The lobbies of the big media agencies are a 21st-century bazaar, filled with an endless supply of salespeople from startups pitching their wares to agency workers.  With hopeful smiles and armfuls of complimentary cupcakes, the reps hustle to get on media plans so they can validate their startup and live to see another day.



When these startups are successful, they often spawn another half dozen just like them -- making the workload on agencies that much worse. Like the Greek goddess Atalanta, media planners are constantly given another golden apple to try as they fall further behind in their work. For every truly useful startup, there are dozens of others that lack the kind of reach and relevance that can actually help most marketers.

One reason why Rothenberg can point a finger at the venture capitalists so freely is that they have historically played a limited role in supporting industry trade organizations like the IAB. Other than the IAB membership dues that their startups pay to join the association, there is little VC involvement in the IAB and its activities. This is curious given how dependent investors in ad tech are on favorable government policies for online advertising.

Also, historically, venture capitalists have had a limited understanding of the media buying industry. Many struggle to recall the names of the advertising holding companies and their media buying subsidiaries. At the same time, Manhattan --where 70% of all U.S. media is purchased -- remains crucial to most ad-dependent startups.

It is time for venture capitalists to commit to working more closely with the industry it aims to profit from and mitigate the chaos they are creating. Putting agency executives into advisory positions at VC firms -- which some forward-thinking firms have begun to do -- would be a positive development. Ultimately, what we need is a much deeper partnership between the people creating all of the supply and those managing the demand.

The alternative is even more chaos, which isn’t good for anyone.

6 comments about "Are Venture Capitalists Bad For The Media Business?".
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  1. Rick Monihan from None, June 4, 2012 at 11:54 a.m.

    The problem isn't VC, though I can understand why it may be perceived to be this way.

    The problem is one of accountability. New companies have to recognize that trade organizations are not meant to be obstacles to the development of their companies, and if the organizations are an obstacle, then maybe there is a good reason for it.

    Startups thrive on disrupting markets, something we should be thankful for. But we shouldn't feel compelled to jump in headfirst with each new startup which offers a seemingly great new idea.

    Joining trade organizations, and promoting themselves within these organizations, may be a better way for new companies to get their message out, and allow potential customers to help refine the products these startups offer.

  2. Gabriel Greenberg from RGM Group, June 4, 2012 at 12:41 p.m.

    Interesting article, I do like the idea of VC's getting advisory feedback from the big agencies to inform their decision on their next large investment.

    This sort of guidance would go along way to ensure that the VC community is filling gaps and not merely funding another 100 ad networks, video or SOME companies. In many cases this dialogue is already happening, especially with the better VC firms. The VC community have brought a tremendous amount of innovation. Innovation in fact, that most major brands are demanding.

    When I read articles like this and read feedback about overwhelmed agencies, it makes me believe more and more that perhaps what is most broken and in desperate need of correction is actually the agency model. In an age where consumers are regularly bombarded with too many ad messages, agencies and clients alike desperately need to find new and innovative ways to break through. In order to do successfully break through, agencies must meet with new and interesting companies. While the cupcakes and meeting demands may be overwhelming, for someone who sat in the client seat as I have, what was often underwhelming is the innovation and new ideation from some agencies. Perhaps a soliton to fix the problem of overwhelming request for meetings from sales people is to have a once monthly innovation day where new companies who have not yet pitched can meet with the senior agency teams and clients to pitch. Those with compelling products will be brought back for more Q&A.

    Many agencies are really great. However, many are not and those who are not desperately need new ideas and innovation and cannot continue to hide behind the iron curtain and merely say they are too busy to meet with new companies that have solutions for their clients.

    At the same time, the sales teams of these new companies need to do a better job of preparing for these meetings and come prepared with one or more proposed ways to help the agency and client with real business problems. Perhaps their VC partners can help with some of these ideas as they have the ear of the agency and clients in many cases.

  3. Jerry Neumann from NeuVC, June 4, 2012 at 2:55 p.m.

    Boy, one little ad hominem and suddenly I'm "seething."

    1) Rothenberg does not hate VCs, he hates startups. Blaming VCs for 'venture' is the worst sort of straw man. Whether Rothenberg is being disingenuous about this or merely lying to himself, I don't know.

    Look, let a thousand flowers bloom and I'm sorry you have to eat so many cupcakes. If you don't want to take meetings, don't take meetings. You're worried about missing the next big thing? Well, then, we're at the root of the problem: change is hard. Not that I have no sympathy. It's even odds I'm outside your building with a cardboard sign a year from now. Change is my whole job and progress doesn't play favorites.

    2) VCs invest in companies for a living. Media buyers buy media for a living. If I knew media buying better than the entrepreneur pitching me a media buying startup, that would be an excellent reason not to invest. But that doesn't mean VCs don't understand the business and don't know the holding companies. People like Chris Fralic, Gil Beyda, John Hadl and Saar Gur all know the industry as well as anyone. And gosh, I was an Omnicom exec for many years, so I'm not entirely unfamiliar. I do have trouble keeping track of the media buying subsidiaries--MEC CIA OMG OMD MPG--but I think that must be a conscious strategy on their part (since the alternative is terrible branding.)

    3) Five years ago when I was enthused about the companies being built around the ad exchanges I sat down with execs at several of the holding companies. I told them about the exchanges, data-driven buying, RTB, etc. They were uninterested, unimpressed and unwilling to spend time thinking about something still years from commercial viability. Holding companies exist to buy companies that have reached the flat part at the top of the S-curve, they are the opposite of entrepreneurial. Not because they don't get it but because that is their explicit promise to their own investors. The smartest people I have ever worked with in my life, bar none, are the two guys who run Omnicom. But they would be horrible advisors to me; their business world in no way resembles mine. As it should not.

    I'm in a position to say any old true thing that pops into my head, winning friends and influencing people be damned. But there was a veritable outpouring of email and DMs agreeing with me after that off-the-cuff tweet. All to the tune of Randall Rothenberg does not give a hoot about anyone other than his corporate paymasters. So let's stop pretending that the IAB in any way represents the interactive advertising business as a whole.

  4. Doug Garnett from Protonik, LLC, June 4, 2012 at 6:37 p.m.

    I think the VC business (in general) is a big problem for startups. But not just for the reasons noted. Far too often I've run into funding sources who've succeeded in industries far from media but believe that means they know what it takes to make media ventures sing. And that leads them to overrule the managers they hire and redirect companies on a dime - dysfunctional management that leads to failure. Yet throughout they maintain "it's my money" which it is.

    So... Amen to this suggestion. But you've only scratches the surface of how dysfunctional the general VC system for technology ventures has become. (And I note "general" because there are wise exceptions who operate quite well.)

  5. Mark Silva from KITE, June 4, 2012 at 7:43 p.m.

    I came to react to Matt's editorial but I'm equally compelled to counter and applaud the comments. Jerry's got it right for the most part, although I don't know Randall to throw an ad homey at him. I agree it's worth asking for whom does the IAB work? Trade organizations are a means to an end, not the end-all as it seems Rick is suggesting.

    If there's a common thread through these comments and editorial it's that incumbent businesses and holding companies maximize through industrial-age like standardization.

    But the Valley and the VCs we work with out here are built from the information age characterized by (self) disruption, new models, new culture, values, wealth creation and even capital. Matt, your characterization of VCs is foreign to me. Each that I work with have agency advisors, partnerships, EIRs or--as Jerry pointed out--former media and agency alumni in their fold.

    We look at this intersection of tech, venture, marketer, media, agency and events as an ecosystem--or as we call it, the Geekosystem--so disparaging venture for the failings of media or agency or tech is like blaming your right hand for stealing and declaring your left hand innocent. FWIW, I think more media agencies could leverage the innovator's advantage if they learned to apply some of the tools and rigors of emerging platform selection from VCs. Thanks for the provocation, Matt, Jerry & Randall.

  6. RYAN MCLOUGHLIN from CLOUD NINE MEDIA, June 7, 2012 at 10:19 a.m.

    Interesting article. As the Director of Sales for Cloud Nine Media, an innovative non-VC backed start up, I have to say I've been pretty happy with the way the media agencies have welcomed taking a meeting with me to learn about a new format and approach to engaging with consumers. On the sales side, we need to keep our approaches as relevant and well thought out as possible versus just asking for meetings for the sake of having meetings. I do like the idea of innovation media days, but think there would need to be some strict guidelines in place to determine who qualifies to attend/participate as I can see all of the publishers and sales teams (new and old) trying to claim something new or innovative to discuss.

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