Financing growth in ad tech is big business. It can be a minefield for ad tech firms to know where to start when they are looking at going down the route of outside investment. Following Affectv's recent funding announcement, ExchangeWire speaks with Glen Calvert (pictured below), CEO, Affectv, about what ad tech firms need to consider when weighing up their options for growth funding.

The programmatic advertising industry is currently going through a very interesting period, with a lot of uncertainty surrounding the market. However, with this uncertainty comes lot of opportunity for the companies who are building for the long term. Pick your topical talking point; clients in-housing elements of digital buying, the impact of a ‘cookie-less’ mobile experience on the programmatic ecosystem, fraud, ad blocking, device identification, attribution; and, of course, Facebook and Google’s impact on everyone in the ecosystem as the leading performance marketing suppliers.

With Affectv recently raising a £2.5m growth loan, it may be useful to provide an overview of financing options available to later stage ad tech firms wondering how they can fund growth. At Affectv, we believe the long-term value lies in the intersection of programmatic targeting with programmatic creative; and so applying technology to solve the challenges of combining targeting with intelligent programmatic creative will be fundamental to creating real value in the long term. Ultimately, making the digital advertising experience better for the consumer.

We’re all aware of the current sentiment to funding in ad tech. Five years ago, seed and venture capital money was invested in ad tech as the market exploded. As the market matures, and naturally sees some consolidation, venture money has largely been placed on the firms they think have long-term potential.

Until the public markets see value in media businesses, which includes programmatic media and tech solutions, as well as traditional media agencies, who are currently being valued at a price that doesn’t exceed their revenue, the appetite from the VC community has dwindled. IPO’s aren’t a sensible option (this is true of tech companies in general, as well as ad tech companies). However, there are some positive signs as ad tech stock in Q1 2016 actually outperformed the NASDAQ. These same companies can now explore a variety of other financing options as they look to develop and build long-term value.

Some common forms to fund growth:

Invoice financing

While invoice financing (also known as 'factoring') is not a form of capital injection akin to raising an investment round, it’s a financing option that all media firms should explore if they’re not already. Invoice financing enables your bank of choice to fund the invoices you’ve created prior to receiving the money from clients. In media this is very important as there are several layers to approving a payment between a client's finance department, their marketing team, the reconciliations team at an agency, and then the agency planner/buyers themselves. Invoice financing assists in your working capital and is a favourable form of finance in the media industry, where payment of invoices often exceeds 60 days.

Growth loans

You can broadly say a startup is not a startup any more when it has an element of predictability with revenue. At this stage, companies look beyond seed and VC financing.

Growth loans can take the form of traditional bank loans or, what is an increasingly popular route, venture debt. Venture debt investors are less risk averse than banks, and are seeking ways for higher returns on their money that isn’t possible through traditional investment routes with interest rates at zero. Through growth loan funds they can identify later stage scaled companies that are looking to fund growth; but who might not necessarily want to swap the capital for equity with valuations not being favourable.

Characteristics of growth loans are that they are non-dilutive with equity (as you’re paying the money back), but they are expensive forms of investment, as the interest on the loan is usually around 10%. For later stage companies that have a level of predictability, growth loans are an excellent way to finance growth.

Private equity

For scaled operators, where an IPO would usually be a viable option, private equity (PE) is now the route of choice, due to the unfavourable valuations of public programmatic media and tech companies. PE can fund growth in exchange for equity; and often acts as a route for shareholders to realise some of the value they’ve created. We’re seeing more PE firms acquire assets in ad tech and merge companies together to build larger players. Recent examples of PE entering ad tech include Cathay Capital and Vista Equity Partners.

In summary, try to focus on products that solve problems for consumers and advertisers; and distance the noise and short-term negative sentiment towards ad tech. Focus on creating long-term value. Cycles and sentiment in ad tech, and martech, change with the seasons. Exploring ways to fund growth so that you meet your long-term goals is important. The inherent value in performance marketing suppliers, who are experts with data and media delivery, will command greater valuations than they’re currently being given. All advertising will be digital, and all channels will command performance – the value in data-driven programmatic tech and experts will be recognised.