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'It's a contrarian take': A prominent ad-tech veteran is pumping money into advertising and marketing companies - even as the industry faces doom and gloom

Business Insider | May 14, 2019, 04.30PM IST

Eric Fanchi and Joe Zawadzki of MathCapital

MathCapital

MathCapital operating partner Eric Franchi and managing partner Joe Zawadzki.

  • Ad-tech veterans turned investors Eric Franchi and Joe Zawadzki are funding a new wave of advertising and marketing firms.
  • Since they launched MathCapital last year, the fund has invested in 18 companies, with a few more deals set to close in the coming weeks.
  • MathCapital sees opportunity in new companies that are trying to solve specific problems in digital advertising.
  • Visit Business Insider's homepage for more stories.

The ad-tech bubble may seem to be bursting for some, but not for ad-tech veterans Eric Franchi and Joe Zawadzki.

A number of prominent ad-tech companies like Sizmek, DataXu and OpenX that scaled on the rise of display and mobile advertising are now grappling with layoffs, bankruptcies and difficult pivots into areas like OTT as Facebook and Google cut into startups' business. Forrester Research predicted venture capital investments in advertising and marketing-tech firms would drop 75% this year due to incoming privacy laws and regulation.

Yet Franchi and Zawadzki are pumping money and resources into new adtech and martech firms.

Franchi is the former co-founder of digital ad company Undertone and sold his firm to Israeli marketing software company Perion for $180 million in 2015 before leaving to go into investing full-time. Zawadzki is partner of the fund and is the CEO of MediaMath, an ad-tech firm that helps brands advertise programmatically on websites.

It's been full speed ahead for MathCapital since it launched last year, having invested in 18 companies, primarily early-stage advertising and marketing firms.

Franchi said MathCapital does more than a deal per month and has a few more set to close in the coming weeks. Initial investments run between $150,000 to $250,000, and some funds are reserved to cover as much as $500,000 for follow-up funding rounds. In an industry that became accustomed to funding rounds of $50 million-plus among established companies like AppNexus and The Trade Desk, MathCapital's story shows how there's still money left for companies at the startup stage.

"It's a very contrarian take," Franchi said. "There's plenty that you can read out there about the challenges in the space, but there's a lot going on in the early stage."

A relentless optimist

Franchi is known in industry circles for his relentless optimism about the state of advertising and marketing tech. MathCapital is still new and it's common for venture capital to have just a few standout companies drive a fund. Franchi said that he hopes his fund will do better than the industry average.

"We believe that by being focused 100% on the sector that we know and operate in, we can tip the odds in our favor," he said.

In particular, he's high on startups that are trying to bring digital expertise to traditional ad platforms. MathCapital makes small bets in companies that are focused on specific problems in advertising, like TV measurement or software tools that organize data.

"Digital used to mean the desktop, laptop and mobile," he said. "Now, it's TV, audio and out-of-home."

Finding the next wave of advertising upstarts

A look at MathCapital's portfolio shows the fund's strategy to bet on companies solving a wide number of challenges:

  • Downstream: An Amazon-focused agency that helps brands plan and buy advertising on the e-commerce platform.
  • TVision: An analytics firm that wants to measure viewability on TV in the way that advertisers do for digital.
  • Narrative: Software that packages data that marketers can buy and sell.
  • RedCircle: Podcasting software that helps creators host, measure, and cross-promote shows.
  • Clean.io: Analyzes JavaScript on websites and apps to detect and block malicious advertisers.

Read more: Ad-tech companies are moving full speed ahead to chase OTT ad dollars. Here are the 13 companies poised to win the most.

It's also keen on companies with recurring revenue models like Improvado, a software company that turns data collected from platforms into marketing analytics. Franchi said he sees the rise of that model as the biggest change for ad-tech companies in the past couple of years.

"Before, it used to be that you'd build a technology business, but you'd have to sell ads or media," he said. "Now you're able to build a real software business. That's really attractive from an investor perspective because they typically have higher valuations."

Arming startups with resources

MathCapital is a separate company from MediaMath, but in addition to Franchi and Zawadzki, MediaMath execs Dan Bisgeier and Peter Piazza are partners at MathCapital. MediaMath can give MathCapital's portfolio companies introductions to the ad-tech company's customers and access to technology and office space in New York's 4 World Trade Center office.

One way the synergy works is with MathCapital investment Spaceback, an ad-tech company that converts social media posts into display ads. MediaMath's advertiser Instacart wanted to test Spaceback's technology and ran a campaign, resulting in a new client for Spaceback and a new ad format for MediaMath to sell, said Zawadzki.

In another example, Narrative recently inked a deal with email vendor LiveIntent to build a product that will help publishers and brands match first-party data for ad targeting. That deal came about through introductions to MediaMath through MathCapital, said Nick Jordan, Narrative's CEO.

On the downside, working so closely with MediaMath could limit a startup's ability to work with the ad tech company's competitors.

Asked about such concerns, Jordan said that the connection to MediaMath is not based on a quid per quo.

"It's not because MathCapital invests that MediaMath definitely becomes a customer, and there aren't any terms that we are a MediaMath-first organization," he said. "We see them as a strategic partner and want to work with them."

Jordan added that he also benefits from MathCapital's operations expertise.

"I could shoot [Franchi] a note in the middle of the night saying, 'We're about to sign a new lease; do you think this makes sense as a price per square foot?' And he'll get back to me in five minutes," he said. "He's been an operator and can be a sounding board."

TVision's CEO Yan Liu said his startup has benefited from MathCapital events it hosts for its portfolio companies and Franchi's own startup experience.

"That's something that really doesn't happen with other early-stage VCs as most of them have zero expertise in our space," he said. "Eric is super well-connected in our industry and respected as a strong thought leader."

It's that experience that makes Franchi see investing as a long-term plan.

"When you're running a company, as much as you try to be objective, you always look at things through the lens of the company you've built," he said. "Now that I'm no longer an operator, I feel like I have a much more open and wide view of the space versus being focused on one thing for so long."

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